How Much Should I Offer for REO Properties as a Rule of Thumb

By
Real Estate Broker/Owner with Texas Five Star Realty, Plano Texas

How Much Should I Offer for REO Properties?

 

Comparison between an REO and a Regular Property

Each foreclosure sale is different and requires a lot of details to be handled when buying a foreclosed (REO) property. Depending on many factors such as location, sub-division, local market, supply & demand, condition, time of the year, multi-offer vs. single offer, etc the suggested offer price varies greatly. Consult with your real estate agent regarding purchasing an REO or a foreclosed property.

There are many differences when purchasing an REO (foreclosed) property. Though, not all of them should negatively impact your decision, but you need to be informed and be aware of the differences.

In order to come up with a reasonable suggested offer value for foreclosed properties we need to understand differences between an REO foreclosed property and non-foreclosed properties and put some values on those differences.

Due to the size, I have gathered and explained these differences in a separate article.

For more information and detail explanation of each difference please visit http://www.texasfivestarrealty.com/Foreclosure_Things_You_Should_Know.asp or clink on the picture below.

Differences between REO and Regular Sale

For those of you that would like to get an idea and interested in a “Rule of Thumb” formula, I have calculated the purchase price range as follow:

 

0.75 * ARV – RC =< Purchase Price =< 0.90 * ARV – 1.20 * RC

Where;
ARV = After Repaired Value

RC = Repair Cost

For detail information, reasoning and Mathematics behind this formula, please visit my page at:

http://www.TexasFiveStarRealty.com/How_Much_Should_I_Offer_for_REO_Properties.asp

Example: There is an REO property listed for $170,000 for last 8 days in the MLS. After viewing and inspection you find out this house needs some minor plumbing’s, painting interior, and carpeting replacement throughout the house. Due to the natures of the repairs, they cannot be done all at the same time. It is estimated to take about 4 weeks and cost about $10,000 to bring the house in a move-in ready condition comparable to the similar house in the same neighborhood which was recently sold for $206,000.

As a “rule of thumb”, utilizing our formulas we will have the following range for offer:

After Repaired Value (ARV) = $206,000
Repair Cost (RC) = $010,000
Adjusted Repair Cost = 1.2 * $10,000 = $012,000

Maximum Offer = 0.90 * ARV -1.20 *RC = 0.90 * $206,000 - $12,000 = $173,400
Minimum Offer = 0.75 * ARV - RC = 0.75 * $206,000 - $10,000 = $144,500

$144,400 =< Suggested Offer Price =< $173,400

For more information on Foreclosure Process and purchasing foreclosed (REO) property, please visit http://www.TexasFiveStarRealty.com/Foreclosure_Process.asp

For a current list of foreclosed (REO) properties in North Texas, please visit http://www.TexasFiveStarRealty.com/List_of_Foreclosures.asp

Contact us about your Real Estate Questions

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Ambassador
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Bob Crane
Woodland Management Service / Woodland Real Estate, Keller Williams fox cities - Stevens Point, WI
Forestland Experts! 715-204-9671

Thanks for the formulas Bahman, not many agents that I have met are able to quantify what an investor should be offering and I watch many of my competitors overpay for these homes.

Apr 24, 2013 04:44 PM #1
Rainmaker
323,116
Bahman Davani, CM at Texas Five Star Realty, Plano, TX (214) 457-7055
Texas Five Star Realty, Plano Texas - Frisco, TX
Homes for Sale in Plano, Frisco, Prosper, Allen TX

Bob, thank you for your comments and yes I agree with you. I know some individuals that they come up with strange and no logic numbers for offering foreclosed properties.

Apr 24, 2013 04:48 PM #2
Rainmaker
1,673,538
Winston Heverly
Winston Realty, Inc. - Atlantis, FL
GRI, ABR, SFR, CDPE, CIAS, PA

If you can rent it day one and it's under 150k, you better offer over list if you want a chance in our market.

Apr 24, 2013 09:34 PM #3
Rainmaker
323,116
Bahman Davani, CM at Texas Five Star Realty, Plano, TX (214) 457-7055
Texas Five Star Realty, Plano Texas - Frisco, TX
Homes for Sale in Plano, Frisco, Prosper, Allen TX

Yes, but the study was for fixing and selling (flipping) for investors and fixing and move-in for homeowner occupant.
I am going to publish another article when the investor buys and rents. Thanks for the comment.

Apr 24, 2013 10:37 PM #4
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Rainmaker
323,116

Bahman Davani, CM at Texas Five Star Realty, Plano, TX (214) 457-7055

Homes for Sale in Plano, Frisco, Prosper, Allen TX
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