Making an Offer on an REO - Part 1: Price

UPDATE: Thanks for coming to my blog. Regardless of how you got here, this series was written in 2008. The market is ever evolving and hopefully you will find this information outdated. A better source of CURRENT information about buying an REO can be found by clicking HERE: REOs in 2010.
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It's halfway through 2008, and it seems that almost the only thing I do these days is work with buyers purchasing REOs. Here, I will attempt to share with you what I've learned. For Part I, we'll start with the big one: PRICE. "What should I offer?" is a question I hear time and time again. Will the bank accept a low ball offer? The answer: Maybe. Here's what I know from experience. If the house is priced agressively (meaning low), it will generate fast offers. If you like it, so will someone else. Likely, it will have multiple offers and sell for at or above list price, quickly. This is the goal of most banks. If the home does not qualify for certain financing due to it's condition, it may not generate the same interest level, and may not receive multiple offers. For a buyer, less competition is good. If the listing has been on the market for 3+ weeks with no offer, banks will usually negotiate 3-5% of the listing price without too much fuss. If the listing has been on the market for 30-45 days with no offers, banks are about to adjust their price. They will adjust it based on the recommendations of their agents, but it is not uncommon to see a 10% price adjustment. So, somewhere about the 45 day mark, it starts to become reasonable to make an offer that is 10% below the listing price. After each price adjustment, the bank goes through this process again and again. For example, let's say that a property is priced at $300,000. After 45 days with no offers, the bank lowers the price to $275,000, which is enough to generate quick offers. At this point, an offer that is 10% below the asking price is not likely to get much attention. It is very rare that you will see an offer accepted that is more than 10% below the asking price. That goes back to the explanation I provided you in the beginning, banks need to show they got "fair market value". It is a requirement. In the next post, we'll tackle financing, and how the banks are evaluating your financing plans. Sign up to be alerted when this next post is published!