The REO (real estate owned) foreclosed home market is hot right now in the Prescott area with many homes priced under an already depressed market price.
When banks price REOs under the market price, multiple offers are often the response. This means buyers can be up against stiff competition for that bank-owned home.
It’s not unusual for some bargain-priced REO homes in the Prescott area to receive 3 or 5 offers. Sometimes the bank will throw out all but two offers and then ask the selected buyers to resubmit what is called “Highest and Final” offer. Sometimes the bank simply accepts the best offer at inception, or they can start over. Fun isn’t it?
If you’re wondering how you can make your offer rise above all the rest and be the winning offer, here are the top 10 tips to win the REO multiple offer game with right packaging, price, terms and conditions:
1. Know What the Bank Note Is For and What they Paid
Ask your foreclosure buyer’s agent to find out the bank’s purchase price on the Trustee’s Deed. Compare that price to the price the bank is asking. Then, look at the amount of loans that were once secured to the property. Usually, the amount the bank will accept is somewhere between the original mortgage balance(s) and the foreclosure sale price. BUT, don’t put TOO much emphasis on these numbers when they are low. It a property is worth $300,000 and the bank is holding a note for only $100,000, they are not going to take $100k for it. They not not against making a profit on the rare occasion when they are not upside down. They’ll likely hold out until a reasonable offer appears.
2. Know the Comparable Sales Data
Make sure you know what properties have been selling for in the immediate area, both REO and traditional sales. The bank already got this data when they received their Broker Price Opinion (BPO) to determine the listing price and might have another BPO once the offers were reviewed. If the comparable sales for REOs has been $120/sqft in the neighborhood and you are offering $90/sqft, you can expect a counter at best and most likely will never hear back from the bank.
3. Do an Analysis of the Listing Agent’s REO Pricing Record
Most REO agents focus as listing agents for REOs, and often they do not list any other type of property. Since REO agents deal in volume, they typically apply the same pricing principles to all their REO listings. Have your foreclosure buyer’s agent pull the history of the listing agent’s listings to determine the list-price to sales-price ratio. If most of those listings are
selling for, say, 5% under list price, then you will have some guidance as to how much you need to offer.
4. Know your Competition – Ask About the Number of Offers
If there are no offers on the REO home, you can probably offer less than list price and get your offer accepted. However, if there are more than two offers, you may need to offer above the asking price. If there are 10 offers, bear in mind that some of those offers might be all cash. Banks like all cash offers. If you are obtaining financing, then you may need to increase the price on your offer to be considered.
5. Prepare an Offer Summary as a Cover Sheet
This is aimed at simplifying the process for the Asset Manager, who, will more often than not, have 400 – 500 properties under management and often in multiple states with vastly different real estate contracts. This cover sheet will have the basics only (Price, Terms, Concessions, Closing dates, etc.).
See a sample cover sheet. If you are an agent and want one emailed to you in Word format, just contact me.
6. Choose a Closing Date Before the End of the Month
Try to have close of escrow on or before the 25th of the month. Banks are assessed their handling charges on the first and if they have not received the check before the end of the month then there is an additional charge for them.
7. Submit Your Loan Status Report or Proof of Funds with your Offer
It goes without saying that you do not want to submit an offer without showing the REO manager that you have the means to purchase the home. If you are getting a loan, then it’s of paramount importance to submit the Loan Status Report (LSR) with your offer. If you are paying cash, you need to show proof of funds. Often buyers submit copies of money market account or bank statements (with the account numbers obscured) to show that they are capable of completing the purchase.
8. Give Enough Time for the Bank to Respond
Unlike homeowners who are typically working on one transaction at a time and can respond within 24 or 48 hours, REO asset managers usually hundreds of homes they are trying to dispose of. And since many of these are getting multiple offers, the amount of workload can be be overwhelming. This is why we suggest allowing 7 – 10 days as the response time on offers. Sometimes responses will come much quicker, but other times even longer. Manage your own expectations for response as well and make sure your agent is following up.
Don’t take it personally when you don’t hear back…
it’s not personal, it’s business!
9. Don’t Try to Choose your own Title Company
Choosing the escrow company who will help close the transaction is normally the buyer’s decision, but when buying a bank-owned home, buyers need to be flexible. One of the items that your buyer will need to be flexible about is that the bank will, more than likely, want to choose the title and escrow companies. This is due to the fact that they have significant amounts of title work done during the foreclosure process so they usually want to stay with that title company. Please be aware that many of the escrow and title companies that banks choose to use are not local, and that they are usually low bidders who are overwhelmed by transactions as well. They will have traveling notary services or local options for document signing, but don’t expect the same service you get from your favorite escrow officer. If you are an agent, take an active role in trying to help the title company get the contacts they need locally, like the HOA information, etc.
10. Shorten the Inspection Period and Don’t Ask for Repairs at the Offer Stage
If other buyers are asking for 15 days to conduct inspections, and you ask for 10, you will be deemed the more serious buyer. Banks, just like traditional sellers, don’t like the “Free Look” that the Arizona contract offers buyers during the inspection period. If your agent can’t make everything happen within 10 days, (home inspection, termite inspection, special inspections) ask why not. Sometimes banks will pay for repairs, but typically will not agree to do so at the offer stage. If there are serious problems are found during a home inspection, try to renegotiate after your offer has been accepted. Banks are much more likely to offer concessions once your offer is in the hopper, especially if the repairs are required as a loan condition.
Bonus Tip: Offer to Split Transfer Fees if You Ask for Any Concessions at All
As a rule, banks do not like to pay transfer fees, but if the buyer offers to split those fees, the bank will feel more amenable to accepting the offer. We suggest offering 50-50 splits on all transfer fees and do not ask for further concessions like seller paying buyer’s escrow costs, etc.
Keep all of these tips in mind when you are making offers and you will experience far less frustration and and much more success when trying to buy bank-owned properties in the Prescott area.
Bonus Tip #2: Write your contract in English and not legalese.
Forget what the last CE instructor taught you at your renewal hours, and go back to writing the contract in plain English.
Want to see an example of how not to write a contract?
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