January 2010

How to buy a REO Property

8 REO Tips for Buying Foreclosures

 

1) Get the Property History

Ask your Realtor to find out the bank’s purchase price on the deed/how much is owed. Compare that price to the price the bank is asking. Look at the amount of loans that were once secured to the property. Somewhere between the original mortgage balance(s) and the foreclosure sale price is the amount the bank will accept, if the home is under-priced.

2) Determine Comparable Sales

In many cases, the list price has little bearing on the value of the home. The market value carries the most weight. If you are up against competing offers, other buyers will offer more than list price.

 

• Look at the last three months of comparable sales, a mini (CMA), for that neighborhood to determine how much this REO is worth. Try to use only those homes that most closely match the REO regarding square footage, number of bedrooms, baths, amenities and condition. Pending and Sold Active and Contingent properties will give you a good idea of what the market is doing in that area.

3) Analyze Listing Agent’s REO Sold

Most REO agents work for one or two banks. Some listing agents are exclusive listing agents for REOs, and 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.

 

• Ask your buyer’s agent to look up the listing agent in MLS.  
• Run a search using that listing agent’s name to find the last three to six months of that agent’s listings. 
• Pull the history of those listings to determine the list-price to sales-price ratio. If most of those listings are selling for, say, 5% over list price, then you may need to offer 6% over list price, and vice versa.
• Ask about 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 will most likely need to offer above the asking price.If there are 20 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) Submit Preapproval Letter

It goes without saying that you do not want a prequal letter. You want a pre approval letter. Get preapproved from your choice of lender in advance.

Don’t Ask for Repairs / Inspections

Sometimes banks will pay for repairs, but typically will not agree to do so at the offer stage. If there are problems found during a home inspection, renegotiate after your offer has been accepted. This all depends on if it is AS IS, an if they will have written in the contract they will help with repairs. Most REO’s and Foreclosures are AS IS. NO REPAIRS.

7) Shorten the Inspection Period

If other buyers ask for 17 days, for example, to conduct inspections, and you ask for 10, you will be deemed the more serious buyer.

Offer to Split Fees

Some banks will not pay transfer fees, for example. If the buyer offers to split those fees, the bank will feel more accepting to the offer. Same thing for escrow fees. The more you give them the more they will consider your offer.