This is Part 1 of the Blog on buying Bank Owned (REO) properties.
Despite perception created by some agents US banks are NOT desperate to get ride of their assets and they have well developed processes to NET the highest possible price for their REOs. Before an REO property is listed for sale; the Asset Manager has already received a Broker Price Opinion (BPO) with Quick Sale Value and a Fair Market Value.
So, you are negotiating with a well informed principal and is not in the dark about the potential of the property. But does that mean that there is no opportunity to buy an REO at a discount?!
The answer is a resounding NO since we have been able to acquire distressed properties for our investors at deep discounts. But you have to have a well developed strategy to succeed in your negotiations.
1) Seasoning: If an REO property has only been on the market for 14 days or less, you should not waste anyone’s time by offering a low-ball offer since the Asset Manager responsible for that property is not in the position to counter you. It’s likely that you will get a 10% discount from the list price with the 1st 20-30 days of marketing. In fact, it’s best to make your offers on properties that are nearing their 90 days of listing since they could be sent to an auction.
2) Property Condition: It goes without saying that banks are not in the property management and rehab business, so the more repair work an REO requires, the more chance for you to buy it at a discount. So focus on properties that need repairs.
Some of the best deals we have secured for our investors have been cases where we requested credit for repairs; despite the fact that our Purchase Contract with the bank has strictly forbidden such a refunds for repairs. In fact, in our 9 years of marketing REOs, we have never had an occasion where an Asset Manager rejected a request for refund when the property was under contract.
Happy hunting and Contact Us if we can help you.