Bank Owned REO
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.
3) 90 Day Rule: The closer you get to a 90 days on the market for an REO, everyone in the food chain is anxious to get ride of the property which is very good for you investors and buyers. Why 90 days you ask!? Because the Listing Term for the REO is 90 days and the Asset Management Company could lose the property to an auction if it’s NOT sold. So, they are anxious for a deal and so is the Asset Manager at the selling bank along with the Listing Agent who needs to protect his/her commission after 90 days of work. Also, every month that an REO does NOT sell, the Listing Agent has to file a Monthly Status plan where they typically request a price reduction. So, in 90 days, the REO list price could have been reduced at least 2 times if not more.
4) Order Inspection: You should order inspections regardless of the REO proeprties condition. If there are more than $3,000 of repairs, get 2 bids from your trusted contractors for the repairs.
5) Request Repair Credit: Have your agent negotiate a discount using your inspection and the Repair bids to request repairs for credit. You can earn $15-30,000 of repair credit here, which in most cases should cover majority of your repair costs.
There you have it your Top 5 Strategies to buy Seasoned REO. Feel free to Contact Us if you are in the market for REO deals.
Happy hunting and Contact Us if we can help you.
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