Creative REO Purchase
Has anyone had any luck presenting banks with offers that are anything other than all cash. I know that banks usually start dropping the LP after 45-60 days then again about every 30 days or so thereafter. The usual thing to do is to present an offer 10-20% below FMV and hope to get a price drop then re-counter and so on until you reach your MAO. You never know what you might get unless you ask. Just wondering what (whithin reason) I might ask of them.
Yes I have had some accept creative offers but I will tell you that most want the money upfront because the lender can be called into question for not recovering the full amount of the debt by board members and the FDIC if insured by such.
So many factors go into a lenders decision to discount one just can not simply box it up and put a ribbon on it.
Factors that dictate are:
Location of the property
Northeast
West
Midwest
South.
Market conditions
REO portfolio numbers
And the list goes on.
You said I know that banks usually start dropping the LP after 45-60 days then again about every 30 days or so thereafter.
I have never seen this as a general rule of the game share with me some information on this.
You also said The usual thing to do is to present an offer 10-20% below FMV and hope to get a price drop then re-counter and so on until you reach your MAO.
My concern is by offering 10-20% below FMV leaves you little room for counter offers as an investor.
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I'm not very experienced in submitting my own offers but I have been studying trends in REO sales. I am using a realator that handles only REO properties whose only clients are investors in my area. As far as the bidding techniques that is where I get the %, and I agree that doesn't leave much room for me to counter favorably. In studing the REO trends I have gathered public records comparing what the bank bid at auction against the LP then the time on the market (I have new and old MLS listings) so I can see when they drop their prices. It's not an exact science by any means but it seems to be common practice-at least in my neck of the woods. This way I can see how each bank individually handles their REO's and when or if they become motivated. Perhaps I am over-analizing this.
I am looking to make an offer tommorrow on a property listed only 10 days ago. Here are the numbers on this one, 2bed 1bath ranch(good loc)
LP 28,000
FMV 36,000-40,000(after a good grooming)
Taxes 588
Would rent for 550-+
I think they may have listed the property too low and it won't sit long, but I hate to give in for thier full asking price.
interesting. REOs in this neck of the woods are going 10-20% above asking price. Even HUD fixer uppers are offered 25% on the low end more than what they are asking and in most cases what they are worth. Good luck!
what LP stand for?
Mneoguy
I am vary impressed with your research and data gathering as this is the way that I do it as well in my major markets, I was hoping that you found a service that does this. To this point I have never found a service that provides such great information.
You may find the following links of great help as well
http://mel.org/viewtopic.jsp?id=341&pathid=1137
I have done a few deals in Michigan primarily in Highland Park area, Inkster area and Romulus area.
I do avoid Grand Rapids, Detroit and Benton Harbor areas do to the Lead poisoning issues.
I normally can get a bank to discount the subject property by accenting the negatives of the property and of the neighborhood as well. I get repair bids from interior decorators and contractors that show a high repair cost and so on.
I also make my offer based upon the amount the lender has invested in the property.
If I were making an offer on this property I would start around 22k. I do add a check with all my offers for the full amount just to show them how serious I am.
Good luck and let me know how well it goes.
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Quote:
On 2004-12-21 04:45, olivcedrick wrote:
what LP stand for?
LP = Listing Price or Asking Price
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Thank you for the advice, on this property the lender bid $44,203! My guess is after aquiring the property they discovered they paid too much or when they listed with Circle West realty their BPO was lower than they would have liked. Are you saying that I should submit (high end) contractor bids w/offer and possibly a check for 22k. Sounds convincing but 22k would nearly clean out my money market. I could get proof of funds from my lender, but do you think they would let me write a check w/offer?
I guess to answer my own question do some degree (now after more thought) I could write a personal check, upon acceptance, I could simply refi and pull my cash back out. But please give your thoughts on this.
Using their BPO would be a good power tool as well.
In your first talk with the mortgage lender you’ll want to find out:
Whether they think a discount sale might be a possibility
What information they’ll need to complete the process
You will also want to use what is called a Settlement/Disbursement Estimate. The mortgage lender will be carefully reviewing:
Commissions going to real estate brokers
Where your financing is coming from (Cash? A loan?)
Payments to cover outstanding liens and taxes if any
Approximate date of the closing
While buying a property on a discount sale can be frustrating and time consuming, your hard work can pay off in this deal.
Your repair estimates are an extremely powerful negotiating tool in a case where the lender is to receive discount offer. Get at least 3 construction or remodeling contractors to give you written estimates. Make sure these estimates do not come from the cheapest contractors in town. The repairs estimates are one of the best negotiating tools one can use.
I submit my offer as a buyer. Not as an investor! You do not want to send a direct message that you are going to profit from the deal. This is assumed, but if in your face it will lesson the chance that the offer will be accepted.
Your offer should exclude the following:
1. Provide your contact info.
2. State your position in the transaction.
3. Clarify your intentions.
4. State your offer amount.
5. Give good solid reasons for why the discount sale should be approved
6. Give a closing date when the lender will get paid.
7. Give an alternate way for this person to contact you other than your phone number!
8. HUD-1 Settlement Statement " Settlement/Disbursement Estimate"
9. Any negative photos of the property and neiborhood
10. Comps showing the low end of the market
11. A check postdated for the amount of my offer subject to all terms of the purchase agreement being agreed upon
I did a discount offer on a deal not to long ago and it basically ran like this:
3 COMPS in Area Show Average Market Value $76,150
Average Sq. Ft 1,200 Average Sale Per Sq. Ft $63.46
Subject Property Sq. Ft 950
$63.46 x 950 = Market Value $60,287
Suggested Retail Value $59,900
Now show Loss vs Profit
Market value $59,900
Loan Payoff $65,000= ($ 5,500)
Repair Cost $ 7,761= ($13,261)
Past Due Tax $ 168 = ($13,429)
Carry Cost $ 2,800= ($16,229)
Rltr Commission $ 3,594= ($19,823)
Closing Cost $ 899= ($20,722)
Lender will loose $20,722 to sell for $59,900
My Cash Offer $47,698
Lender Loan Payoff $65,000
Up front loss ($17,302) save $3,420
Full Return
Loan out $47,698 at 8 1/4% 30yr and turn to $129,002
Research
+
Get under contract
+
Show a loss
+
Justify your short sell offer
+
Show how your offer will profit
= PROFIT
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How do you caclulate holding costs for the bank; and is that for only the time they have already held the property or for some estimated time if they don't accept your offer? When you show full return (loan out 47k @8% is that to show the bank what they could do with your money right now if they had it (what kind of loan are they getting 8% for?) Do you have a form that you use to submitt offers or do you just type it out or fill in a sales contract and sign it every time?
I'm sorry about all the questions but my creative jucies are really flowing today and I'm ready to go-go-go (I just haven't figured out where yet) - Thanks again for all your great advice.
This website is great, its like stacking up 150 books on real estate and yelling questions at them and having them answer back.
One more - I know that showing repair costs estimates and written bids from contractors make envoke some sympathy on the banks part but what does it have to with a loss that they'll take - or is this to assume that the bank would actually take on repairs itself. Most REO's are sold w/out any rehab-only clean up(if that). Still a little confused.
Mneoguy
At this point you should learn more about the art of the short sale or discounted offer go to the products area of TCI and do a product search on short sales and you can go from their.
I know I'm just a tease aren't I.
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I am completely fascinated by all of your discussions regarding the purchasing of REO properties. As a former Asset Manager of a number of banks, most of my dealings are with the listing agent and only rarely did I deal directly with the investors. In short, you all give way too much credit to the business savvy of the banks. I am not saying that the banks don't have guidleines, P&L's, metrics, valuation models, etc. to assist in determining the sale price, what I am saying is that there is anywhere from 85,000 to 150,000 REO properties on the market at any given time and an Asset Manager will maintain a portfolio of 150 to 225 properties at one time. I speak in generalites because every bank is unique, but the reality of it is, AM's are bonused by the dispostion and typically need to sell 15 to 20% of their portfolio a month to make money. As well as the fact that they want that property out of their portfolio in less than a 120 days.
I could go on forever but I am very intrigued by all of your perceptions and outstanding analytical skills, and I am willing to answer most questions involving the buying and selling of REO's. In my tenure at the banks, I have sold 1000's of properties, from $2000 crack houses in Alabama(no offense to AL) to $2,000,000 estates in Wisconsin.
Good luck to all
Very interesting, its nice to have someone on the inside! Is there a reason that properties should sold by 120 days. If so is there an evaluation at or near the 120 mark that makes these more flexable. I have noticed that some of the banks in my area are stating in the MLS that no counter will be made, the offer will either be accepted or rejected. It seems that they are playing hardball, but their need to be rid of these dead assets must be the same as other lenders. Do you think there is a good way to approach them so I don't spend the next few months submitting 700 offers hoping to get one accepted? I understand the numbers game but don't really want to play like that, that's why I'm trying to figure out what makes the banks tick.
Mneoguy
Most banks base thier cost of sale on a REO property selling within 120 days, and actually it is 90 days on market with 30 days to close. The appraisal, the BPO, the market plan, even the agent listing contract is all based on a 120 day market plan and most importantly the Asset Manager's bonus is structured to decrease if the property sells beyond that mark.
As I have seen it mentioned in this forum before, there is a matrix for most banks on how much to list the property and price reductions. The problem is reality sets in and AM's, at times, can't get to all of their properties and enact a price reduction every 30 to 45 days.
You also have to take in consideration which bank portfolio you are looking at. For instance, a portfolio lender like World Savings and EMC loan their own money (actually EMC is not a lender they buy distressed portfolios) so when they sell a property they are actually profiting or losing their own money, compared to CHL , where they are mainly a servicer for other banks and the losses do not directly affect them, so they will follow a price reduction model over the course of the marketing plan.
I haven't seen where a bank will publish in the MLS that the price is firm or no counter-offers. If that were the case, the only way I see that happening if it was severely aged property, meaning 270 to 365 days + on market, but again I have never seen it done that way.
And lastly, the amount the bank "paid" at the foreclosure sale for their own property, generally, has no bearing on what they will sell the property for in REO. The bid amounts are based on a combination of a Drive-By BPO, an AVM, and the UPB. Once the proeprty is in REO, then a whole new set of interior valuations are done.