REO Negotiating
Hi All,
I'm in AZ for a few days inspecting (informally) an REO my folks are interested in acquiring. This is their (and my) first such deal, and after today's inspection and chatting with the neighbors, we'd like to move forward. The home has been the bank's for about a year and half, and they have it grossly overpriced. It's not currently habitable, very unusual design, straw bale, yada yada. We don't want to pull any aces from the sleeve prematurely. Is there a safe way to proceed without ruining whatever stance or element of surprise we may have? We're basically prepared to pay forty to fifty cents on their asking price dollar. Your help is much appreciated.
BDN
What part of AZ are you in?
I don't know if there is any advantage in "looking like a pro". The truth about trying to help your parents sounds very good to me. Your success will depend on the collateral information that you bring to convince them that the price is too high. The fact that they have held it for such a long time should give them a clue , but banks can be stuborn and myopic.
You need to show them what is needed to make it habitable and the price of comps that would apply after it is made habitable. One thing that is always attractive to a bank is a cash offer with few contingencies.
The previous inquiry is also relevant since there are places in AZ where houses sell in days and everyone is demanding a three week close.
Hi Joann. Good points. The place has a kitchen, it's just not accessible from both wings. (There are two wings). On the back taxes issue, is that a simple matter of checking the parcel number or address with the tax assessor? That'd be a tasty way to acquire a place, huh?
Thanks again.
Is the house listed with a real estate agent? If it is, ask them if they have an appraisal showing the listing price.
If there is no appraisal, ask the listing agent to so you the comps they used to set the price.
BOB FORD
Bob,
No listing agent. No MLS, no ads in the newspapers. The bank has a "for Sale" sign in front of the place, and that's the only indication it's even for sale. Should the question then go directly to the bank? Show me the comps?!
Thx
Present the bank with your offer. With your offer include your comps, plus any information you think would help you in your negotiations. You listed some of that information here... not habitable... unusual design, etc.. They will either accept, not respond OR counter. Not sure what element of surprise you are thinking off.
Good Luck.
By "Element of Surprise" I mean that the first time the bank hears from or sees me I've done the research, the comps, the inspection, gotten bids, done a market analysis and whatever else I can (like get advice from TCI here) to at least LOOK like a pro. I may've mentioned that I'm an inspector, and I'm trying to help my folks with this project. I do have a way of overcomplicating things, but I like the idea of hitting the bank with both barrels right away, rather than letting my un-prepared but gushing interest in the property raise the value in their eyes. If this is flawed strategy, that's what I'm here to learn.
Thanks for the help...
I like reinatalie's approach. Hit them with an offer and a ballpark of how you got there. Comp's in area are X, estimated cost to fix up is Y etc. If they've had it for the last year and a half they don't care about it anymore and likely don't have or know that information (and probably won't research it at this point). They'll either accept or reject it. If they reject (or ignore) follow up with them in a couple months (be sure to keep how you got your numbers and check new comp's if you can).
Excellent information, thanks. Today was fun: we spent some time at the property photographing the worst of it to include in our offer. We met and talked to the nearest neighbors and learned the basics about the couple who built and lost the place. The neighbor is a custom home builder with his own house on the market (FSBO), which is 3000 sq. ft. on 2.5 acres, less than 10 years old, two car attached and two car detached garages, in ground swimming pool and completely landscaped, lawns, granite counters, hardwood floors the works. They're listed at $425K. The REO is on 4.5 acres, 5000 sq. ft. straw bale, 7 yrs old, un-finished and in disrepair of 1.5 years of occasional vagrants, no utilities, hardcore UV wear/damage on wood windows/doors, stucco damage, sheetrock damage, missing flooring, termite tubes throughout the two basement sections, no garage or carport, or other outbuildings, zero landscaping, yada yada. Bank's price: $450K.
Trying to get to an interested human at the bank has been fruitless. X says call Y. Y says call X. X, who everyone else agrees is in charge, is in Birmingham, Alabama. How in the world he could have a clue about this place's state is beyond me.
Also, this place is more a BandB or hospice than a SFR. It's two wings, not accessible to each other without going outside. Three bedrooms of equal size all with their own bathrooms and the kitchen in one wing. The other is a laundry room, bathroom and bedroom, but no kitchen and no living room. How would that affect the appraisal, and should we be looking to get our own appraisal? I don't quite know how you'd comp this place, it's so different. We can get the neighbor builder to come over and work up a bid for the necessary work, so that end is covered. I'm just curious how to give this thing a value.
Thanks again,
BDN
I don't know what the bank is trying to do, pricing the house that high that has no kitchen, but they can't possibly hope to sell to someone seeking traditional financing. I don't know of any lender that will loan on a house that doesn't have a kitchen. That's considered basic for habitation, the banks appraiser would put a great big red flag on it. I don't know the market in your area, I sell real estate in PA but the fundamentals of funding are the same. Definately get your own appraisal. Also, it's not uncommon for a bank to have the person in charge of a property living in a completely different area of the country. We have REO's in our area that are handeled from companies in California. But what they do is ask 3 realtors to do a market analysis and they send out 2 appraisers to do an appraisal, so they have a fair idea of what a property is worth in the area from people who work in that area. But make your offer based on what you know it will take to make the place livable. They will either accept it or counter, or possibly ignore you all together. If they are that disinterested, sometimes banks will get lazy and not pay the property tax. Check it out.
Yes, go to the tax collector for that area/county and see if the property taxes are current. If I'm not mistaken though, Arizona is a tax lien state so unlike PA where you pick up the actual property at a tax sale, Arizona would sell only the lien to you, then if it goes unpaid you could ultimately get the property. Check it out with the local county courthouse. I have found that the folks at the county level are helpful in pointing you in the right direction.
Taxes are paid up on this one, but thanks for the tip. Learning about TLCs in itself is HUGE, and something I'm going to look into way, way further.
We'll let you know what shakes down with this REO.
BDN
Welcome to TCI and the world of pre-foreclosure investing (Hint: Please read forum rules)
During the time, that the homeowner has a right to cure you can purchase the home or should I say place a purchase contract on the property and in turn sell your rights to the contract.
The lender will most likely not stop the foreclosure proceeding for a maybe.
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