REO Urban Legends

By
Real Estate Agent with RE/MAX Big Bear Village

Bloody Mary

It seems like everybody has a story about a cousin or brother in law or long lost Uncle who offered half of the asking price on a foreclosure and got it. It has almost reached urban legend status in this market. I have bad news for people that believe this story. There are no giant alligators in the sewer. If you say Bloody Mary three times in front of a mirror, she will not appear. Even more terrifying, there are no bank owned properties in Big Bear that you can buy for half of the list price.

As a matter of fact, writing lowball offers is a sure way of losing out on a property you might really like. When an asset manager sees an offer that is over 10-15% low, they automatically put that offer into the crank file. Usually, they don't even bother countering an offer that low. When they do counter, it is usually for $100.00 off of the listing price. The only thing that happens when you write a really low offer is you lose all your credibility. Instead of coming off as a serious, viable buyer who is looking for a good deal, you come off as a shyster trying pick the bones of an unfortunate soul.

When a bank prices an REO property, they don't just pick a random number. They don't price it off of what the remaining loan is. They actually have Realtors give them price opinions on current market value. Then, they price the home at a fair market price. Usually, this a very good deal. Just because there is only $50,000 owed on $200,000 property, does not mean the bank will take $100,000 for it. They will sell you the property for a good, fair price. If you come in at $125,000, they will not even acknowledge you. If you come in at $150,000, they will counter at $199,000. If you come in at $175,000, they will probably give you a real counter to work with.

I am not saying that it is impossible to get a great deal. It is highly possible. You just have to reevaluate what a great deal is. If a home last sold for $350,000, and you buy it for $250,000, you are getting a great deal. You just need to be realistic. Plus, while you are dickering around with lowball offers, the odds are very good that someone who understands what is going on will come in with a respectable offer, and you will lose out. If you think it is a good deal, it is certain that somebody else will too. I feel the best strategy is too give the bank the opportunity to say " Yes."

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Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. Mark Hall 11/14/2009 09:31 AM
  2. William James Walton Sr. 11/14/2009 10:57 AM
  3. Steve Hirschler 11/14/2009 06:14 PM
  4. Pam Simpson 12/07/2009 01:45 PM
Topic:
ActiveRain Community
Location:
California San Bernardino County
Groups:
Silent Majority
REALTOR LIFE
Coldwell Banker Group
Big Bear Real Estate Group
Almost Anything Goes
Tags:
big bear bank owned
big bear reos
reo information
reos
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Rainmaker
852,483
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY
Broker-Owner

Yes, we have a 50c on the dollar story going around here also. Most REOs are priced so they have bidding wars, and the rest aren't let go for much below asking. There are exceptions, I suppose, but those are not homes you'd really want to call home.

Nov 14, 2009 07:34 AM #8
Rainer
156,649
Tom Boos
Sine & Monaghan Realtors, Real Living - Grosse Pointe Farms, MI

So many Buyers think they will be successful in purchasing a "sweet" REO property at 25-50% off the list price.  Think again!  Most of these are priced-right from the "git-go".  And, often sell for more than list to boot.

Nov 14, 2009 08:06 AM #9
Rainer
73,876
Dean Carver
United Brokers Group/Carver Home Team - Ahwatukee, AZ

Great blog Israel! I just ran into a buyer in our Ahwatukee market (Phoenix, Arizona) the other day and they were shocked that we had multiple offers on it. They had heard from a coworker that they could throw any price they wanted at the bank and they might take it.

It was my REO listing and we had many, many offers on it. I think it depends on what part of the country/area you're shopping in. Our inventory is actually constrained here, so many times the old end of the quarter deals aren't happening. We actually have some backlogged demand in popular areas. Since the banks tend to price at market value, or below, the properties don't last!

Nov 14, 2009 08:56 AM #10
Rainer
141,026
Robert Savage
Bakersfield Property Solutions - Bakersfield, CA
Bakersfield Short Sales, Property Management, Cash offers

In our market most of the REO homes are under priced and they receive multiple offers in the first few days. Occassionaly we will see a home stay on the market for 30 days in which case a lower offer would be appropriate. The only time I would encourage a low ball offer is when the home is in significant need of repair (like fire damage) as these homes are often mispriced.

Nov 14, 2009 09:24 AM #11
Rainer
36,280
Dave Humphrey, CDPE
RE/MAX Showcase- Orlando, Florida - Celebration, FL

Starting in February in our market, all the decent bank owned listings have had mini-autions as they receive multiple offers in two or three days, and alwways sell for premiums. I had a client bid on a HUD home that was listed at $45,000. It sold (not to him) at $60,500.

Nov 14, 2009 09:37 AM #12
Rainmaker
648,839
William James Walton Sr.
WEICHERT, REALTORS® - Briotti Group - Waterbury, CT
Greater Waterbury Real Estate

Glad you posted this. I'm reblogging. Too many people hear stories about others buying foreclosures that are in decent shape at a very low price and think they can do it too.

Nov 14, 2009 10:51 AM #13
Rainmaker
147,182
Carol Pease
Pacesetter Properties - Cedar Park, TX
CRS, Broker-Associate 512-721-6320

Great post with a lot of good pointers for potential buyers.  I'm just wondering about your title.  Not every buyer knows the term REO,  they know it as foreclosure.   Just a thought.....

Nov 14, 2009 10:52 AM #14
Rainmaker
600,430
Nancy Conner
Managing Broker - City Realty Inc - Olympia, WA
Olympia/Thurston County WA

Very good post & true in our market too - banks are just not giving homes away!  Drives me nuts to hear one radio commercial with a list of sample deals a buyer can expect - you know the " Three year old home, 2400 square feet, 3 bedroom, brick siding on a half acre for $8000"...  Maybe in some of the still quite depressed market areas - but totally NOT happening here! I just start doing an MLSA search with those criteria - hmmm 0 results -  & keep working my way up in price until there is finally a listing to show the buyer who just doesn't believe there's no free lunch - or house.

Nov 14, 2009 11:24 AM #15
Rainmaker
270,043
Julie A. Black
KAUAI DREAMS REALTY Kauai Real Property Specialist - Kapaa, HI
CLHMS, CRS, GRI, Realtor, Broker

So true. Those low ball buyers usually have to lose a few before they realize they have to have a good offer sometimes full price to be the winning bid. Great graphics you should repost on halloween.

Nov 14, 2009 12:31 PM #16
Rainmaker
87,042
Israel Barden
RE/MAX Big Bear Village - Big Bear Lake, CA

Thank you for all the great responses. Some great points being made about good bank owned properties selling for over list price. The last five bank owned properties I sold, all had multiple offers and all went for over full price.

Nov 14, 2009 12:37 PM #17
Rainmaker
1,322,808
Carla Muss-Jacobs, Principal Broker/Owner
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% o... - Portland, OR
Buyer Focused ~ Buyer Results

Urban legends . . . great point!!  I think next time a client wants to offer, based on the legend, I'll pull out my OUIJA board, and ask the spirits what price to write it up at.  Then I ask it a "Yes/No" question (will it be accepted?)

Nov 14, 2009 02:14 PM #18
Ambassador
1,291,076
Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

Good advice. Many many buyers think "foreclosure" or bank-owned = STEAL. Not true.

Nov 14, 2009 02:55 PM #19
Rainmaker
514,725
Russell Lewis
Realty Austin, Austin Texas Real Estate - Austin, TX
Broker,CLHMS,GRI

I am just glad we managed to avoid this mess this time around. Sometimes, it gets so deep that it takes wings to stay above it!

Nov 14, 2009 06:59 PM #20
Rainmaker
244,274
Bonnie Vaughan
Re/Max Home Team - Scranton, PA
CNE SFR - Buyers/Sellers - Lackawanna & Surroundin

Israel, It's amazing the stories that circulate.  The buying public is in for a rude awakening when they think they can get a home in good condition for pennies on the dollar.

Nov 14, 2009 08:02 PM #21
Rainer
62,579
Mary Jo Quay
Remax Advantage Plus - Minneapolis, MN

In our market in the Twin Cities there is real demand for properties under $200K.  I wrote 6 offers for one client until we got one accepted because everything was in multiples that drove the price $20-$30K over asking price, and over her limit.

On the other hand, there are times when I have sold the impossible dream for under $50,000. Last winter I got some specataluar deals for clients.  They are few and far between right now because foreclosure inventory has shrunk.  I recently wrote an offer on a nice rambler $18000 over asking. We were the winning offer out of ten.

Seems like there are three markets; foreclosures, short sales, and retail.  Shaping buyer expectations saves us time, energy and grief in the long run.  I tell my buyers that the media is always behind the curve of what is happening because the reports they get are at least a month or two old.   Here we are in November and they are telling us what happened in September.  We know already.

Nov 14, 2009 08:31 PM #22
Anonymous
Anonymous

We work in the asset manager position for some smaller banks.  I can tell you honestly that when an offer comes in at 50% of asking price, we don't even respond.  Please don't waste my time because I don't have any extra time.

Nov 14, 2009 08:50 PM #23
Ambassador
1,590,767
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 800-610-7253 DRE01267479 - Costa M

Many of our REOs are selling over listing price with multiple offers.

You offer good advice.  The only time I could see making a very low offer is when the property has been on the market for a while and/or it is not in lendable condition, and the buyer can pay cash.

However, often if it's not in lendable condition, the bank will have already set the price with that as part of the consideration.

Nov 14, 2009 11:27 PM #24
Ambassador
1,590,767
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 800-610-7253 DRE01267479 - Costa M

By the way, that picture is going to leave me with nightmares.  There's a reason I don't watch horror movies : )

Nov 14, 2009 11:28 PM #25
Rainmaker
208,887
Terrylynn Fisher
Dudum Real Estate Group - BuyStageSell.com - Walnut Creek, CA
HAFA Certified, EcoBroker, CRS, CEP Realtor, Etc.

Oh, isnt' it frustrating that the myths take on more life than the truths, because we want to believe...so just click your heels and say three times...

Nov 15, 2009 01:41 AM #26
Rainmaker
1,421,417
Charles Stallions
Charles Stallions Real Estate Services - Pensacola, FL
800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl.

Seems like everyone has someone that knows someone also. But I question the facts each time. Bunch of bunk usually.

Nov 18, 2009 06:53 PM #27
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Rainmaker
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Israel Barden

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