I am going to place an offer on a bank-owned "as-is" property (REO). I would like to hear your thoughts on how much you would bid on the property in terms of cents on the dollar from the listing price. So for example:

Assumption 1: You think that this is the right time to buy RE.
Assumption 2: You like the house enough to bid on it.

List price: $500,000.
I would bid $0.40 cents on the dollar or $200,000 to start negotiations and
I would limit the price I am willing to pay to $0.50 cents on the dollar or $250,000.

Curious as to the approaches others would take.

A general way in which some investors think about this transaction is this:

1) List price: $500,000
2) Value to me: $600,000 generally most people consider RE that is undervalued.
3) Haircut I need to get a good deal: 30% [insert your own] -$180,000
4) Repairs needed to achieve Value to me: [insert your own] -$50,000
5) Price I am willing to pay: $370,000
6) Start negotiations at: $320,000 or 0.53 cents on the dollar.

Lennar sells land to Morgan Stanley vulture fund for $0.40 on the dollar.

Other approaches or thoughts appreciated.

This is not the thread to state that this is not the time to buy real estate. tia

UPDATE 1/16/08: Just put in an offer:
Last sale 7/06: $1,050,000
List: 735,000
Offer: 417,000
$0.40 on the dollar from last sale
$0.57 on the dollar from list
Sale is all cash.
No contingencies.
I reserve right to inspection, pest and radon. I pay for this.
Sale is "as is" so I opted for the home warranty @ $399.
Did not ask bank to pay closing costs.
Close in 21 days after purchase contract is ratified.
I'll update as to what happens.

UPDATE 1/24/08: Made offers on 6 other properties for 7 total. All @ 40-50 cents on the dollar from list. 3 have been rejected. None wanted to counter although I was asked to submit a higher offer by all and twice by one. No thanks. Other offers are under consideration by the bank. One seller, JP Morgan Chase REO told the listing agent to not accept any more offers from me unless it was within $50K of the list. I look fwd to offering $50K less than my lowball 6 months from now. My money is earning interest every day while their REO property is sitting empty depreciating and incurring expenses. I am seeing some buyers in the market currently as a result of the low interest rate environment.

ChiefRocka said:List price: $500,000Irrelevant and therefore any fraction of list price ("cents on the dollar") would also be irrelevant.

Look up the definition of 'market value' - willing buyer and seller, yada yada yada. What somebody is asking for a property is only relevant if they have done a good job of pricing the property, and if they have done a good job of pricing it, by analyzing comps, taking market conditions into account, and any other relevant factors, well then, you should pay asking price.

Just because it is bank-owned doesn't mean there is some magic percent off equation that should be used. Do your own market analysis and determine what the property is worth.

that's not really a realistic view of how these REO's work.

if they were really going for 40% of market value, you would have developers or other banks buying every single one of those REO's to hold in portfolio.

you're going to need the CASH in your hand and show up to the auctions with a cashier's check.

there have been many articles in the LA Times that have dealt with these types of sales... link

First things first. You will need to conceal your identity from these people before you even think about making an offer.

ChiefRocka said:I am going to place an offer on a bank-owned "as-is" property (REO). I would like to hear your thoughts on how much you would bid on the property in terms of cents on the dollar from the listing price. So for example:

Assumption 1: You think that this is the right time to buy RE.
Assumption 2: You like the house enough to bid on it.

List price: $500,000.
I would bid $0.40 cents on the dollar or $200,000 to start negotiations and
I would limit the price I am willing to pay to $0.50 cents on the dollar or $250,000.

Curious as to the approaches others would take.

A general way in which some investors think about this transaction is this:

1) List price: $500,000
2) Value to me: $600,000 generally most people consider RE that is undervalued.
3) Haircut I need to get a good deal: 30% [insert your own] -$180,000
4) Repairs needed to achieve Value to me: [insert your own] -$50,000
5) Price I am willing to pay: $370,000
6) Start negotiations at: $320,000 or 0.53 cents on the dollar.

Lennar sells land to Morgan Stanley vulture fund for $0.40 on the dollar.

Other approaches or thoughts appreciated.

This is not the thread to state that this is not the time to buy real estate. tia

Edit: SpellingI think this is the only real approach to valuing a property, unless you just listen to what others tell you its worth or want to define 'value' solely in terms of what you speculate you can flip it for.

There is a forclosed commercial property listed at $160k that would be useful to me at a cost of $125k ($.78 on the dollar in your terms), and would probably be considered by the bank as a serious offer. But, it would require ~$100k in renovation to make it ready to use. So to stay in-line with its overall value to me, the sale price would have to be $25k ("$0.16 on the dollar").

I didnt make the offer, but the agent agreed an offer that low wouldnt even be taken seriously. But any higher than that and I would be overpaying, regardless of what 'market value' may end up being.

Glitch99 said:There is a forclosed commercial property listed at $160k that would be useful to me at a cost of $125k ($.78 on the dollar in your terms), and would probably be considered by the bank as a serious offer. But, it would require ~$100k in renovation to make it ready to use. So to stay in-line with its overall value to me, the sale price would have to be $25k ("$0.16 on the dollar").

I am pretty sure that you can get grow houses cheaper than 125k. But 100k for some grow lights? I think you need to streamline your operation.

xCarsonx said:Glitch99 said:There is a forclosed commercial property listed at $160k that would be useful to me at a cost of $125k ($.78 on the dollar in your terms), and would probably be considered by the bank as a serious offer. But, it would require ~$100k in renovation to make it ready to use. So to stay in-line with its overall value to me, the sale price would have to be $25k ("$0.16 on the dollar").



I am pretty sure that you can get grow houses cheaper than 125k. But 100k for some grow lights? I think you need to streamline your operation.Ha! I need the legit front to wash the profits .

OP, I'm having a hard time following you. I believe that your true question revolves around the gamesmanship of negotiating in RE.

Perhaps you'd like to try what I'm about to do. I'm looking for a house and 80%-90% of them seem to be REOs now. I'm looking at factors that indicate a bank's eagerness to sell (right now, simply tracking price drops over a month or two). Then I'll identify the bank holding that property and see if I can take a look at their entire portfolio.

I figure if I make an offer of 40% of value (too easy to screw up by using 40% of list - how do I know how list compares to actual value), my offer will be rejected instantly. I'm planning to make offers of 75% - 80% of value and hope for the best.

StevenColorado said:OP, I'm having a hard time following you. I believe that your true question revolves around the gamesmanship of negotiating in RE.

Perhaps you'd like to try what I'm about to do. I'm looking for a house and 80%-90% of them seem to be REOs now. I'm looking at factors that indicate a bank's eagerness to sell (right now, simply tracking price drops over a month or two). Then I'll identify the bank holding that property and see if I can take a look at their entire portfolio.

I figure if I make an offer of 40% of value (too easy to screw up by using 40% of list - how do I know how list compares to actual value), my offer will be rejected instantly. I'm planning to make offers of 75% - 80% of value and hope for the best.

so if the bankowned listing is 325K, you start off offering 245K or that is the most you would pay?

dcwilbur said:First things first. You will need to conceal your identity from these people before you even think about making an offer.

I don't get it... Why??