The next factor is the terms of your offer. Before the bank puts the home on the market, they have a very good idea of its worth, The asset manager who is handling the file works out of some cubicle back east, so he/she has never personally seen the property, of course; but they usually get an appraisal and multiple BPO’s (broker price opinions) from local agents to help them set a price that is usually around 10-20% below similar regular resale (non-foreclosure) homes. This ensures that they will sell first and fast. They often get multiple offers and very often sell for around 10% above the asking price when this happens. The bank will usually take the best offers (those that have the highest percentage of cash and are closest to the asking price) and ask those buyers to submit their “highest and best offer” – and winner takes all. That bank-owned lakefront I mentioned had 6 or 7 all-cash offers and actually ended up selling for 50% above the asking price! That’s an example of what happens when the asset manager ignores the BPO’s and decides to price the property too low. Every once in awhile, they go the other directions and price it higher than the BPO’s call for. In that case, they usually give the property about 30-45 days to see if it gets any offers. If they do get any offers in that time period, they usually won’t accept anything less than around 95% of the asking price. Keep in mind that it’s a completely emotionless transaction for the asset manager who is basically working off of a spreadsheet (I.e., “if the property is listed at $200K, I can accept any offer of $190K or higher). These asset managers need to answer to their bosses (and the banks investors) as to why they accepted a particular offer, so they’re not allowed to go below a certain threshold. In cases like this, you can usually figure out the pattern, if there have been several price drops; and it’s best to get your offer in right before the next drop to avoid getting into a multiple offer situation.. So for terms, you want to get as close to the asking price as possible, with as much cash as possible. The bank also like short escrows, so if a property is listed at $200K and they get an offer for $190K, all cash with a 2-week escrow and one for $195K with 90% financing and a 60-day escrow, they are more likely to go for the first offer because it is more of a “sure thing” and gets the property off their books sooner.
These are the general principles of getting a great deal on an REO. Every bank is a little different. For example, they all shorten the typical 17-day inspection period, but some are 10 days, some are 5, and a few actually want you to have the inspection done before you even put in your offer. Also, some of them have waiting periods before they will look at offers (ie, “the property has to be on the market for at least 3 days”) or in the case of Fannie Mae, they will only look at offers from “first-time buyers” for the first 15 days.
If you have any questions about a particular bank-owned property or your particular situation and how you might get the best deal on an REO, please don’t hesitate to call or email.