Great Tips on How To Get the Winning Bid on a Foreclosure

Great Tips on How To Get the Winning Bid on a Foreclosure

 

Many home buyers want to cash in on foreclosures.  Often foreclosures are under priced.  When banks price REO foreclosures under the comparable sales this often creates multiple bids, which means you have some serious competition.  I have seen foreclosures that receive 10 or more bids! Yes on one property!   Sometimes the bank will throw out all but a few offers and then ask selected buyers to resubmit a “highest and final” offer.  Other times the bank may just accept the best offer at inception.

Here are some useful tips for helping your offer on a foreclosure to get accepted above all that competition.

  1. Get your own agent:  You need to be represented with an agent that has your best interest in mind.  As real estate agents the fiduciary obligations are given to the client with the contract.  As a buyer, getting your own agent will always benefit you in the long run.  Once you have found the perfect agent tell them you want to sign a buyer’s agency agreement.  Keep in mind the foreclosing lender will be paying your agent and it does not cost you more.  The exception is most brokers will have a “broker administration fee” which does not go to the agent, this goes directly to the agent’s broker.  This cost is typically around $200, but a small fee to pay for having your best interest in mind and can save you thousands.
  2. Determine Comparable Sales for the REO foreclosure:  Most of the time the list price has little to no bearing on the value of the home.  The market value carries the most weight.  If you are up against competing offers, other buyers will offer more than the list price.  Look at the last 3 months of comparable sales for that neighborhood to determine how much that foreclosure is worth. Try to use homes that most closely match the foreclosure you’re considering regarding square footage, number of bedrooms, baths, amenities, and condition.  Also, look at active listings.  Those are most likely the listings other buyers will use to formulate a price because they are the only homes those buyers actually tour.
  3. Get the Property History of that REO Foreclosure:  Ask your agent to find out the bank’s purchase price on the Trustee’s Deed or Sheriff’s Deed.  This is generally noted on the document itself, which you can get from the tax rolls or Title Company.  Compare that price to the bank asking price on that home.  Look at the amount of loans that were once secured to the property.  Somewhere between the original mortgage balance(s) and the foreclosure sale price is the amount the bank will accept, if the home is under priced.
  4. Analyze Listing Agents REO Foreclosures Solds:  Most REO agents work for one or two banks.  Some listing agents are exclusive listing agents for REO’s, and they do not list any other type of property.   Since REO agents deal in volume, they typically apply the same pricing techniques to all their REO listings.  Ask your “buyer’s agent” to look up the listing agent in the MLS.  Run a search using that listing agent’s name to find out the last 3 to 6 months of that agent’s listings.  Pull the history of those listings to determine the list-price to sales-price ratio.  If most of those listings are selling for, say, 3% over list price, then you may need to offer 4% over list price to get a winning bid.
  5. Ask about the number of offers received for that REO foreclosure:  If there are no offers on the foreclosure home, you can possibly offer less than the list price and get your offer accepted.  However, if there are more than 2 offers, you will most likely need to offer above the asking price.  If there are 20 offers, there is a solid chance that some of those offers are cash offers.  Banks like all cash offers, so if you are obtaining financing you will need to increase your offer to be considered.
  6. Cash is King:  Banks almost always prefer cash offers.  If you want to get those amazing deals you always hear about, most of those are cash offers.
  7. Get a Pre-Approval Letter:  You must get a pre-approval letter not a pre-qualification letter.  These are different.  Find a lender you trust or have your “buyers agent” recommend a couple to you.  This should be your first step unless you are buying with cash in which case you will need proof of funds in the form of a bank statement etc.  Another good tip here is to get a pre-approval letter from the lender who owns the property if you can find that out.  You should not expect to use this lender for your loan, but banks generally do not trust other lender preapprovals, but do trust their own departments.
  8. Don’t ask for the Bank to pay for repairs:  This is a bad idea.  Banks like simplicity with offers.  Do not ask for anything if you want the best chance to get your bid accepted.  Keep in mind, sometimes the bank will pay for repairs, but typically will not agree to do so at the offer stage.  If there are problems found during a home inspection, renegotiate after your offer has been accepted.
  9. Shorten the inspection period:  Typically once the offer is accepted you will have 10 days to get a home inspection completed.   Have an inspector on the ready so once your offer is accepted you can get your inspection done in 5 days or less.  This shows the bank you are a serious buyer who is ready to get the deal done.

Hopefully you find these tips useful and the best of luck if you’re pursuing a bank-owned home.  If you’re in my area I would be happy to assist you and hopefully we can get that winning bid!!

Premium Wordpress Plugin