As an active real estate investor we have roughly 40+ offers on bank owned homes at any given time, and are always looking for great deals at the County Foreclosure Auctions. Negotiating to buy bank owned homes is not always that easy, however perfecting the formula will allow you to get some incredible deals.
Example: We recently went into escrow on a 4–plex located in Glendale Arizona just minutes away from University of Phoenix Stadium where the AZ Cardinals play football. The property was on the market for 249 days and the bank slowly dropped the price until it became a smokin deal. Here’s the listing history below.
As you can see it started at $239,000 back in 5/08 and slowly dropped to $99,900. Our 1st offer was for $62,000, buying it “as is” and waiving all financing contingency with a $1,000 EMD(earnest money deposit) with a fairly quick close. The bank countered our offer at $85,000 with 10% EMD which we counter them back at $72,000 “best and final” and accepted their 10% EMD request. We got the acceptance from the bank and opened escrow.
This is roughly a 30% decrease form the banks asking price. The property is worth approximately $160,000 to $170,000 after we do a full renovation.
Here are 10 Tips For Buying Bank Owned Homes and Getting a Smokin Deal.
Before making your offer you will need to:
1. Find a good realtor that can assist you in writing and submitting your contracts.
2. Acquire a Proof of funds letter from a hard money lender or a bank account balance that will cover the purchase price or a pre-qualification letter from your conventional lender. Real Estate Radio USA published a Hard Money Directory you can check out.
1. Determine the value of the property, I wrote a post on this subject and you can read it here.
2. Look for properties that have been on the market for a significant time due to the condition or the price.
3. Offer 15%-30% below the banks asking price, if the property is in poor condition than your offer should be in the 30% range. If the property is in fairly good condition you should offer roughly 15% below list price.
4. Offer $1,000 EMD, 30 day close with a 5 day inspection period buying it in “as is” condition. This will give you a “free look” for 5 days to get your contractor in and determine the cost of renovation.
5. Submit the offer asking for a 48 hour decision, and let the selling agent know that you have several offers in on bank owned homes and that you’re only buying one.
6. The banks will counter, expect it, don’t get discouraged. Just raise your price slightly, in the example above I offered 38% of list price and came up 14% leaving my buy price about 28% of list or about 45% of true after renovation value.
7. Make your 2nd offer “Best and Final” and remind the listing agent that you have several offers in and are only buying one. The agent will surely say they’re expecting other offers as all agents do but here’s a tip, Never Believe the Bogy.
8. If the bank counters this best and final number than increase your price by $500 to $1000 and that’s it. If they don’t accept the offer, be prepared to walk away. Do you know how many times I’ve walked away from a deal and got it at a better price just a week later?
9. Once the offer is accepted open escrow and start your 5 day inspection. Have a contractor notate everything wrong with the property. Have them write a formal bid to present to the bank on day 3 of the of the inspection period asking for a small price reduction. Some banks will not respond and some will agree to the price decrease, this is just the last ditch effort to get the best possible price. If they don’t agree and the numbers work proceed to closing.
10. Close the deal and start renovation.
This method has worked for us time and time again, please understand that as the market continues to get better the banks will accept offers closer to their list price, so take advantage now as the market is ripe for the picking.
If you have any questions regarding this technique, please leave a comment and Mike and I will be happy to answer them.
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