There are many ways to find and close real estate deals. One of the more popular ways is with buying REO properties (real estate owned). It’s worth noting, however, that to succeed in the bank owned industry, you must first learn how to make offers on bank reo properties.
Generally speaking, an REO property is one that has gone through the foreclosure or short sale process without a sale, and the bank has taken back ownership of the property. Since banks are not in the business of managing properties, they will often immediately put the home on the market and try to get it sold as quickly as possible. In most cases, they will accept a buyers discount just to get it off their books. If you are interested in learning how to make an REO offer, there are a few things that every deal must have.
How To Make Offers On Bank REO Properties That Actually Get Accepted
When making REO offers, regardless of your financing options, investors need to show they have funds to close. Lenders will give favor to those that are making cash offers and can close quickly. As an investor, if you are making a cash REO offer, you need to have an updated proof of funds letter attached to your offer. If the dates are old or the name on the letter is not the same as the one on the contract, your REO offer will be put to the side or dismissed all together.
The same can be said if you are getting bank financing. Most lenders will not accept a lender financed deal unless they are desperate or you can show that your approval is already in motion. At a minimum, you need a pre-approval letter stating the exact terms and conditions. If you can show that your documentation has already been approved by an underwriter, you greatly increase your odds of getting accepted. When making REO offers, it’s important that investor have updated and accurate information.
The next most important item when making REO offers is the contract. The offer price will always be important, but for banks it may not be the most important thing. Many banks are still scorned by the short sale and foreclosure rush with buyers backing out of deals or not getting approved weeks after the process started.
In general, banks want to find the balance between maximizing their revenue while still having the security that they are accepting a deal that can close in a timely manner. This often means taking REO deals that offers the path of least resistance. There cannot be any unnecessary contingencies, addenda or other red flag items on the contract. Everything should be as clear and concise as possible. As a real estate investor, this is even more the case if you are making an REO offer that is below market value. You should be ready, willing and able to close in seven to ten days. If your contract is sloppy or your demands are unrealistic, you cannot expect your offer to be considered.
Bank REO Properties: Tips To Succeed When Making Your Offer
With it comes to REO offers, investors should put down a considerable down payment. In a transaction with a traditional seller, investors can get away with three percent down, but with an REO or short sale, you need to show that you are serious and ready to close. By putting down a 10-15 percent down payment, investors show they have some skin in the game. This also decreases the chances that the bank will back out of the deal and forfeit the deposit. By adding five percent to the deposit, investors can separate themselves from every other offer that comes in.
All investors want their REO offers accepted at the lowest possible price. By increasing their REO offer amount slightly, real estate investors may able to secure the deal at a number that still suits their budget. Most lenders know exactly what they value the property at and what number they will take on an offer. This is especially the case if the property has been on the market for a significant amount of time.
Instead of making a lowball offer, real estate investors should increase the offer to get negotiations started. If the offer is clean, with updated contracts and inspections waived, the lender may just accept the first offer. Even if they don’t, they will most likely make a counter offer. If the number is still too high, investor can try making one more counter offer. If that isn’t accepted, you can walk away quickly instead of spending weeks going back and forth on a deal that they would never accept. You or your realtor can watch the property from a far and check in every so often, but the sooner you know the lenders bottom line, the sooner you know where you stand.
Simply knowing how to make an REO offer isn’t enough; you need to take action If you are interested in going down this route, start making offers. Unfortunately, the more REO offers an investor make does not increase their chances of getting accepted. In order to even the odds, real estate investors need to focus on their offer and how the contract looks, the dates involved, financing documentation and a realistic purchase price. There is still plenty of competition on REO properties. What you submit to the bank can be as important as the price on the contract.
