Writing offers that win foreclosures
Under priced Reo foreclosures will often bring in multiple competitive offers. If you are in the market for this type of property, there are a few things you can do to ensure the best possible (winning) offer is submitted.
1. Find out the history of the foreclosed home
Use an agent to help you find out what the original mortgage price was in the current foreclosure and compare that with the asking price that the bank has now. Try to choose an offer price as close to the middle of these two amounts as possible. This is usually the amount that the lender will be willing to accept.
2. Compare the foreclosure with market value prices
- Active listings will help other interested buyers figure out the price that they will ultimately offer. Do your own comparing to be prepared.
- Find homes that are already under contract, and have your real estate representative try to find out what offer price was accepted by the lender. (Sometimes an agent can find this out, and sometimes they won’t be able to.)
- Check the last few months of sales in the foreclosures neighborhood to deduce market value. You should be able to compare the home with similar properties to find it’s actual worth.
3. Figure out the listing agents foreclosure selling strategies
- Have your real estate rep search for the agent on the MLS website.
- Type in the agents name in the website search engine in order to pull up their last quarters listings.
- Find out how much more the sales price was for these homes versus the list price. If the sales price is a certain percentage higher than the list price, then you may need to raise your offer a few percent as well.
4. Inquire about the amount of offers on the REO foreclosure
- The higher the amount of offers on this foreclosure, the higher you will probably have to bid to have a chance at purchase. Multiple offers usually drive the sales price higher on highly sought after foreclosures. Also, realize that when there are an abundance of offers, that some of them may be for straight cash, which banks love. In order to finance, you might need to raise your offer quite a substantial bit in order for the bank to consider it. (On positive note, though: If there are no other bids on the foreclosed property, you can actually put in an offer that is less than the asking price.)
5. Get a letter of preapproval in advance
- You obviously need a preapproval letter in order for a lender to take you seriously about purchasing a home. An even better preapproval letter is one that comes from the listed lender of the foreclosure themselves. Of course, don’t plan to use this bank for financing of your loan. Just know that the lender will trust it’s own loan department before any other.
6. Offer a shorter period of time for inspection
- What this basically means, is that you are going to beat the other potential buyers in terms of time. Let’s say they ask for 20 days to have the home inspected. That’s when you come in with a low ball number and offer to have it done in 9.
7. Repairs and inspections
- Don’t expect the REO lender to pay for having the home inspected or for any repairs that need to be made prior to you having your offer accepted. Only then, can you resubmit a proposal for having the repairs made.
8. Splitting costs with the bank
- Sweeten your offer by splitting fees with the lender. These include fees associated with transfer, escrow and title. It’s a good rule of thumb to work closely with the lender if you want your offer accepted.
However you decide to bid on a foreclosure, it is imperative that you keep ion mind that appraisal will play a key part in this process. When you make an offer for more than the home is listed for, the appraisal has to be in agreement with that offer. When the appraisal comes in low compared to your offer, don’t worry. That means it will come in low for the next financing buyers in the bidding war, too. That leaves you time to make a new lower offer and renegotiate.