Making An Offer On A Foreclosure

Everyone Wants In On The Action

It's a pretty safe bet that if you're looking at buying a foreclosure, it has already gone through the process and is now in the hands of the bank. Many buyers dream of being able to pick up an REO (real estate owned) property for a song. However, the fact of the matter is that when an REO is advertised under the comparable market value, there are usually a large number of offers that are made on the property. That means that the competition is stiff and your bid may be one of a dozen or more. Sometimes the bank picks the top two and invites them to do a "Highest and Final" bid, or the bank may decide to take the best bid right at the beginning.

Make Your Bid Shine

Obviously, you want your bid to be the one that wins. There are a few things you can do to make your offer rise to the top of the pile with the right price and terms of sale.

Begin by having your agent get the bank's purchase price that appears on the Trustee's Deed or the Sheriff's Deed. It is usually on the deed itself, or, if necessary, it can be found on the tax rolls or a with a title company. Do a price comparison between the purchase price and the price the bank is asking. Check out loans that were held against the property (mortgage loans). There is a point between the original mortgage and the foreclosure sale price that will be agreeable to the bank. Your job is to determine what that price will be.

Do Your Homework...

Do price comparisons for market value of the property. If there is a lot of competition, the other bidders will bid higher hoping to win. Check to see what comparable properties sold for in the area for the last three months. Make sure that you are comparing apples to apples, that is, use similar structure in the same area, similar square footage, number of bedrooms and baths, property size, amenities, and condition of the house. If there are homes for sale in the area, have your agent find out what prices were accepted on the offers, if they will disclose the information. Check out the other listings in the area. It's pretty conclusive that other buyers will have used the same sort of formula to determine their offer.

...And A Little "Undercover" Work, Too

Check out the listing agent to find the record of REO sales. Often, an agent will specialize in REOs and they usually work for one or two banks. Since they deal with high numbers of foreclosures, they likely have a formula for pricing their REOs. Have your agent check out the agent representing the foreclosure and get an idea of his or her last six months worth of listings. This information will tell you what percentage over list price the selling price ended up being. So, if the ratio is 5 percent, you offer 6 percent. At the same time, find out how may offers there are on the REO. If there aren't any, then you can come in lower than list price and have your offer accepted. If there are more than two offers, then you'll have to offer more.

Be Prepared With Approvals

If there are several offers, it may be that some of them are cash. If that's the case, and you have to finance your loan, then you will have to come in higher. Banks like cash sales. Get a pre-approval letter from your lender as well as a pre-approval letter from the lender who owns the house. Submit both with your offer. Banks are funny about approval letters. They don't necessarily trust the approval letters of another bank, but will accept one from their own.

Play It The Bank's Way

Typically, a bank will not agree to repairs on a property, although sometimes they will do them. Don't make this an issue. If there are a lot of problems found during an inspection, negotiate them after your offer has been accepted, not before. Shorten the inspection period to less than what other buyers are asking for-which means that if another buyer asks for two weeks, offer ten days. The bank will see you as being serious about the purchase.

Offer to split the fees with the bank. Even though most banks won't pay transfer fees, an offer to split the cost opens the door wider with the bank. Fees for title insurance are often negotiated with the bank. If they will pay for the owner's policy, take what they choose; it increases the likelihood of your offer being accepted.