By Dick Thackston
I hear this all the time. Many would be buyers, both investors and just plain home buyers, are looking at bank owned properties and are very excited about the obvious opportunities but can’t get a bank to accept their offer and they don’t understand why.
The first and most common reason is the “Uncle Louie Effect”.
The “Uncle Louie Effect” works like this: everyone has an Uncle Louie who could have bought the same house of kind of house twenty years ago for one half of whatever they are paying for a particular property. It doesn’t matter if it is land, an apartment building, a house in a subdivision or the Empire State Building, no matter what the deal is they could have done better or they know someone who just did better; because of this the buyer or potential buyer feels a competitive need to make an ridiculous offer.
Example: Bank owned property at 123 Happy Street has gone to foreclosure. The bank has cleaned the house out, obtained valuations from two local REALTORS. One REALTOR valued the house at $95,000 and the other valued the house at $105,000. The bank ordered an appraisal from a Licensed Appraiser, registered with the State Banking Commission who arrived at a price of $102,500. The bank puts the house on the market for $99,000. Mike and Mary Jones see the house in the Saturday paper and call their buyer agent to set up a showing. It’s just right, they want the house, they go home, they talk and they think “I wonder what we should offer, the last time the house sold it sold for $150,000 and the town has it assessed for $142,000.” They call Uncle Louie he says “Take 40% off the asking price, I wouldn’t give a bank more than 60% of what they are asking.” So that’s what they do. Mike and Mary have a buyer’s agent who tells them “You know it’s really a good price maybe you should offer something closer to the asking price.” But they ignore their agent’s advice because Uncle Louie said… So they offer $60,000 – just to be sure they aren’t paying too much and to their utter astonishment the bank does not accept their offer, does not counter, and sells the property to some one else. A few weeks later when they are sitting home in their apartment, (Oh, by the way their rent is $50 per month more than the PITI would have been on the house if they paid full price!), and they are looking at the Saturday paper and read the real estate transfers when they see 123 Happy Street was sold by the bank for $92,500. They immediately get on the phone and call their REALTOR, mad, and tell the REALTOR, “That house sold for only $92,500 – we would have paid that!” the REALTOR then meekly asks “Then why did you only offer $60,000?” The Uncle Louie Effect!