By Dick Thackston
I hear this question all the time from people who make offers on bank owned properties. The story generally goes this way: a buyer has been looking for a home in a certain area for six months, in a certain price range, let’s say between $150,000 and $170,000, then a property goes to foreclosure in their desired neighborhood. The buyer is aware of the foreclosure and contacts us about looking at the home before the bank puts it’s on the market. They wait a few weeks while the bank does appraisals to determine the Fair Market Value, FMV, of the property. The bank determines that the home is worth $165,000 so they put the home on the market at $159,900.
We schedule a showing with the buyers and they immediately are excited about the home after the look at it! Good News! They go home to think about it; the next day they call our real estate office for an appointment to make an offer.
When we meet to write up the offer they decide they want to offer $130,000 because they’ve “heard” that banks will take 20% off the asking price. As a buyer’s agent I advise them that their offer is un-realistically low but the buyer insists and I submit the offer.
The bank immediately rejects the offer without a counter proposal. The buyer is mad and says: “Why won’t the bank accept the offer I made?”
Here’s the answer to the question. The bank that owns the property has a responsibility to obtain the best price they possibly can to pay back the money owed on the property. They know, as does the buyer that the property is fairly priced. What the buyer doesn’t know or understand or believe is that the bank can wait.
The bank can wait because interest rates are at historic lows. Here’s what the bank sees financially: how much do they can how much do they loose by not taking this offer. The buyer’s offer is $29,000 below the asking price. The bank will figure how long it can carry the property to be in the same place assuming the bank’s cost to carry the property calculated at 3% their cost to carry the difference is $72.50 per month. So for a $29,000 difference the bank can carry the property for 400 months or thirty-three years and four months before they make up the difference.
That’s why the bank won’t accept or negotiate on un-realistically low offers. Banks are very sensitive to actual market conditions, they are making excellent “deals” with home buyers but they won’t leave money on the table if they don’t have to and it doesn’t make sense financially.
The best plan if you want to successfully negotiate with a bank on an REO property is to be financially organized, (have a pre-approval letter from your lender, have your down payment available), have a buyer agent in place to help your write a realistic offer – without unnecessary conditions, make a reasonable deposit and be the first person to submit your offer.