Making the Purchase Offer
Depending on whether you are dealing directly with the REO department or a local real-estate agent, your purchase offer will be submitted directly by you or the agent. Your negotiations will either be with someone in the REO department or the real-estate agent.
Don't be foolish and offer such a ridiculous price that all it does is insult the agent or the personnel at the REO department. A perfectly decent property that everyone agrees is worth $200,000 is not going to be sold to you for $20,000. It just doesn't work that way. You are not going to be able to “steal” a property from an REO department of any lender.
Don't make a big deal out of minor damages or problems with the property. A loose cabinet door or a scuff on the wall is not going to reduce the value of the property. Making a great deal out of minor issues quickly brands you as an unprofessional investor. You will not be taken seriously.
REO personnel dislike dealing with arrogant or rude real-estate investors that proclaim they just want to help by taking the property off their hands. They are not going to want you to rub in that they made a mistake making the loan to the defaulted borrower. Be businesslike, professional, and ready to purchase the property if it makes sense to you to do so.
Real problems or issues with the property should be addressed. For example, damaged windows or severe maintenance issues need to be brought to the REO department's attention.
Always start with an offer that is below current market value. A general rule of thumb is to offer about 25 percent below the average market value for comparable properties. Expect the lender to consider your offer over several days. Don't expect an immediate response to your initial offer. Most likely your first purchase offer will be less than the lender wants to accept.
It is likely to be passed around within the lender's REO department until someone with the authority to accept or reject the offer has the time to mull over your offer.
The lender already knows the property because it had been appraised before the lender loaned money to the defaulted borrower. They also had the property inspected recently, and had a local real estate broker provide an opinion of the value of the property as is and with repairs.
Some REO departments will return a counteroffer, perhaps proposing a higher dollar amount and attractive financing. It is now up to you to accept or reject their offer. You might want to consider accepting the financing offer but rejecting the purchase price. This give and take, all part of the negotiation, can move quickly or slowly. It all depends on the REO department's method of operation and how fast you respond to the counteroffers.
Your goal is to get:
Lowest possible selling price
Lowest possible closing costs
Best possible financing terms
Your offer and counteroffers are always submitted in writing. If you are negotiating though a real-estate agent, you will likely use the agent's forms to submit offers. When you are dealing directly with the REO department, you can use whatever form or format you want insofar as submitting offers. Appendix D includes a sample purchase offer letter used for submitting an offer to an REO department.
Closing on the REO Property
Be prepared to close quickly on an REO property. Always try to close on an REO property within two to four weeks. This is often one of the most appealing parts of your offer, especially if you agree to close as early as possible. To the lender, this moves the property from a nonperforming asset to a profitable asset.
Be prepared to take over control of the property quickly, including starting the process of eviction if the property is still occupied by the defaulting borrower. Have all the necessary funds and documents ready to conclude the transaction in the least amount of time.
