A foreclosure is also known as an REO property.
A foreclosure, or REO (real estate owned) property, is a property that has been repossessed by the bank; effectively, the bank owns the property. Because banks are not in the real estate business, they must sell these properties. Although they must sell them, they are looking to recoup losses they have incurred and are not quick to give the properties away. With careful and strategic negotiations, however, you can get the bank to lower the price on your foreclosure.
Instructions
1. Choose a real estate agent experienced with REO properties and negotiating with REO agents. An experienced agent knows the requirements of different REO sellers and can guide you through the process more efficiently.
2. REO properties require substantial work.
Locate foreclosures in your area. The local multiple listing service (MLS) has a designation for foreclosures and your agent will provide a list of REO properties that are available. Provide your agent with property requirements such as square footage, number of bedrooms and bathrooms desired, price range, location, and acceptable condition. Some foreclosures may require extensive work.
3. Taking good notes helps you remember each property.
Choose properties to preview and note issues including missing appliances, repairs or upgrades, any mold or water damage, flooring or paint issues, and overall condition. Take pictures for possible use when submitting your offer.
4. Compare your target property to others that have sold recently.
Select a property. Ask your agent to do a comparative market analysis (CMA). A CMA estimates the value of the property based on the sales price of other like properties in the area. For an accurate CMA, your agent should ideally compare your target property to other foreclosures that have sold in the past 90 days within the neighborhood or vicinity.
5. Calculate the offer price with consideration for repairs.
Get estimates for repairs. If the property needs repairs, get estimates from licensed contractors. Since foreclosures are sold 'as-is' the seller (the bank) will not do repairs, but can reduce the selling price to compensate for the repairs. Reduce the CMA by the estimate of the repairs plus an additional 10 to 20 percent for unseen repairs that might be required. Also consider further reductions for missing appliances and desired updates.
6. Obtain the proper forms to submit an offer. Bank-owned properties often require specific offer documents. Ask your agent to acquire the correct forms.
7. Prepare your offer. Some banks will offer additional benefits, such as special rates on a new mortgage, lower down payment requirements, and appliance allowances. Negotiate these terms as well.
8. Submit your offer. Include a reasonable security deposit (10% or more), a pre-approval letter for your mortgage, or proof of funds letter (if purchasing with cash). If allowed, include your contractor's bids for repairs and photographs to justify the lower offer price and your agent's CMA. Remember, the bank has not seen the property and may not be aware of the extent of the damage to the property. If you submit your offer toward the second half of the month, you stand a better chance of your lower offer being accepted due to end-of-month evaluations. Likewise, offers closer to the end of the fiscal year (usually October) have a better chance of a lower offer being accepted in order to 'clean' the books for the new year.
9. Wait for acceptance or a counter offer. Banks tend to negotiate less on listings within the first 30 to 60 days. Banks tend to be more inclined to negotiate on listings over 60-days-old. Be patient, banks can be slow to respond. If the bank returns a counter offer, increase your offer and counter back. If the bank does not accept your counter offer, they can counter or reject. Remember, banks are not in the real estate business; they have to sell this property eventually. Be persistent.
Tags: your agent, your offer, real estate, counter offer, lower offer, your target property, banks real
