12 Tips To Make Your REO Offer More Attractive (Bank Owned Homes)

12 Tips To Make Your REO Offer More Attractive (Bank Owned Homes)

Simi Valley Bank Owned Homes. REOs and Foreclosures

Currently I represent a local Southern California Bank with their REO (Bank Owned) properties in Simi Valley, Moorpark, Camarillo, the Conejo Valley and West San Fernando Valley.  I have also represented buyers on other bank owned homes.  Below are 12 tips to help move your offer to the top of the stack for consideration.

  1. Your offer must be in writing, include a financing pre approval, FICO scores and proof of funds to close (i.e. a bank statement that shows you have the money)
  2. The Seller is a financial institution or sometimes a government agency. They work 9-5, Monday through Friday. Offers are sent to the asset managers during these times. Response times are at the discretion of the Seller and could take several days to a week. If your offer is reasonable then a time response is likely.
  3. Currently Simi Valley Bank Owned (REO) properties are selling at 105% of list price. You will have competition from other buyers.
  4. The Bank is looking for the HIGHEST AND BEST OFFER. Sometimes the Best Offer is not always the highest. Offers that are very straight forward with the fewest conditions, reasonably close to list price are attractive. Use of “Shill Buyers”, are easy for banks to spot, better to be straight forward than to use a shill. Your offer will look weak if it is assignable. The bank wants to sell the property, they do not want to be tied up with a property flipper who is going to drop out of escrow. The bank runs a spread sheet similar to the investor buyer, the bank has a formula for how much they will give on price and terms.
  5. Don’t expect a counter, response or even a rejection. You may be granted an opportunity to submit your highest and best offer.
  6. If your offer is accepted, it may take several days to a week for the Seller to put together their Addendum to the purchase agreement. Expect that many of the terms you have in your original purchase agreement will be eliminated in this addendum. Once the buyer receives this addendum, the buyer will have 24-48 hours to accept the addendum or back out of the purchase.
  7. The bank is exempt from most property disclosures since the bank has never occupied the property. Many times the bank and it’s employees are located very far from the property; their knowledge of the property condition is very limited. Buyers are advised to conduct their own inspections. Do not expect the Seller to agree to any repairs.
  8. Be prepared to operate with email and PDF documents. Fax machines are notorious in degrading the quality of documents. More and more REO agents are now requiring email only; if you agent is not familiar with PDF, Scanning and good with email, your offer could be jeopardized.  Try to get all your information in a PDF digital format with a scanner. When you submit your offer to the listing agent, make sure it is complete with all supporting documents together in one PDF file. You offer will need to be transmitted through Real Estate agents and the management at the bank. Email is the preferred way to transmit all communication.
  9. If you need to reach the listing agent. Email is the best vehicle. Email will provide you with a contact log. Many REO agents have staff that will probably be your main point of contact. Those REO agents that provide cell phone numbers can be contacted through text and you will probably receive a quicker response.
  10. If you plan to use FHA financing, the FHA appraisal may reveal required repairs. The bank may not be agreeable to repairs and may not even consider any offers that have FHA financing. Seller paid closing costs is not unusual, but don’t plan on more than 3%.
  11. All properties are sold AS IS, with no guarantees. Home warranties sometimes may be included.
  12. I can’t stress enough….the bank has sent out appraisers and hired out local real estate agents to give “Broker Price Opinions” (BPO). The listing agent has already given an opinion of value to the bank. The bank is educated on the area market conditions and is not going to give away property. Unreasonable offers get little attention.

Stealing as a strategy cannot be duplicated. There is a great opportunity to pick up good solid value in REO purchases. Do your homework, be reasonable, write your Highest and Best offer. The listing agent wants to sell the property too, so make sure your offer is complete, easy to read, easy to transmit and easy to understand.

For more information see:

Author – Ted Mackel Simi Valley Real Estate Agent – Keller Williams RealtyThanks for reading Simi Valley’s Premiere Real Estate Blog!

Ted Mackel is a top producer at Keller Williams Realty Simi Valley,

specializing in Simi Valley Real Estate

(805) 432-7705

About Ted Mackel

Active real estate broker and entrepreneur in Simi Valley. Ted has a passion for business, has deep knowledge about residential and commercial real estate and is one of the few to be a long time blogger/writer on these subjects. In his free time you'll find Ted enjoying baseball with his family (Go Dodgers), reaching his goal of spanish fluency, and pursuing his hobbies with RC aircraft and Lionel Trains.


  1. tmackel says

    Thanks Mana,

    After seeing the offers come in, I have come to the following conclusion. Many buyers mistakenly think that because the property is on the bank’s books that the banks are going to accept any old offer thrown at them. Second that many agents are doing a poor job in coaching their clients with the respect to writing reasonable offers on any property in this market.

    If I buyer thinks a property is over priced by 40%, then look for another property….it’s unlikely that a Seller, be it a bank or individual is going to consider such an offer.

    One last point on writing extremely low offers, the bank I work with does not counter with anything other than highest and best. The REOs I have written on for other buyers did not counter any differently. So, trained negotiators that believe they will try bracketing (a common negotiating technique), should realize the banks don’t counter so they can circumvent bracketing and a long drawn out back & forth price/term battle.

  2. smore says

    Here in Simi Valley there are some Realtor shops that do a lot of the foreclosures. Make friends with the clerks in these offices. You would be amazed the info you can get very cheaply. If your bidding against someone they can find out what the highest bid was. 1K could save you from bidding 15K above. And you can submit your bid right at the last minute and get the bank to approve yours.

    It’s happening all over the place……

  3. says


    Thanks for the comments. There are no “Realtor shops”, there are a couple dozen agents that have relationships with banks. I work directly with asset managers at Downey Savings and Loan in the west San Fernando Valley, Simi Valley, Moorpark and the Conejo Valley.

    Foreclosure properties in Simi Valley are selling at 107% ABOVE list price on average. A big fallacy by buyers and buyer’s agents is that the bank has to get rid of the property so make super low offers. If you want to avoid headaches then make a fair offer. If your fair offer is beat out by others, then you will need to rethink your plan on the next property.

  4. smore says

    We offered 1K above what was asked for and Erik Sellfors people told us we were on the top of the deal. But 4 days later we found out that someone came in above us around 1K. We were ready to move up but we were told that we were the only people left.

    I have been told this is pretty common with Erik Sellfors office. He they sold it out of their office and that is why. Yes we lost the house and the Bank did NOT get the best price. That is way things are. But when your making the largest purchase of your life one would think you would get treated better or as good as getting a burger at Burger King.

    I will continue to write letters to my Congress person and request real estate reform. We will wait another 6 months to buy and let the market correct another 20%..

  5. says


    Thanks again for stopping by and for your comments.

    The reform my industry needs, starts in Sacramento. We are under the California Department of Real Estate. Licensing requirements are too easy. Without being party to this transaction, I cannot say if there some sort of dual agency violation or unfair business practice. That is something only you with your facts and evidence can make a case from.

    There has been lengthy debate in my industry about the merits of dual agency and whether it should be allowed. Your situation, the way you relayed it, is definitely one of the reasons many think it should go away.

    You are correct, this is the largest purchase of your life and the sad fact is that the franchise owners of a Subway Sandwich Franchise have way more at stake invested to open that business and have to qualify financially on a level that is astronomically beyond what it costs to become a Realtor. Ironic that the bar to make sandwiches is higher than to represent a buyer or seller with possibly the largest investment of their life.

    I have not worked in the same office as Erik and have only had one transaction with him as the listing agent and myself representing the buyers. His staff is pretty large and the service was pretty typical of any large run organization. There were no problems with the transaction other than IndyMac not having clear title to the property and a delay in closing for a few weeks, but that was not Erik’s doing.

    Good news is that the Simi Valley market has a long recovery ahead of it. You have time on your side unless you find that once in a lifetime dream home.

  6. Random Dude says

    “Foreclosure properties in Simi Valley are selling at 107% ABOVE list price on average.”

    Hmm? How are you calculating that? I just looked at this number today for simi with an agent friend of mine, You must have taken the Original list price and divided by the sale price or something else when calculating this because currently since June closings in Simi it is 95.7% average for Sale price divided by original list price for all closings with a REO flag set and 99.3% average for Sale Price divided by List Price.

    There are home selling way over list (max 117% of LP in since June) and homes selling way under list (Min 55%) but realistically most REO sell within a couple percent of list because the banks are getting the BPOs and pricing below it to generate excitement and offers.

    But nowhere do I see how you got that the average is 107% above LP

  7. says

    Thanks for stopping by Random Dude! You don’t have to be anonymous on the comments here, because

    1. I don’t bite.
    2. Open discussion is good for all.
    3. We can all take responsibility for what we say.

    Thanks for the input, I will expand on how I hit that number and double check that I did not have a calculation error. One thing to note is that earlier this year our MLS did not have a REO-Bank-Owned field so there are many REOs that cannot be pulled just by the REO flag. There is a way to get those listings, but it is a very involved process to extract those sales.

    Most REO listing agents have a hard enough time uploading more than one photo and more than one line of description, let alone fill out the MLS Broker load correctly.

    Random…if I have an error in my calculation I will fix it!

    I do want to thank you for helping me make a point, and that is the idea that the banks are at the mercy of the buyers and that they have to get rid of properties. If there is a “couple of percentage range” then that is evidence that these homes have become affordable. While the real estate market has a long way to go before it is in a recovery mode, the fact remains that REOs are receiving multiple offers, there are frustrated buyers and buyers agents and any buyer that thinks banks needs to give away a property, will be even more frustrated than everyone else.

    Being the analytical type Random, I will dig through the MLS and post a more detailed report on the REO sales for Simi Valley this year. It will take some time this weekend as I have to pull the REOs that were listed before the REO flag was in our MLS.

  8. Random Dude says

    “If there is a “couple of percentage range” then that is evidence that these homes have become affordable.”

    I disagree a lot with this sentiment actually. Multiple offers in REOs alone isn’t a sign of strength or weakness nor affordability. We had multiple offers during the boom, did that mean prices were affordable? You have to look at the market and see the amount of REO & SS relative to sales, is that rising or falling? (Rising) You look at prices or REOs, do they have pricing power or are they trying to price low and have short marketing times? (no pricing power, low marketing times) The banks are basically asking the question “What can I do to make sure that whatever buyers are in the market are buying my home?”, that answer is of course price low and get it moved. The majority of bank homes in general don’t get huge markdowns off of list because the markdown is built into the price for most.

    If we start seeing banks hold onto homes and hold out for higher prices (longer marketing times) then that would be a major shift in the market. But right now they get the BPOs, price aggressively (generally) and get the house moved. If the banks stopped pricing lower and lower you would see a very big slowdown in sales because buyers wouldn’t feel like they are getting a “deal” and believing you are getting a deal is a powerful motivating factor.

    p.s. I remain anon because I like posting under different names because I like my words to stand by themselves and not attached to me directly.

  9. says

    Random Dude,

    I think we are talking past each other? When I say more affordable, I am talking about REO properties specifically not the market in general as there are other complex economic factors that influence affordability market wide. Also the demand of the boom earlier this decade was not “true affordability” as the financing (liars loans) created a false market that eventually burst. Technically the REO market did not exist in the boom as prices and values and demand was so high properties could be sold before they even were foreclosed on.

    I am not sure how much more empirical evidence I need on affordability when it is riding around in my car in the form of buyers writing offers; or the offers I see come in on my REO listings. The banks require proof of funds and I see daily what kind of savings the REO buyer market has on hand.

    Why was demand so high if homes were not affordable in the boom? Now that is a whole other topic to discuss.

    I just got back from 4 hours of panel discussions with asset managers at REOMAC at the Marriott in downtown Los Angeles. The entire panel discussion was about valuations and what the Asset Manager would like to see on the BPOs. There are a couple of industry conventions anywhere from 105% to 95% of the BPO value, but it really depends on the agent’s ability to communicate the hyper-local market conditions for the subject property and the condition of the property.

    The fact remains that homes that are updated and in great shape sell quickly. Homes that have deferred maintenance take longer to sell and have influence on the declining market. I have only been in a few REOs in the last 18 months that were in good shape.

    As a REO listing agent and an active buyer’s agent I see both sides. Affordability is there, buyers are very cautious is to what they will spend and thankfully that attitude is returning to the market.

    As far as REOs and Short Sales Rising, I’ll post those numbers in another market update. Our total Simi Valley Moorpark inventory has dropped in number of units for sale by 40% from the beginning of this year and the percentages of what has closed as a Short Sale or REO is hard to track as the REO flag was just added at the end of April. The closed REO form June on 32-NOV, OCT-52, SEPT-45, AUG-39, JUL-48, JUN-36. The function of these numbers is more that many sellers are upside down and still can make their payments, or that many seller cannot get the price they want for their homes and will not sell at this time. The reduction of units for sale is tied to this. Bank REO inventory volumes should start decreasing for a short run and you need to see my post http://homebuysblog.com/2008/10/15/adjustible-rate-mortgage-reset-schedule/ for the explanation.

    On the percentage…in November 65.63% of the REO sales closed at 102.39% of list price in Simi Valley. Those all sold in the first 30 days of the listing. In October more than 61% of the REOs sold at a little more than 100% of List Price. When I drill down to the indivicula properties it will be easy to show the best condition properties were selling far higher and 100 or 102% and the total fixers dragging down the averages.

    If you are misinterpreting this as Realtor hype then you should read through my Blog, it is clear that I am pretty damn Bearish on the Real Estate market. Again the point of my REO discussions is that the banks are not kowtow-ing to buyer’s demands to give away property. If you see a REO you like…there might be several other buyers with the same feelings and what you thought was going to be an easy purchase is going to be a battle between who wants that particular REO the most.

    One last word on anonymity, if you need your words to stand for something then they will need some accountability, that which anonymity does not provide. 😉

    “Those who stand for nothing fall for anything.”
    -Alex Hamilton (UK)

  10. says

    Ted, This is one of the best lists of advise on purchasing and REO that I have seen. It really speaks to what is actually going on and what buyers fail to understand.

    Since I often represent offers from buyer on REO’s it is hard to feel like the I am the only resource advising clients that “it works this way”. The media often only focuses on the street filled with home in neighborhoods that are overwhelmed with foreclosure activity. While there are a few street like that locally MOST of Ventura County has buyer who have been waiting to purchase homes and buyers are always surprised to learn what they will need to to to be competetive and how much competition there is so, this is a great post. I will be sharing it with other.

  11. Waiting to feel the magic says

    One particular problem that I’ve encountered while trying to buy a bank owned home in the San Diego area is that some banks are complete morons whose incompetence works against their own self interest.

    Specifically . . .

    I’ve seen banks pricing properties insanely high. They claim they did a BPO that justified that price, however the properties sit with no offers. After 30-45 days on the market the price starts to come down. Depending how crazy the price was initially they eventually get to a price that’s reasonable. The listing is pretty stale by this point though.

    The other thing I’ve seen is crazy REO addendums. It’s understandable that the bank wants a clean offer. No issue there. What’s crazy is when the banks demand that the inspection contingency be waived, or put in language allowing them to continue to solicit offers even after they’re in escrow and to cancel an offer at any time for any reason “whatsoever” up to day of escrow. The terms are unreasonable and they drive away buyers who are well qualified and ready to buy.

    Now not all banks are this stupid, just some. It’s frustrating however when a stupid bank owns the property that you want to buy, while a house down the street that just happens to not be your cup of tea is owned by a smart bank that has correctly priced the property and will sell it with reasonable terms.

  12. says

    Thanks for your remarks. I can understand your frustration, so let me see if I can give you some insight into how many of the Banks think. Whether you or I agree really is not the point, this is how they operate, once you know their MO, then you can plan and work to your style.

    1. CYA – Liability. Banks figure out every possible way to reduce liability present and future.

    When this is a basis of all their decision making on a Foreclosed property you get:

    -Draconian Addenda with terms that are one-sided and bewildering.
    -Reluctance to fix any defect on the property to limit exposure to latent issues with workmanship after the property is transferred.

    Because the banks have never lived in these property and have no idea as to the condition or history of the property; they have no appetite for getting into gamesmanship in the transaction with buyers who are not serious. This drives buyers nuts.

    Bank contracts and negotiations are designed with two primary purposes. Limit liability and weed out anyone who is not serious. And Serious does not equate in to getting a property dramatically under market value nor does it mean a buyer gets a dollar for dollar discount on repair items.

    There is a term in negotiating called Bracketing. The banks have designed their contracts and offer acceptance process to cut this style of negotiation off at the knees. This is difficult culturally for many buyers as Bracketing is traditional and is part of the banter for certain cultures. It is difficult for those who are logical and have decided that they are entitled to a discount. Ironically, the Bank Brackets the buyer once the buyer puts in their offer, but the bank never ever reveals if, when or how they might adjust their price. Very one sided.

    As for pricing. I have a Bank owned property listing that is far below the area and it’s not selling. There is a adjacent neighborhood that always trends lower than this neighborhood and my listing is now starting to approach the price of those inferior homes. Did the bank over price this home? No, it will appraise all day higher than where we are listed now. Just one of those times the house has a hex or something. (Smile)

    The pricing is based off several appraisals and a several BPOs – all of those figures are a starting point, just remember the asset managers have people to answer to above them (consider that you are dealing with a corporate structure) and they have a specific set of guidelines on when to reduce.

    When you look at the workload of each individual Asset Manager and begin to understand some of the key points I just discussed, the approach to these properties can be a little easier to plan.

    Ask yourself if your expectations will work within that type of environment?

  13. Waiting to feel the magic says

    Hi Ted,

    Thanks for the reply. I hope it was clear that I was blowing off some steam in my original remarks. I’ve been fortunate to have a very good agent who specializes in REO and short sale properties. He’s been able to educate us in what the banks want and how they work.

    Nevertheless my original comments still apply. The banks are working against their own self interest with some of these draconian, crazy terms. I understand that they want a clean deal; that they want to limit liability; that they don’t want to fix anything; that they want to skew all the terms to their favor. But when the terms become so one sided that qualified, motivated buyers who are aware of the bank’s expectations are walking away from deals, then I think the banks have crossed the line into stupidity. They are literally throwing away tens of thousands of dollars.

    As to pricing, here in San Diego the market is hot for well priced properties. The well priced stuff usually goes pending in a couple of weeks, often with multiple offers. Here in San Diego if a property has been on the market for over 30 days and there hasn’t been an offer, it’s over priced, period. There no magic or hex to it. When a property sells for $275/sf and the same floor plan across the street sits for months at $250/sf it may seem like there’s magic, but usually when you look more closely the property that’s not selling backs to a busy street, or the one that sold had a view or significant upgrades. I’ve seen very few houses sell in the areas where I’ve been looking where I can’t explain the price, though sometime you have to know some very specific details. For instance there was an REO property that sold for what appeared to be a crazy low price, unless you know that there was a ground water problem in the backyard that threatens to collapse the pool and several neighbors are talking about suing the developer. Then the price seems pretty reasonable, maybe even a tad high.

    As for the initial listing prices . . . well the banks can do what they want but they only hurt themselves when they price a property crazy high and then it sits for months and gets stale. By the time they get down to a realistic price less people are looking at it and the long time on market invites lowball offers. Again, San Diego is market where well priced properties sell fast. There is no shortage of buyers here, but they are very picky. The smart banks price their properties aggressively taking into account the property’s condition. Those properties sell fast, usually above list, with multiple offers.

  14. says

    I am more on your side, then probably how I come across. Price on a home today is very simple. This may sound shocking to many but what really needs to be taken in consideration is that all homes listed in the MLS get spread across the internet in many places. Those agents like myself that understand how to syndicate on a deeper level can get exposure on a listing in hundreds of places on the Internet. So any home that is properly syndicated online that does not obtain an offer after 30 days, is most likely overpriced. If you went around and talked to people about what they do on the internet – a huge percentage are looking at homes even if they are not in the market to buy, but those who are looking to buy, over 90% are online looking at houses. Traditional media cannot compete with the research data that is available online.

    The one loophole to that rule has a lot to do with how the house shows. Homes that are impacted with clutter and even poor decorating tastes can be seriously handicapped when competing with other homes in the area. It doesn’t necessarily mean the house is overpriced, but what it means is that if the sellers would spend a little money on staging and de-cluttering they could probably gain quite a bit more money in offer price from a potential buyer.

    My current bank owned home that I mentioned earlier is another good example as it is not overpriced ” technically”. The appraisals will come in all day long at the current list price, so value is not the issue.

    Appeal to the buyers is the issue so ultimately this property will sell and a buyer is going to get this property under market value. Yet I know that sounds convoluted but it will appraise and this is one of those rare instances where buyer offering prices and appraisal values don’t match.

    All I can say is you’d have to go back to the decision making environment in a corporate structure. Upper management, balance sheets and shareholders all have influences on how these banks move their properties. Their rules for pricing follow strict corporate guidelines. Nobody wants to lose their job so they all follow the rule sheet.

    I’ve always thought that if they could bring in active agents (one that are closing deals) off the street as consultants on a part-time basis, it would radically help these processes. A consultant would be paid a consultant fee and not a salary and because the position is part-time they could purely come in and give expertise on the inventory the bank is having difficulty with.

  15. Waiting to feel the magic says

    I really agree with your suggestion in the last paragraph. A good, local agent that knows the comps and the details on properties could get an REO property priced right, do just the minimal amount of clean-up so the property isn’t completely gross (I’ve seen so many green pools, one was actually bubbling – such a turnoff), and get solid offers on it quickly.

  16. Walter says

    Excellent series of insight and discussion.

    I am dealing with a property which is somewhat of a black sheep. Isolated, rural mountain home with no comps surrounding it which the bank took back nearly a year ago for $510k in 1st and 2nd notes. Initially listed 260 days ago at $490k and still no offers even though the bank has reduced the price 9 times and still no offers. House needs approx $120k of work to live in (well, septic, heat, plumbing, roof, drywall – frozen pipes and flooding plus other deferred maint). Seller is not willing to accept my clean offer – cash, 1-2 week close, no contingencies – as it reflects the work required and the cash price. I guess I will just sit and wait for either the bank to continue their path down the stairstep of price reduction or until someone else comes along who is less risk-averse or a bigger sucker.

    Why won’t the seller (bank) acknowledge the sixteen defects I have presented to them that require work to even obtain conventional financing? They have carried this house since April 2009 when the foreclosure was filed by them.

    Any advice on getting a market-based offer accepted when we are still $100k apart on price?

  17. Joe Sixpack says

    Reading about all the supposed fallacies in bank policies regarding pricing and contract strategies of REOs, I can’t help but wonder if there are risk assessment models associated in formulating them. Is this another example where proper long-term vision and data-backed research are trumped by reactive, ad-hoc reasoning?

    Can someone from the inside of one of these major banks validate what’s really going on, or perhaps this is a consulting opportunity for pricing analysts?

  18. says


    Remember the employees at the bank follow their play sheet given to them by management. This is a hard-core corporate environment. Rocking the boat or drawing outside the lines can incorporate risk for not only the front end asset managers, but also middle-management.

    Many times the response is, ” we cannot get investor approval”. As a line item on a balance sheet, I’m not sure how much incentive the system creates for these employees to work through the issues.

    Another complication is that many foreclosures are handled through third-party asset management companies. The third-party asset management companies are graded on how close they can bring the property into closing at the original appraisal value. As the landmines were uncovered during escrow, the banks seem to be unwilling to evaluate problematic issues with their properties, as these final sales price to initial market value ratio gaps can cause with third-party asset management companies to lose their contracts.

    I’m currently dealing on a property representing the buyer, we discovered a recall furnace during inspection. These furnaces burn down houses and injure people, this is a serious safety issue, yet the bank that owns this property refuses to acknowledge this issue.

    Another twist is, that I have caught listing agents not making available reports and inspections done by prior buyers. While I do not understand this behavior, once an inspection or report has been conducted, it becomes a material issue that needs to be disclosed to anyone considering purchasing the property.

    I am not sure if any of the banks understand that all prior reports become a liability to the bank if the escrow fails and the property has to be put back on the market.

    I am not sure if management knows how to communicate the seriousness of having to go back to market with a property that has significant defects that were uncovered in a prior inspection.

    There are two sides to every story, there are buyers who are unreasonable about bank owned property condition. Cosmetic defects are not the same, and do not command the same concessions as you would with major defects.

    Also, as a buyer there is a market value for each property which does not equate to “entitled profit” for the buyer. For example, if you’re dealing with broken windows, a bad furnace, significant termite repairs; you could logically deduct those costs from the value of the house as those are items that you would need to repair now. Items like outdated flooring, wallpaper, bad paint colors and clean up do not deserve a dollar for dollar deduction off the price of the home. So as much as we are critical of the banks lack of logic and reason, I can tell you about hundreds of buyers I’ve met can be just as unreasonable with their demands.

    We all have to remember, were dealing with employees. The environment they work in is not suited for flexibility in dealing with these properties. The third-party companies are making huge profits off the sales and will work inside the guidelines of the banks they represent. The only way to correct the situation, is that the government should not offer any assistance to these banks and possibly to go back to mark to market accounting. Unless there’s pressure put on the banking system they will draw this process out as long as they can.

    Thanks for commenting.

  19. says

    Joe Sixpack,

    Well I think everyone lacks long-term reasoning. Many times buyers come to me and demand that because of accounting rules, the bank has to reduce and has to give away the property because they’ve already written off the debt as bad debt.

    Each property is an asset, it has a quantifiable value. I’ll use round numbers. Using $500,000, let us say that after long and hard research and viewing the property, the buyer comes to me and tries to make the case that the house is worth only $400,000. In Simi Valley California this type of valuation error on a bank owned property is extremely rare. What I would say is, that if we put the property at $400,000 on the open market, we would see immediately that multiple offers would come in and drive the price significantly above $400,000. Whether my Seller is a bank or a real person, there would be no reason to counter or entertain an offer that far below the listing price. We might as well just lower the price to $400,000 and create some competition among buyers.

    So the bank enters a game of chicken with the pool of buyers to figure where the tipping point is between getting their highest value before creating a multiple offer situation.

    From the position of inside the bank it is very clear. They send out for multiple valuations on all their properties during pre-foreclosure and after foreclosure. By the time they foreclose on the property it would not be unreasonable to estimate that the bank has as many as six or more professional opinions of value. They don’t just come out of left field with a number and say ” let’s try this and see if it works”.

    What they cannot adjust for is, unknown property defects and buyer reaction. Buyer reaction is tracked once the property is placed on the open market, and unknown property defects do not get uncovered until escrow is opened and the buyer has brought in inspectors. And no, the bank will not pre-inspect, they want to sell these properties AS-IS and leave it up to the buyer to do their due diligence.

    Thanks for commenting.

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