To everyone who asked me about bank REOs (real estate owned), this is an answer to all. How do I get REOs? Three ways:
1) Most banks in my area sell the REOs through real estate agents. My loyal agent for seven years checks the hot sheet everyday and brings me deals that I am looking for.
2) At sheriff’s sales/foreclosure auctions, I notice which banks had to take unsold properties back. This becomes the REO. I call these banks and tell them that I am interested in buying some REOs. Once you have bought a couple from them, you can call them regularly on first name basis.
3) You can call any bank or mortgage company, ask for their real estate departments, and tell them you are interested in buying some REOs. Most of the time they will say they do not have any. (It’s bad publicity for them.)
You have to tell them something they want to hear. I usually tell them I am a cash buyer, and I’ve seen them take houses back at the auction. I ask if they want to work something out with me. If you sound like you can pay, someone will call you back.
How do banks price their REOs? As much as they can.
1) At the auction, the banks usually ask for the loan amount balance, plus the back pay, penalties, interests, foreclosure fees, lawyer fees, other legal and misc. fees. I usually estimate that to be around $10K above the loan balance.
2) If property is not sold at the auction, it becomes an REO. At this time, if the property is desirable, it could be grabbed up real quick by the bank officials, personnel, friends at a private price. The rest will be listed by Realtors.
3) When listed with a Realtor, the banks often ask for the market value of the house. This may be above or below the auction price. The price will be adjusted accordingly if there were damages. If they can’t sell it after X number of days, the price goes down in steps of possibly $5K to $10K.
Watch the “number of days listed” to see how long they have been out there. Somewhere along the line, that price is going to be just right for someone. So it could be gone before the price come down to your level. You have to decide when to go and grab it.
4) The bank gets audited once a year. It looks bad for them if there are too many REOs in their inventory. As the audit approaches, the bank may strip the REO prices down to the original loan balance only, sometimes even less. That is the time to make a killing. Only you never know when the audit takes place.
What did I buy?
My Realtor brought me an REO–a beautiful three-bath, three-bedroom ranch with two large office rooms attached, large party room in the basement, four well-lit entrances, landscaped yard, garage, in a very good lower middle class area, one block from an established area where houses are worth $125K+.
In 1995, the previous owner bought this house for $60K, lost it in 1997 with a balance of $55K, and left some minor cosmetic damages. I don’t know what the bank asked for at the beginning, but when the Realtor brought it to me, it was $50K. A smaller house half block away was asking for $70K. I figured by the time I fixed it, my profit wasn’t big enough, so I didn’t make an offer.
One month later, the bank dropped it to $40K. I made an offer for $30K cash. Fannie Mae (the bank) blew me away. So I told the Realtor to watch. If the price comes down again, or if they don’t sell it in two months, I would make a $35K offer. The bank dropped it to $34,900 last Friday. I had my Realtor call in on a full-price cash offer, to close ASAP. The bank accepted the offer today.
I estimate it will cost me $5K to fix and another $3K to $5K to jazz it up. Value when finished $85K. I am going to sell this baby for over $100K in a couple years. The three houses I bought last year in this area have doubled in value after six to nine months.
Like I say, don’t be an overly motivated buyer; play it cool; have a strategy that works for your skill and budget; and do a lot of shopping. But know when to jump in and lock it in when the deal is there.
I am happy, but my four contractors will be even happier to start working next weekend and make some money for a change. They were out of work for the winter. We do have the responsibility to create jobs to help our fellow man when we can.