How Much Should You Offer on a Bank Owned Property?

How Much Should you Offer on a Bank Owned Property?

Offering the right amount on a bank-owned property (REO property) requires careful research, analysis, and strategy. Here are key factors to determine your offer:

1. Understand the Market Value

Comparative Market Analysis (CMA): Research recently sold comparable properties in the area to estimate the fair market value.
Condition Adjustments: REO properties are often sold "as-is," so factor in repairs and upgrades required to bring the property up to market standards.

2. Evaluate the Property's Condition

Inspection Costs: Budget for a professional inspection to identify hidden repair needs.
Repair Estimates: Determine the cost to make the property livable or meet your investment goals.
Deduct these costs from your offer price.

3. Know the Bank’s Motivation

Time on Market: If the property has been listed for a long time, the bank might accept a lower offer to unload it.
Local Inventory: In a market with high inventory, banks are often more negotiable.
Financial Goals: Banks typically aim to recover the outstanding loan balance, but this varies based on market conditions.

4. Review Any Liens or Fees

Title Search: Ensure there are no outstanding liens, HOA fees, or back taxes, which might influence your offer.
Closing Costs: Banks may negotiate who pays closing fees, so factor this into your price.

5. Offer Strategically

Start Low, But Not Unrealistically: A low but reasonable offer shows interest while leaving room for negotiation.
Cash Offers: Banks often prioritize cash offers because they close quickly and don’t depend on financing.
Contingencies: Limit contingencies to make your offer more attractive but ensure you have an inspection or financing contingency if needed.

6. Work with a Real Estate Professional

An agent experienced in REO transactions can help gauge the bank’s flexibility and craft a competitive offer.

Sample Calculation

Market Value (after repairs): $250,000
Estimated Repairs: $40,000
Desired Discount (10%): $25,000

Offer Price: $250,000 - $40,000 - $25,000 = $185,000

Remember to be patient—banks may counteroffer, delay responses, or accept higher bids, so focus on creating a strong, well-reasoned offer.