The bank does not want to lose any money on their assets, but they are losing their asses if everyone comes in with a low bid on a home they have valued at a greater price. So the easiest way to drive the price up is to create an auction mentality. In the real world you would have other bidders, in this world...there aren't any! The numbers of closed sales in many markets tell you that. All you have to know is your market statistics. In the Atlanta market sales are off between 40-45%. There are less buyers because there is no credit! OK...next item...unless you have cash, you are probably not going to get reasonable financing for investor owned property! Lastly, if this is your own personal residence...you may be in good shape! Do not believe everything you are told! Basic rule in real estate...is have them place it in writing that you are advised there are other offers on the table. They won't!
Most bank owned properties today, and foreclosures are doing this because no one ever challenges them. They get away steam rolling an agent that has never seen a bad market. An agent whose ego will prevent them from asking questions to others that have real experience! So they move foreward into a deal, and pass the DANGER SIGNS! Even if there were other offers, they are all probably as bad as yours. The secret to negotiating a foreclosure is to have your financing or cash in place, no special stipulations, and close it fast for a ridiculous price! Why? Because there are no other buyers right now!
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Jim, This post should be FEATURED! You are SO right and I don't think it'll be too very long before other agents and buyers realize this! Back in the day, 'highest and best' was probably warranted by the agents/banks of these properties--no longer. They're sitting there for 180+ days and you're telling me that on the same day, or even the same week, you have another buyer that tops my buyer's bid? SEE YA! (Can you tell I have a recent wound from this--or should I say halo!) I told my buyers to walk and they called us back to tell us that the other buyer's loan fell through! BS... My buyers purchased elsewhere and I, frankly, think they came out with a better home in a better area.
Gayle Balaban/Norris Lake Tn. Real Estate The banks are hoping you do not know how it works! Think about it...if you were a bank, do you want more money or less? If you have less, you can only lend less! They make their money on the spread, and when they lose money...for every $100 lost it is $1000 less to lend!
Debe Maxwell I'm telling you..there are no other buyers. I had exhaustive conversations today wiht a few very big brokers and a company that researches bank owned properties. This foreclosure market is very different than past ones, and it is much deeper wiht other credit issues invloved. Most agents do not know how to really negotiate!
Jim,
Buyers think if it is a foreclosure that they are getting a deal..that might be true in some cases but they don't realize that there is more to it than that. Banks want to get rid of inventory but not all banks are willing to just sell them way under market..you have to pick and choose the right ones...it just depends on what is the right one to choose.
Jim - I just had this type of experience. My client offered 25% less than list on a property in a great area, but needed a lot of work. The home has been empty for 2 years and been on the market for 9 months. The listing agent immediately came back with "We are receiving an offer for $XXXXX this afternoon, you'll have to come way up on your offer to overcome it."
I called my client and relayed the message. His response? "Tell him I don't want it that bad. Good luck."
Well, the house is still on the market today, and the price reductions have now lowered it to LESS than my client offered. But my client has bought 3 others since that initial conversation and doesn't want (or need) this one anymore. Greed is a horrible thing.
Did I mention that my client was paying cash and willing to close in less than 7 days?
Neal Bloom-Realtor ® Assoc.-Weston Florida One major difference...buyers have never seen a market like this, nor have most agents. In a decent market there is something to get excited about...10 bids on a property. There are too many great deals out there, and guess what? There are a lot more coming for some time to come. That is the reality! The banks are playing agents that do not know the game! We have to inform the buyers on the best strategy. An experienced agent does not ask the client what do you want to offer? We lead with our advice!
Jim,
Good topic; Great Post! The red and yellow flashing phone number is a little hard on the old eyes, though, expecially at 6 in the morning.
Mike in Tucson
Carol Smith, ReMax Preferred, REALTOR®, Toledo, OH Greed on the banks part. If the agent is a real jerk, he / she may not have even presented the offer. Also get rejections in writing. I once had a listing that was a foreclosure in Atlanta. We were priced at 975K. I brought the bank 5 offers. 2 were fraud..., and 3 were decent offers. The lower offers were all above 925K! (90 day listings( The bank then gives the listing to another agent that sells the home for 815K! Banks are greedy. We need to be better players! Get used to it, foreclosures are going to be here for a long time!
Jim, if the property is listed by another agent, they wouldn't tell you there was another offer, would they? Surely not, are you talking about HUD homes? I'm confused. Here we deal with the listing agents and I don't know of any that have said that to us about 2 offers and there not being one.
Missy Caulk Ann Arbor Real Estate Not HUD. How would you know if there really is another offer? I also deal with listing agents here. If you tendered and offer, and upon tendering it...in a few days, the other agent says there is another offer...is there really another offer? No! Most of the times it is a game that they play better than we do! On a foreclosure it would be a rarity in this market to have multiple offer for real!
Jim - love your graphics, but the blinking phone numbers gave me a headache...:)
Fake bidding wars are nothing new up here in PA. We have several well-known REO clearinghouse brokers who play games every time. If you submit an offer, even if the home has been sitting far too long, they announce a "highest and best" deadline. Now we're supposed to jack up our offer to compete with some other "bidder". Sometimes it's warranted, but not usually.
Jim - The local asset mgrs & REO committees in Atlanta must be "Light" years ahead of the ones in Md,DC & VA.
We struggle to get any deal thru , many properties are on their 2nd or 3rd listing agent , and homes are selling for way under market value but it takes them 6-9 mths to realize that the property condition declines as it sits vacant. Offers for close to market price were rejected in Summer of 07 and offers of $100,000 or more under market are finally being approved as of 1st quarter 08.
We are having another MAJOR auction March 8,9,10, & 11 with 575+ properties going up , many are being recycled from last October
I don't see us (DC area) coming out of this market until end of 09 or Spring 10 , but as long as the investors are back out it is OK by me. Even the typical1st time homebuyer gets frustrated looking for a deal and converts to a traditional home eventually.
Laura
Karen Hurst ~ Real Estate Broker ~ Warwick ~ Rhode Island Each market may be different, you are so smart to have counters in writing. Some properties may have multiple offers, but not all! There are some great opportunities there. I have had many agents today tell me personally that what I mentioned here is the exact scenario that just happened to them! A few days later they call them back and tell them the deal they were working fell apart! "The buyer did not qualify?" How lame, the buyer financing is supposed to be in order before the offer is placed! I mean you are even supposed to qualify with their own lender!
Laura Gray Very interesting. I lived in the DC area for over 10 years, and still have a brokers license there. We've been deal with foreclosures in Atlanta for years, but this is not a normal down market...the numbers are going to overwhelm many banks at some point! We are not seeing buyer traffic in numbers we are used to, and that is compounded by the inability for many to get financing....so for some lenders you start to know the drill. The only way to beat them is beat them at their own game!
April Hayden-Munson This is going to be an interesting year in real estate! I agree most foreclosure listings are way overpriced. The banks have to learn a better way to get the property sold than this BS process they are trying to do right now! It is not going to fix the problem, it is compounding it!
Kay Van Kampen, Broker, Springfield Missouri Real Estate The Atlanta market adds about 7500 more foreclosures each month! We may be in a different position than most markets! However, if there is a further acceleration of problems...foreclosures may grow in all markets. The secret will be the ability to negotiate realistically with banks that will try to deceive or manipulate potential buyers into higher bids.
Jim,
I agree with you... making offers in real estate is like playing poker. Of course I do not play poker.
I ALWAYS advise my clients that they should NOT let their emotions get involved in the negotiations phase. Otherwise, they will end up paying more. Just like Black Jack, there are rules - stats on when to take a "hit" and when to stand, and when to double down.
Cheers, KIM.
I guess I was made for this type of thing, because I don't ever hear "No!"; to me it just sounds like "Maybe", and I always forge ahead playing the 50/50 odds...
Emotion has no place in negotiations, and savvy agents and investors know that. In 2005 it was sheer madness at the beach, with properties going on the market and receiving 3,4, 5 offers within 24 hours. I was vigilant, wrote a clean contract and almost always got the property. In this market, "we have another offer" is a bluff that has lost it's luster... With only 2-3% of our properties selling every month, I know where the price needs to be in order to garner any attention...
50/50 odds are great... be undeterred, bad market or good... next, next, next... it's a numbers game...
Thank you for a good post!
Your Myrtle Beach Connection Mirela "m&m" Monte I know the odds are better than that! 70/30 in the buyers favor at this point right now! Think of it this way...in the heat of the market everyone flocked to buy...the bait was we have other offers. So now when the best buy is presumed to be a foreclosure what are they saying? "We have other offers!" Most agents are too stupid and naive to see this! They do not want to ask anyone (ego) because they may look stupid! It's never foolish or stupid to ask lots of questions. Humility is a great base to learn from. You are right on the money!
Have worked with a gentleman here in Fredericksburg Virginia for more than 15 years. He builds homes and commercial buildings. Is young and bright. Has degree in business. Is savvy investor. Liquidated homes he owned (LLC properties) and also liquidated homes he owned with his brother (an equally savvy investor).
Just decided to get back into investment homes. Has made several offers in past few days. Cash offers. Close end of March (am going to recommend we close in 2 weeks on any further offers). You would love to see some of the responses! "You did not submit a lender letter." Of course we didn't, it was a cash sale! "I will present this but just as a heads up, we had much higher offers on this that the bank rejected and didn't even counter, but I will see what I can do." The home has been on the market for 184 days! Have they figured out yet that the market is rejecting it at their price?
Folks, this situation is going to get worse before it gets better!
Ed DeChristopher, CRS©,Fredericksburg VA Even the lenders do not know what to do in this market, They have given their listings to agents wiht little or no experience that do not understand real estate. The banks do not understand the urgency of a good offer, and in the mean time they are trying to BS their way to a sale! It doesn't work that way! Thanks for sharing Ed!
Jim - Great article and great timing! I believe we are going to see more opportunities (for buyers and investors) this year.
Best Wishes,
Kelsie
www.TriangleChoiceRealty.com
www.TriangleBuyerAgent.com
Jim,
Looks like banks are doing everything they can to unload REOs, including using this little play. And they are probably getting away with it most of the time, without anyone calling their bluff. Or suing afterwards, like the buyer in California did.
"We've got another offer coming in".
I've heard this so many times over the years, I now warn my buyers to expect that comment when we call about a listing.
Listing agents are taught at childhood to say "We've got another offer coming in".
I recall one time when a listing agent told me that and my buyer's decided to write on another property becasue they didn't want to get in a bidding war.
Next day, the agent called. "Where's your contract?" I told her they wrote on another because they didn't want to bid. "Oh that was just another agent in the office who had shown the house and said her buyers liked it an might write".
I think that agent learned a valuable lesson that day. Don't try to negotiate until you have something in hand. Don't try to create traffic when there is none. And, don't lie to Lenn.
Jim
As a real estate investor, I'm seeing a lot of what your relaying in your blog. Credit markets are tightening and the banks are just "plain and simple" getting out of a lot of markets. And, it seems like the lenders are falling by the way side almost every week.
One crazy thing that I'm running into is the re-finance bank's questioning of hugh increases in value after a rehab. Its crazy because, its the very banking community that is giving away these houses at great discounts on the front end. Its a classic case of the right hand (lending group) not talking or understanding the left hand (reo group).
But, in all of this, it remains what I say may be the best buyers market in our lifetime. Its the perfect storm...low interest rates and hugh inventory levels.
Robert Martinez / Gwinnett County Real Estate Investor Very well said! It's a "Perfect Storm" but we have to be very cautious...this market also has great risks around every corner. It is exactly the way you shared it.
Homefinders, Real Estate in MD & VA, Lenn Harley, Broker, New & Resale Homes Lenn...so true. I had a seller years ago that would not leave the home when showing. He made the fatal mistake of telling other agents and buyers "The offers are rolling in!" What he did not know is that most folks do not share that competitive edge. They refuse to get involved. The banks these days are in a real disadvantage because there are 50% less buyers and they are BS'ing them away!
I have clients who tell me this is our max, bid accordingly. I've found many of the multiple bid situations are hard to believe. We've stayed firm on our bid and still win. He had one that they were on the fence on. We decided to float a low offer just to get the ball rolling. The same day we were told 3 other offers came in and to submit highest and best. I said to keep us where we were at, we did not like the property much anyways. We bid, got countered, and recieved the Addm's all on the same day!
I know there was no other bidders on that property. Asset Managers are not that fast, they wanted to dump that property ASAP. Using that tactic almost made my client withdraw his bid. He almost rejected the Addm's and he was still on the fence, but he went though with it because of the crazy price he won it for.
Karen Kruschka - One of the most experienced agents in Northern Virginia I personally believe that is the best strategy! That if they say they have another contract, our offer is VOID! Also here is another very very important tip! Most listing agents for REOS offer a low commission to Bank the reason they BS everyone and do not return calls is that they want to double dip! We need to think through every scenario!
Chad Baird I think it is a rare situation right now. It could change, but I do not see that in the short term. No credit, 50% less buyers...like I said it is a game of "Chicken!"
JIM..
Totally on Point with your Post... I am a new realtor, but old to the game having been a successful mortgage pro for 10 years. I am writing an offer today on a bankforeclosure at 50 cents on the dollar.... 200K list.. 100K offer... No stips.. Cash.... You said it... I am doing it.
Great post.
Newly proud Active Rainer...
Chris Cat