With all the foreclosed homes on the market over the past year or two, you’d think it would be easy to snag a bargain. For those of you who have been trying to buy a bank-owned home, nothing could be further from the truth. Many buyers soon discover that there are multiple offers on each home and getting your offer accepted seems impossible. The key to getting a house owned by a bank is to present an offer that is attractive to the asset managers of the banks: they are the people who decide which offer to accept.
So what are these asset managers looking for? From their perspective, the best offer is an all-cash offer. They want to get the house off their books as quickly as possible and all the cash means they don’t qualify for a loan and there’s no appraisal, the two things that are most likely to kill deals. So what do you do if you, like most people, can’t buy a house with cash? You need to structure your offer in a way that is attractive to banks and make your offer stand out from the rest.
DO NOT make a low offer… you are just wasting your time. Think about it, if they get 15-20 offers, what are the chances they will accept yours if your price is well below the asking price? I advise my clients to check out the comps in the area, carefully examine the condition of the home, and select the highest price they are willing to pay for the home. This should be the offer price. Anything less will be outdone by someone else getting frustrated about losing other houses!
Another tactic that has worked for me is to bid above the asking price, say 5-10%. If your offer is accepted, the first thing that will happen is the appraisal. If the appraisal is less than your offer, the bank has a few options; lower the price to the appraised amount to qualify for the loan, ask them to make a higher down payment or cancel your contract and put the house back on the market. They want to sell the house and they know the next buyer will also get the same appraisal, so you have a good chance the bank will lower the price so you can stay in the deal. This just happened to me recently where I became the hero with my buyer when the bank dropped the price by over $30,000! But don’t go overboard with this strategy: Asset managers are smart and know the approximate range of what the home will be appraised for and won’t take very high offers…unless of course they’re all cash! If the house is appraised at its inflated asking price, which is unlikely since appraisers are very conservative these days and will look for the same trade-offs you are, you have to decide whether you want the house at that price or not, you can always walk out of the deal because it is within your contingency time period.
Another great idea is to include a large deposit with your offer. This shows the bank that you mean business. This is truly a low-risk strategy for a buyer, as your deposit will be returned if you don’t qualify for a loan or something really wrong comes up on inspection. Keep an eye on their contingency time periods and you will get your deposit back if you decide to cancel the deal.
One thing that always surprises me is when an estate agent tells me they accepted my offer because it was clean and everything was provided, which means the other offers weren’t! My partner is a listing agent for several banks and can’t believe how sloppy and inaccurate the so-called “experienced” agents are, it’s unbelievable! So how do you make the offer clean and complete? Please ensure all required fields are completed and all pages are signed and initialed. A good agent will always do this. If he’s making a cash offer, include proof of funds, such as a bank statement showing he has enough money to close the deal. If you are getting a loan, always include a copy of your pre-approval from your lender. Also include a copy of your deposit check. Offers without these attachments will not be considered.
Consider not ordering some of the items that the seller normally pays for, this again shows the asset manager that you are serious and eager to buy the house. Do not ask the seller to pay for the home warranty, NHD report, or HOA transfer fees. Just factor these costs into your initial offer and you’ll make your offer stand out. What else can you do? You can shorten your inspection contingency time period to 7 days. Banks like this because they will know sooner if you will stay in the deal or not. Just be sure to order the inspection right away so you have plenty of time.
Best of luck!