Week 30: Purchase Offers and Negotiations

Knowing how the system works and the motivations and constraints of all the players involved makes you and your agent powerful negotiating partners. Your offer must depend on what a property is worth to you, regardless of the listing price. Your target ROI and any required repairs will dictate how much you can pay and still be profitable.

If it seems overpriced, keep an eye on it for 30 days. Price reductions often happen at 30 days. The longer it sits, the more likely the asset manager will be willing to negotiate. The smaller players who bought in pool sales are often receptive to any offer, even a low-ball.

Anything below 80% of the list price is a low-ball offer. Repeated low-ball offers can damaging your reputation as a qualified buyer. Everyone involved is very busy, and you do not want to damage what could be a very profitable relationship by wasting their time. So listen to your agent. 

If the listing agent hints that the seller is looking for offers, consider it an invitation to make whatever offer makes sense for your portfolio. If they say no today, they may come back later. Your offer helps both the listing agent and the asset manager.

Multiple Offer Situations

While some properties are listed too high at first, others are listed too low, and attract a lot of action, resulting in multiple offers. 

This can be tricky to navigate. Most asset managers as for the highest and best offer by a certain date. Others only negotiate with the best offer or offers, and reject, or ignore the others. Also, a listing agent typically cannot disclose multiple offers without the seller’s consent. Some agents prefer to disclose multiple offers, some sellers prefer not to, and all of this can be aggravating to a buyer who does not understand the legalities and complexities of these situations.

Earnest Money and Proof of Funds

Most REO asset managers prefer a cash sale, because the process is quicker and cleaner, and additional time on market can adversely affect an asset manager’s performance and compensation. 

Proof of funds in the name of the person or entity who is making the offer is required with the offer. And earnest money—10% of the purchase price or $1,000 whichever is greater—will be required by the seller. Once the contract is ratified, a certified check for the earnest money is exchanged.

An experienced real estate professional is a vital resource for a real estate investor. They will help you navigate the complexities of an REO purchase and get you to the closing table. And they will help you expand your portfolio by identifying and evaluating potentially great investment opportunities.

If you do not have a relationship with a Realtor® who specializes in REO properties, please let me know. If I can, I would be honored to help you grow your portfolio. And if you are outside of the markets I work in, I would be happy to help you find a Realtor® to partner with as you grow your portfolio.