When it comes to Bank Owned Properties: The rules have changed.

    Who remembers the three rules of Real Estate?

    Location, Location, Location, Right?

    bank owned property timingMaybe… but more likely: Location, Location, and Timing.

    More and more timing is becoming an important aspect in Real Estate, especially in the investment front.  With banks tightening up their grips on the REO inventory and loss mitigation departments honing their skills and processes in the short sale arena, many investors feel they are being squeezed out.

    If you’ve spent any time writing offers on bank owned properties, you’ll feel my pain.  Several weeks ago, we did a little experiment.  We wrote over fourty (yes, 40) offers on REO properties across Spokane and Kootenai counties, all were 70 cents on the dollar (.7 * asking price) or better, all were cash.  How did we fare?

    Zero for Forty.

    Initially, if our offer wasn’t rejected, we received a counteroffer within one or two percent of asking price, hardly a move a seasoned investor would readily jump on.  So we decided to dig.

    Taking a closer look at the inventory that has sold over the past year, versus active inventory on the market – there appears to be a correlation in the timing of the offer in relation to the flexibility of the bank.  What I found is that banks are extremely inflexible in the first thirty to sixty days on the market, and immediately after a price drop.  This period of time is when most investors are alerted to the property either through an automatic alert from their agent or other system of alerting.  Most systems trigger on new inventory and price changes, alerting investors who promptly place offers on these properties, only to be rejected.  I’ve found very few cash investors who were willing to make full price offers on properties; cash talks.  Additionally, I’ve found very few properties worth offering full asking price, especially in the initial thirty to sixty day period.

    So where does that leave us?  If the banks are inherently inflexible immediately after listing or a price drop, and they slowly fade into the sunset, until the next scheduled price drop (usually about 30 days and 5% is the average), the property may go largely unnoticed by active investors until the price is reduced again.  This is where timing becomes important.

    Three timing rules to live by when buying REO’s

    1. For the most part, look at inventory 70 days and older on the MLS.  With all the Government subsidies available for banks in the bail-outs, most banks list their inventory at the high end of the scale in the off chance they will catch that “must have it now” buyer and cash in.  As the property ages on the market, the bank will employ price drops and gauge the response they receive.
    2. Unless the price drop is what you want to pay, don’t get too excited.  The price drop rarely means “get it sold at any cost,” and usually means “okay, that didn’t work, let’s drop another 5% and see what kind of activity we get.”  If they get an offer from you, Mr./Mrs. Ca$h investor within 24 hours of a price drop, at 70 cents on the dollar, they’re going to reject it to see what other interest they will have.   You want to look at inventory that is in days fifteen through thirty after a price drop.
    3. Play the offer until it’s dead. I can’t stress this enough.  Do not be the one to walk away.  Keep submitting a price until the bank rejects the offer.  Persistence pays off, big-time.  If your offer is rejected, plan to resubmit in thirty days.

    As you can see, the timing is extremely important when dealing with bank REO’s, expect a high failure rate, although, I wouldn’t accept zero for forty again, I would be happy with one for ten, or even a little worse. 

    The bottom line is, you can’t buy properties if you don’t write offers.

    Sound off, what are your strategies for buying Bank owned properties?  Comment below and share the wealth!

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