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January 02, 2007

Are Bank Repos, Short Sales or REOs More Likely to Negotiate?


I recently had a conversation with one my clients regarding a bank owned property he found for sale on our website, while searching our Placer County bank repo and REO page. He wanted to know how much wiggle room there was in the price, considering that it was a bank repo. I have also had a few conversations recently with other Realtors about bank repos, short sales and REOs (Real Estate Owned Properties), and have received some second hand reports about the troubles that Realtors who specialize in bank owned properties are having. These conversations, along with my need to know the ins and outs of the local real estate market, have lead me to ask the question, will banks negotiate a better deal than the average seller?

Between 7/02/06 and 01/02/07 36 Placer County homes in the MLS sold that were either bank repos, short sales or REOs. That is an average of 6 bank negotiated properties sold per month.

There are currently 176 bank repos, short sales or REOs listed for sale in Metrolist MLS for Placer County. If you take the 176 listings for sale and divide that by the average of 6 sold per month, you will find there is a 29.33 month inventory of bank repos, short sales and REOs. At the same time, there is a 7.6 month inventory of Placer County homes for sale in general, as calculated in our most recent post for Placer County Home Sales.

On average, banks received 97.7% of their asking price for the 36 properties sold in the last 6 months, while the residential market as a whole in Placer County received 96.68% during the same period. This means that on average Placer County sellers took 3.32% less than their asking price during the six month period, while banks only took 2.3% less than asking.

The greatest percentage discount and dollar discount in asking price that a bank accepted during the past six months in Placer County was 8.53%. This was on a home on Diamond Oaks in Roseville that was sold as a short sale, where a $429,000 offer was accepted after asking $469,000. That is the maximum discount in asking price that a buyer received during the six month period for a short sale, bank repo or REO in Placer County.

The average discount that buyers were able to negotiate on short sales, bank repos or REOs was $9,688. In the month of December the average discount negotiated for all homes sold in Placer County, bank owned or not, was over $18,000.

11 of the 36 short sales, bank repos and REOs actually sold for at or above their asking price.

These statistics have made it pretty clear for me that a buyer should not expect to negotiate a better deal with the bank than with any other seller. On the contrary, it has led me to believe that you have a better chance to negotiate the price down with a seller who is not a bank.

This also explains why so many short sales, bank repos and REOs are sitting on the market and why they are selling at a pace 3.8 times slower than the average Placer County home.

This doesn't take into account how well priced the properties are before an offer is accepted and that may be a reason why they are less willing to negotiate. But, if they were well priced to begin with, they would be selling at a faster rate. The fact that there is a 28.9 month inventory of these listings is enough evidence to show that they are overpriced and that banks should either lower their prices or accept less when offers are made.

The reluctance of banks to lower their prices and accept lower offers is a sign to me that they think the market will improve sooner rather than later. However, I may be giving them more credit than they are due and it may be because they are understaffed, lack good information or are reluctant to take action. I hope that it is because they are betting on the market improving.

My gut told me that the numbers would work out this way, but all the years of infomercials and investment books made me question the obvious. I like many others believed at one point that bank owned properties were an opportunity to find a property at a discount to the market rate. The reality is that they are not negotiating their prices any more than other sellers. So, if a bank owned property does not look well priced to begin with, a buyer should not expect to have a "low ball" offer accepted. There is not a lot of wiggle room with banks and they will not negotiate a better deal than the average seller.

If you would like to view an up to date list of Placer County bank repos and REOs, click Placer County bank repos and REO for sale.  If you have a home that you would like to sell that may be a short sale, please feel free to call us at 916-728-1981, e-mail us at pat@patandalison.com or leave a comment below. We would love to help.


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Foreclosure Portland Says:

Short sales are looking even better right now. I noticed the inventory is raising locally. Might be a good thing for investors.

Patrick Hake Says:

Short sales are an excellent option for investors.

I find that they are difficult for owner occupant buyers, because they tend to become emotionally attached to the home during the negotiations.

Short sales have a very low success rate when compared to owner occupied and REO homes.

So long as an investor is willing to make an offer for a short sale and then move on while waiting for a response, it can work.

If an investor is very picky about the style of home they want, short sales can be very frustrating for them and should probably be avoided.

It will probably take multiple offers on different short sales, before one is actually approved by a bank.

The good news is that banks seem to have become more open to accepting short sales as the market has gotten worse. Now that they have large inventories of REO properties and see more coming, they have become more willing to do what is necassary to avoid taking more homes back.

Shel Says:

Does anyone know if one particular bank is more lenient in their negotiations than others? Does anyone also know if whether or not with all of the new government legislation, real estate negotiations will be more lax?

Patrick Hake Says:

Unfortunately, the data I have will not allow me to compare the tendencies of particular property owners, including banks.

The ownership information for each property is recorded in tax records, while the sales prices and listing prices are recorded in the MLS. Often times the owner of record is not necessarily the negotiating party. Many banks have turned over the process to third parties to handle the sale of their assets.

On a case by case basis, I can look up both ownership and sale information, but I have no way of pulling ownership information and sale price information for the whole market.

Anecdotally, I have not seen too much of a difference in negotiations between one bank and another.

In the Placer County market REOs tend to be the most aggressively priced properties and therefore garner the most attention from buyers. The reason they are so tight in negotiations is because they typically receive multiple offers on well priced properties.

The properties most likely to be negotiated down in price are also the ones that are the most over priced to begin with and are the least likely to have other buyers interested.

If you want to negotiate with the banks to see if you can work out a good deal, I would try writing offers on properties that have been overlooked and have been on the market for awhile. Determine what the property would sell for quickly in the market and then offer slightly less than that.

If you write the offer with a fast close, a healthy down payment and deposit, As-Is, with a short inspection period and a strong direct lender approval letter, you may be able to get them to come down.

For the properties that are priced right to begin with, it is not so much a matter of what you should do to get them to come down, it is a matter of what will you need to do to get your offer accepted before one of the other 10 offers is accepted.

captive insurance companies Says:

Shel, I believe there are certain banks, but to find them you have to really search them out. Wells Fargo, for example, would be a bad bet. They aren't very lenient in their negotiations at all, at least not in my personal experience.

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