Factors That Determine REO Pricing

What every investor would love to know is the lowest price the bank will accept in an REO transaction.  In the first quarter 2010, REO’s in the state of Florida sold 37 percent below market value.  Those are numbers that investors like and that is one of several reasons why real estate in Florida is attracting local, national and international investors.


It is critical that the investor relate to the bank’s selling position.  Banks are not in the business of owning residential real estate.  Banks make money by making good loans, not by servicing real estate. 


When a bank takes possession of a residence, the bank quickly begins to incur overhead.  Usually the bank will perform very basic repairs; just enough to make the home safe, then determine a price and turn the property over to a brokerage to sell.  REO’s are sold “as is” meaning let the buyer beware.


The most fortuitous time for the investor to approach the bank is after the bank has taken title and before the property is listed.  The absence of a commission makes the investor’s offer that much more appealing.


However, REO markets are like other markets.  Supply and demand influence pricing.  If the bank holds an inordinate number of properties, they may decide to discount a specific number of their holdings just to reduce their inventory.  Another option is to deeply discount the selling prices for an investor who might take several properties off their hands at one time.


Foreclosure actions are subject to public notice.  Experienced investors have a fairly good idea which banks have excessive holdings.  Credit qualified investors should meet with REO department heads and let their interest in bulk discounts be known. 


Like other events in a real estate transaction, timing can be an important factor.  If your offer on one REO property is not accepted at first, follow the property.  Don’t be afraid to make the same offer if the property has not sold within a couple months.  If the bank was not interested in your bulk purchase idea, keep reminding the department that you are still in the market.  Timing may not be everything, but timing has resulted in good fortune for many investors.








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