Nailing the REO purchase offer

Flickr photo by bradleygee.

Q: I've made offer after offer on bank-owned properties. The last time I was outbid, I was really disappointed because I loved the house! I was really hoping it would fall out of escrow, so I kept an eye on the listing, thinking there was a small chance it would come back on the market. Instead, it just disappeared.

I asked my agent to follow up on it about 45 days later, and she told me that it sold, but the sale price was less than I offered! I'm not sure if this was an inside job (e.g., the listing agent sold it to her own client to get a double commission), but I'm thinking of calling up the listing agent and giving her a piece of my mind. What did I do wrong?

A: The answer to your question is not super-clear-cut. However, there are some issues you might want to reflect on and revisit, and there's one big mistake you're on the verge of making that I'd like to save you from, if at all possible.

Like many buyers, you are clearly caught in the competitive, auction-esque atmosphere of multiple offers resulting from all the other first-time homebuyers who are trying desperately to close escrow by Nov. 30 to qualify for the $8,000 federal tax credit, plus an influx of cash investors who sense that prices might have bottomed out.

Our analysis of what went wrong must start at the time you realized you were competing for the property. Did you go to your absolute top dollar for that property? If not, you were setting yourself up for wannabe buyer's remorse later on.

On the flip side, did you look at the recent sales prices of comparable homes in the neighborhood? Many banks have gotten clued in to the fact that so many buyers fake them out by offering to pay a price way higher than the appraisal "comps," just to come back when the property doesn't appraise and request a price reduction.

In private conversation, my colleagues who list bank-owned homes have marveled at how zealously the asset managers to whom they report have started to vet purchase offers for "appraisability," some even going to the extreme of looking suspiciously at offers way higher than the asking price.

So, if you offered some amount bizzarely beyond what the place could appraise for, your offer might have gotten caught in the ultimate homebuyer's Catch-22: You want to offer a high price, but too high might red-flag your offer as a possible bait-and-renegotiate.

The only way I know to ensure that you beat out other offers without tripping the asset manager's nonsense detector is to make your offer with no appraisal contingency -- something you don't want to do unless you're either (a) very certain the property will appraise at the purchase price, or (b) comfortable coming up with cash to close the gap between the appraised price and your offer price. ...CONTINUED

All rights reserved. This article may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this article without permission is a violation of federal copyright law.