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How Much Should I Offer for REO Properties?

Comparison between an REO and a Regular Property

Each foreclosure sale is different and requires a lot of details to be handled when buying a foreclosed (REO) property. Depending on many factors such as location, sub-division, local market, supply & demand, condition, time of the year, multi-offer vs. single offer, etc the suggested offer price varies greatly. Consult with your real estate agent regarding purchasing an REO or a foreclosed property.

There are many differences when purchasing an REO (foreclosed) property. Though, not all of them should negatively impact your decision, but you need to be informed and be aware of the differences. 

In order to come up with a reasonable suggested offer value for foreclosed properties we need to understand differences between an REO foreclosed property and non-foreclosed properties and put some values on those differences.

Due to the size, I have gathered and explained these differences in a separate article.

For more information and detail explanation of each difference please visit http://www.texasfivestarrealty.com/Foreclosure_Things_You_Should_Know.asp  or clink on the picture below.

 Differences between REO and Regular Sale

For those of you that would like to get an idea and interested in a “Rule of Thumb” formula, I have calculated the purchase price range as follow:

 

0.75 * ARV – RC =<     Purchase Price     =< 0.90 * ARV – 1.20 * RC

 Where;
ARV    = After Repaired Value

RC       = Repair Cost

 For detail information, reasoning and Mathematics behind this formula, please visit my page at:

http://www.TexasFiveStarRealty.com/How_Much_Should_I_Offer_for_REO_Properties.asp

Example: There is an REO property listed for $170,000 for last 8 days in the MLS. After viewing and inspection you find out this house needs some minor plumbing’s, painting interior, and carpeting replacement throughout the house. Due to the natures of the repairs, they cannot be done all at the same time. It is estimated to take about 4 weeks and cost about $10,000 to bring the house in a move-in ready condition comparable to the similar house in the same neighborhood which was recently sold for $206,000.

As a “rule of thumb”, utilizing our formulas we will have the following range for offer:

After Repaired Value (ARV)                           = $206,000
Repair Cost  (RC)                                           = $010,000                 
Adjusted Repair Cost = 1.2 * $10,000            = $012,000

 

Maximum Offer = 0.90 * ARV -1.20 *RC = 0.90 * $206,000 - $12,000 = $173,400
Minimum Offer = 0.75 * ARV - RC = 0.75 * $206,000 - $10,000 = $144,500

$144,400 =< Suggested Offer Price =< $173,400

For more information on Foreclosure Process and purchasing foreclosed (REO) property, please visit http://www.TexasFiveStarRealty.com/Foreclosure_Process.asp

For a current list of foreclosed (REO) properties in North Texas, please visit http://www.TexasFiveStarRealty.com/List_of_Foreclosures.asp

 Contact us about your Real Estate Questions

 

Equal Housing Opportunity Commission Bahman Davani REALTOR

Bahman Davani, CM
Broker/REALTOR®
ABR, GRI, CDPE, SFR,
TAHS, eAgentC, and
CCIM Candidate

Office: (214) 457-7055
Cell: (214) 457-7055
Fax: (972) 596-7984

P.O. Box 261665
Plano, TX 75026-1665

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Texas Five Star Realty
P.O. Box 261665
Plano
, TX 75026 US
Phone: 214-457-7055
Website: www.texasfivestarrealty.com/
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