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Real Estate Investing Forums †|† Real Estate Investing †|† Foreclosures, Short Sales, Tax Foreclosures, Tax Liens Forum (Moderators: $Cash$, Bluemoon06, kdhastedt, Mdhaas, motivatedceo) †|† Topic: Negotiating counter offer prices in TX with Fannie Mae owned property « previous next »
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Author Topic: Negotiating counter offer prices in TX with Fannie Mae owned property  (Read 15005 times)
ballgum
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« on: December 23, 2008, 06:28:41 PM »

I got an offer accepted by Fannie Mae on a discounted foreclosure property. The accepted offer was for 3k less than what they had it listed for (accepted offer price 130k). I just had an inspection done today and ultimately it just needs cosmetics and only thing major at this point really is 2 missing a/c compressors. It was built in 2002 so alot of the major stuff is not an issue at this point. The area is just OK and not a very hot area. There are some other foreclosures and vacants in the area as well.

My inspector is writing a detailed report with photos and mentioned everything under the sun as being wrong for negotiating. I'm also having my a/c guy do an estimate of repairs for a higher repair cost than just for 2 compressors.

My question is, what kind of negotiating room do I have? Can I counter at 10k less than accepted offer price or is that too much? I don't think they would flat turn me down but maybe re counter since it's an accepted offer with proof of funds. Please advice on a percentage or wiggle room I have to counter. Thank you
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ballgum
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« Reply #1 on: December 23, 2008, 06:30:54 PM »

My realtor is saying that he usually sees accepted counter offers in the range of .5 - 2% of the offer price. This seems somewhat low?
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ballgum
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« Reply #2 on: December 24, 2008, 08:47:52 AM »

Anyone??
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Dave T
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« Reply #3 on: December 24, 2008, 11:34:46 AM »

Fannie Mae sells their REO property in "as-is" condition.  This means that they won't pay for any repairs.  What does your inspection contingency say?  Can you void the contract if you don't like your inspection report, or only if your inspector finds hidden defects?

Fannie Mae probably has their own inspection report, or can order their own.  When they compare their report with yours, it will be obvious if you have "padded" the report.  In my experience, Fannie would rather come in and fix up a property and get their list price, rather than give a huge repair concession.  The last time I dealt with Fannie Mae, they would not reduce their sale price more than 5% below list. 
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ballgum
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« Reply #4 on: December 24, 2008, 11:51:47 AM »

Fannie Mae sells their REO property in "as-is" condition.  This means that they won't pay for any repairs.  What does your inspection contingency say?  Can you void the contract if you don't like your inspection report, or only if your inspector finds hidden defects?

Fannie Mae probably has their own inspection report, or can order their own.  When they compare their report with yours, it will be obvious if you have "padded" the report.  In my experience, Fannie would rather come in and fix up a property and get their list price, rather than give a huge repair concession.  The last time I dealt with Fannie Mae, they would not reduce their sale price more than 5% below list. 

Thanks for the reply. So they did go down 5%? If for instance I were to counter at 122k against the current 130k price, they wouldn't just decline the offer and would most likely counter with their offer then correct?

My estimate for a/c work was a little off as well. I estimated about 5k and it needs all new inside and outside units (8k).

Here's what is in the contract:

"CONDITION OF PROPERTY: THE PURCHASER UNDERSTANDS THAT THE SELLER ACQUIRED THE PROPERTY BY
FORECLOSURE, DEED-IN-LIEU OF FORECLOSURE, FORFEITURE, TAX SALE, RIGHT OF EMINENT DOMAIN OR SIMILAR
PROCESS AND CONSEQUENTLY, THE SELLER HAS LITTLE OR NO DIRECT KNOWLEDGE CONCERNING THE CONDITION
OF THE PROPERTY. AS A MATERIAL PART OF THE CONSIDERATION TO BE RECEIVED BY THE SELLER UNDER THIS
AGREEMENT AS NEGOTIATED AND AGREED TO BY THE PURCHASER AND THE SELLER, THE PURCHASER
ACKNOWLEDGES AND AGREES TO ACCEPT THE PROPERTY IN "AS IS" CONDITION AT THE TIME OF CLOSING,
INCLUDING, WITHOUT LIMITATION, ANY HIDDEN DEFECTS OR ENVIRONMENTAL CONDITIONS AFFECTING THE
PROPERTY, WHETHER KNOWN OR UNKNOWN WHETHER SUCH DEFECTS OR CONDITIONS WERE DISCOVERABLE
THROUGH INSPECTION OR NOT. THE PURCHASER ACKNOWLEDGES THAT THE SELLER, ITS AGENTS AND
REPRESENTATIVES HAVE NOT MADE AND THE SELLER SPECIFICALLY NEGATES AND DISCLAIMS ANY
REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTEES, IMPLIED OR EXPRESS,
ORAL OR WRITTEN IN RESPECT TO:"
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christopher w
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« Reply #5 on: December 24, 2008, 02:37:05 PM »

Is it still a good deal if you have to come out of pocket for the 8K? What part of Dallas are you buying in?
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Christopher W
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ballgum
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« Reply #6 on: December 24, 2008, 02:48:10 PM »

Its in N. Garland. It should cash flow about $200/month total as a rental.

Also during the inspection, I found out that there is only 1 water meter so I'll either need to setup another meter, pay for water, or somehow divide the water bill among the tenants each month...
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« Reply #7 on: December 25, 2008, 05:13:41 PM »

The first problem I see with this deal is the fact that you're worried about getting the offer rejected. Fanniemae has millions of properties all over the map. Each agent has a lot of properties that they are listing. You being concerned about whether 1 deal falls through means you're not working with enough deals. Think of it as a numbers game of sorts.

Second, you don't need to present a case as to why you want to knock down the asking price. You don't need a reason at all. You come up with your price based on your calculations of your profits or cash flow, then thas the maximum you're gonna offer. Your attitude needs to be take it or leave it to the agent, not the other way around. If they don't like your asking price, move on to your next deal. You can find 50 fanniemae houses for sale in a particular area for 50% below value or less in like 15 mins. You need to learn how to send offers out quickly, and only go to inspection on properties where there's already a massive mairgin, not the other way around.

Third, the good thing about tossing out your offer and not worrying whether they accept it is that the agent will remember you if 6 months down the road the property doesn't sell (which happens more often than you might think). The agent might be able to show you other properties in the range you are asking, and for yourself personally you can mentally let go the outcome rather than thinking too much about it like you're doing now.
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Dave T
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« Reply #8 on: December 27, 2008, 08:38:59 PM »

What most everyone else missed in their response to you is that you have already made an offer that Fannie Mae has accepted.  You are locked into your purchase price.  You have this property under a legally binding contract.

Even though your inspector found a lot of things to repair, you would have seen most of that for yourself when you viewed the property prior to making your offer.   We presume that your offer took all the repairs into account.

The question you asked, "what kind of negotiating room do I have", is moot.  You presented an offer and it was accepted.   The negotiating period is over, you no longer have the chance to counteroffer.  I suppose you can always walk away from the deal and forfeit your earnest money deposit, but don't be surprised if you find yourself blacklisted by the real estate agents in your area.

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Equity
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« Reply #9 on: December 27, 2008, 10:47:01 PM »

Seems to me itís a done deal.  They offered the property, you countered less, and it was accepted.  Donít you inspect your properties before you make an offer?

Using rules of thumb from an agent is dangerous, especially in a declining market, since your goals are completely different.  Theirs is to close deals and make a commission.  Yours is to make a profit (apparently) from cash flow.  I suggest you set your own numbers based upon conservative investment criteria.  These should include current and predicted market conditions, the condition of the property, and the associated rehab costs Ė not ďtypicalĒ (i.e. made up) percentages quoted by an agent.

You do have an investment criteria donít you?  If yes, then this should be a killer deal.  If not, it looks like you bought a mistake.

One graceful out for you would be to hold their feet to the fire.  If they blow a deadline by one day, and Iíve never had an REO close on time, then you can legitimately walk.
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ballgum
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« Reply #10 on: December 30, 2008, 11:12:50 AM »

Seems to me itís a done deal.  They offered the property, you countered less, and it was accepted.  Donít you inspect your properties before you make an offer?

Using rules of thumb from an agent is dangerous, especially in a declining market, since your goals are completely different.  Theirs is to close deals and make a commission.  Yours is to make a profit (apparently) from cash flow.  I suggest you set your own numbers based upon conservative investment criteria.  These should include current and predicted market conditions, the condition of the property, and the associated rehab costs Ė not ďtypicalĒ (i.e. made up) percentages quoted by an agent.

You do have an investment criteria donít you?  If yes, then this should be a killer deal.  If not, it looks like you bought a mistake.

One graceful out for you would be to hold their feet to the fire.  If they blow a deadline by one day, and Iíve never had an REO close on time, then you can legitimately walk.


I'm not sure if you read my post or not... As I stated, it will cash flow about $200/month using 50% rule with the accepted price. I didn't blindly make an offer... BUT if I can adjust the price AFTER inspection I will. I'm not sure why I'm getting slammed on this question. What do you people do when an inspection comes back with more repairs than what you thought? You either back out of the deal or you lower the price, no? That was more or less my question - how far will the bank generally drop the price if they think a place needs more repairs....
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ballgum
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« Reply #11 on: December 30, 2008, 11:27:03 AM »

The first problem I see with this deal is the fact that you're worried about getting the offer rejected. Fanniemae has millions of properties all over the map. Each agent has a lot of properties that they are listing. You being concerned about whether 1 deal falls through means you're not working with enough deals. Think of it as a numbers game of sorts.

Second, you don't need to present a case as to why you want to knock down the asking price. You don't need a reason at all. You come up with your price based on your calculations of your profits or cash flow, then thas the maximum you're gonna offer. Your attitude needs to be take it or leave it to the agent, not the other way around. If they don't like your asking price, move on to your next deal. You can find 50 fanniemae houses for sale in a particular area for 50% below value or less in like 15 mins. You need to learn how to send offers out quickly, and only go to inspection on properties where there's already a massive mairgin, not the other way around.

Third, the good thing about tossing out your offer and not worrying whether they accept it is that the agent will remember you if 6 months down the road the property doesn't sell (which happens more often than you might think). The agent might be able to show you other properties in the range you are asking, and for yourself personally you can mentally let go the outcome rather than thinking too much about it like you're doing now.

Maybe in your area... IF I see a good deal on an REO, either there is a reason or there is competition. If I toss out lowball offers, it is wasting my time and my agents time. They don't even look at offers if they are to low. IN FACT, this just happened to me. I made an offer (not even 50% of market value), and the bank told me not to make anymore offers on their properties unless I raise my prices to a "realistic price". This property was kind of a craphole in a not so good area. It has also been on the market over a year.

This has happened to me over and over with REO's. I'm not sure how people are getting 50% REO's unless it has to do with the area you're in. They don't seem to want to let property go even if it's been sitting for along time and needs repairs.

So while I am a new investor, I am trying to take advantage of the market and pick up a property or two in this market. To me, since my lowball 50% offers aren't even being looked at, that tells me I need to be somewhat competitive with my offers. The other thing I've noticed is, as soon as a bank lowers their price, they will get a few offers (again not at 50%). Tell me, why would a bank accept some lowball offer if they are getting competitive offers from investors?

Maybe I'm just missing some things, but this has been my experience thus far with REO's... It has been hard enough for me to find REO's that even CASH FLOW, much less for 50%!
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Dave T
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« Reply #12 on: December 30, 2008, 01:11:52 PM »


BUT if I can adjust the price AFTER inspection I will. I'm not sure why I'm getting slammed on this question.

Not trying to "slam" you, but you don't seem to get what I am saying.  You made an "as-is" offer and it has been accepted.  The negotiations are over.  


Quote

What do you people do when an inspection comes back with more repairs than what you thought? You either back out of the deal or you lower the price, no? That was more or less my question - how far will the bank generally drop the price if they think a place needs more repairs....


In a typical contract with a homeowner/seller, the language of the contract will contain an inspection contingency which will allow a certain leeway to negotiate a repair concession or a price adjustment based upon an inspection report, or to withdraw the offer without penalty. 

You are not in a typical contract.  You have an "as-is" contract that has no inspection contingency.  You have a contract that says the seller will not make any repairs, nor give any repair concessions for whatever problems your inspector may find.  You have a contract that says that you have already taken the condition of the property into consideration and the cost to remedy any problem is already reflected in your offer "AS A MATERIAL PART OF THE CONSIDERATION TO BE RECEIVED."  Presumably, you did this and that is how you arrived at your offer price of $122K ($130K list minus $8K repair).

You have no leeway at all to negotiate a repair or price concession, now that your offer has been accepted.  The lender will only lower the price if the property stays on the market for a period of time without any acceptable offers.
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Equity
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« Reply #13 on: December 30, 2008, 08:36:53 PM »

I guess thatís the problem with using ďrulesĒ.  Iím not sure what a 50% rule is regarding REOís, but if it means you donít inspect the property before you make an offer (and nowhere in your posts do you state you performed a pre-offer inspection) then youíre taking a big risk with what I believe to be a failed and overly general strategy. Donít take it personally.

No one is slamming you.  Youíre signing legal documents that youíve clearly read and then claiming ďdo overĒ after establishing costs you should have known initially.  Nor could anyone on this board tell you if 10k less is ďtoo muchĒ without knowing anything about the property, the area, the comps, or your investment criteria.  Your question is vague.

... What do you people do when an inspection comes back with more repairs than what you thought? ...
I either donít make an offer, or I make one low enough to ensure I can make a confiscatory profit on the deal.  My offers are not always the highest but I make sure they are the best (all cash, 10 day close, no contingencies whatsoever, etc).   I donít care what the bank says (I set my own price, not the bank) and if someone is willing to pay more then me, then I let the bank decide who they want to do business with.  I win some, I lose some, but I always enter a deal with my eyes wide open.

If it makes you feel better, ballgum, I recently closed on a property for $45k with a 3 month old ARV of $160k and with estimated repair costs (pre-offer) of $25k.  Weíre usually accurate within about +/- 10% but, in this case, we blew it and the actual repairs will cost around $40k.  There is still some meat on the bones so Iím currently deciding the direction I want to go on this particular property.  We all make mistakes and this will not be your last.

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50% homes
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« Reply #14 on: January 04, 2009, 01:31:36 AM »

Ballgum:

The reason why it seems like you are getting slammed, is because the people who know their stuff on this forum are telling you like it is. You seem to have made a few mistakes with this deal. But sometimes, that's the only way to learn.

Garland, is like any other texas town. Im in houston and can't imagine it much different in the dallas metro area. There are plenty of deals at 20-50% off FMV after repairs. There is money to be made, you just need to know how and where to look.  If your strategy isn't working, then you change it. If you where in Houston, I'd help you find some deals. Regardless, you shouldn't have a problem finding wholesalers or bird dogs in dallas.

I've never offered 50% off an asking price, to get a house at 50% off. Makes sense? Wait for the house to get a price reduction and then make a good offer. Or you can wait for the homes that have been on the market for a while to offer less.  Or just look for the right REO. Many banks will list their ugly homes at killer prices. Or go look for distressed sellers to get cheap homes.

In my opinion, if you are a ready enough to purchase a rental in this market, you should have the smarts or contacts not to have to hire an inspector. You need to be able to walk the home and gauge the repairs needed, or have a contractor walk it with you to give you free estimates. Plenty do. In all the investment homes I've purchase, I've never hired an inspector. Waste of money for me. I'll keep that $350 and get a few nice dinners with the wife. biggrin

I wouldn't really call $200 good cashflow in this market, for a home in texas you are buying at $130k. You want cashflow? i just bought a home for $40k, put $5k in minimal repairs, and rented it for $950 a month. beer

Most importantly, like EQUITY implied. You need to make sure you go into a deal planning for a worst case scenario. If the worst happens, you still make money.  I remember a couple years ago, I bought a home which I thought I could sell for 105k, I ended up selling for 84k, but I still made 30k profit. Not the 50k I anticipated, but I planned for it from the get go. If that extra expense in the a/c repair are gonna hurt you that bad. You didn't make the right offer.

BTW: Most, if not all REO properties will not renegotiate the sales price after they have accepted an offer. Unless the property was vandalized during the contract period or if the property has been stagnant for many months and your offer was the first.

Good luck
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Real Estate Investing Forums †|† Real Estate Investing †|† Foreclosures, Short Sales, Tax Foreclosures, Tax Liens Forum (Moderators: $Cash$, Bluemoon06, kdhastedt, Mdhaas, motivatedceo) †|† Topic: Negotiating counter offer prices in TX with Fannie Mae owned property « previous next »
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