Possible REO deal. Need help. - Posted by Laurie (NC)

Posted by Randy (SD) on March 09, 2004 at 11:27:37:

Most REO’s listed with realtors are listed for 85% of FMV (this one falls right in line with that formula). Since you are experienced investor suggested offering $65,000 if you trust this individual than that should be your offer. I would definitely get estimates from contractors prior to making an offer, this helps substantiate the reduced offer. Regarding your question evaluating comps, read in the following articles
How to Determine Market Value
by J.P. Vaughan

Possible REO deal. Need help. - Posted by Laurie (NC)

Posted by Laurie (NC) on March 09, 2004 at 10:00:20:

Sorry this is so long… I have looked at a brick/wood 3BR/1.5BA REO in NC. Here are more details: Asking $75,500 (listing realtor said home could probably go for $80/85K), 1252 sf, built in 1979, $922 annual taxes, on market 1 month, good condition. The listing agent provided me with these “sold” comps:

Location/Desc SF YearBuilt SoldPrice BR/BA

1)home next door 1257 1979 $74,500 3/2
wood siding,HUD, had mold
2)home down street 1064 1979 $67,100 3/1.5
brick/vinyl,HUD, had mold
3)Within miles 1034 1985 $80,000 3/1.5
4)Within miles 1116 1983 $89,900 3/2
5)Within miles 1508 1967 $86,500 3/2
All brick

I’m not sure of the repair/cosmetic fix-up estimate, but this is what apparently needs to be done:
1)get new carpet or clean light blue carpet, 2)upgrade kitchen cabinets (have old brown cabinets, but could paint white), 3)wood siding on sides has some water damage, so was considering fixing/painting them or replacing w/vinyl siding, 4) paint front and back wood siding 5)stove & DW look old and not sure of working condition (may just need cleaning, but may have to replace + new frig), 6)laundry room had some water damage due to leak from washer, so I plan to get plumbing checked/repaired, and paint entire laundry room 7)other cosmetics.

My 1st question, using the comps, how do I determine FMV or ARV (do I calculate an average)? I understand the 70% ARV - repairs - closing and holding costs,etc, but am considerng offering $65,000. I had an experienced investor look at the home & he suggested me offering $65,000 and cosmetics & repairs should cost ~ $1,000 using his rehab crew. Should I waste time getting estimates from contractors prior to making an offer, or should I make my offer 1st and then negotiate price if my offer gets accepted and after inspection? I would like to rehab the home and reselling over the next 6 months. My exit strategy would be to sell L/O or rent to Section 8 tenant.

Re: Possible REO deal. Need help. - Posted by Nike

Posted by Nike on March 09, 2004 at 12:09:51:


You must get your own comps- and do your own analysis. Listen to others but confirm everything on your own. Approach a broker- tell her you’re interested in a property and you need all comps. Don’t focus on list price rather focus on what you believe the home is worth.

You mention that one of your exit strategies is to rent sec.8–if there’re many sec. 8 tenants in the area I suggest you factor that in when you determine what you’re willing to pay. Assuming 80k is ARV- 65k is too aggressive particularly given the repairs you outlined. Are you self-financing or do you need get bank financing? This deal is too tight at 65k. Remember you will have closing costs, holding costs, repair costs–1k for all you outlined is low–does that include labor and materials??

If the home is an area you like–get to know the market–look at listed homes, get comps and drive the neighborhood and you will get to know property values. If the area has only a few REO’s that need merely cosmetic repairs then the buyers may be owner-occupants and you can’t compete with them. You may want to find areas that have multiple REO’s at giev time and focus there.

Good luck