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4 Ways To Make Banks Say “Yes” To Your REO Offer

Key Takeaways

  • Almost all REO properties are sold for less than their true market value, offering a great option for investors looking to improve spreads.
  • Big banks are more likely to accept your REO offer if you decrease your number of contingencies.
  • Offering to pay in all cash will help your REO offer stand out.

It’s not uncommon for both new and experienced investors to ask the same question: What is REO investing? You’ve probably heard the term REO property, but never quite understood the process of acquiring such a deal, let alone how to make an REO offer.

For those new to the strategy, REO properties are those that have been reclaimed by their original lender: the bank. Banks don’t want these failed mortgages on their records and, therefore, sell them at reduced prices (providing a unique opportunity for investors). Don’t feel overwhelmed; this strategy is for anyone interested in pursuing a dream of financial freedom through real estate, even beginners.

Not only do you receive properties well below market value (increasing your chance to profit), investing in REO deals also allows you to buy real estate free of title liens and other claims, and will help to diversify your investment portfolio.

It all starts with making the right REO offer, so let’s start there.

How To Make Your REO Offer Irresistible

reo property

Investing in REO properties is a great addition to any investment portfolio, and also has the potential to help you profit big time. However, if you’re offer never gets accepted, you won’t be able to take advantage of the benefits. Help your bid be chosen every time by adhering to the following tips:

1. Offer a quick closing: Fortunately for investors, a bank owned property comes with a highly motivated seller. Why? Because banks want to rid themselves of these money sucking homes as quickly as they can.

Whether you’re new to real estate investing or a seasoned pro, you should be well aware of the benefits that come with motivated sellers. Motivated sellers are exactly that: motivated to sell; they are typically more willing to negotiate terms (like a lower selling price) if you can close their deal fast. Banks and REO properties are the same way.

The average closing window to complete a deal is approximately 30 days. Because you are (most likely) receiving a great price for this property, closing in less than 30 days should be no problem. Luckily, while it is easy for you, it’s often enough to impress the bank. Consider offering to close in five days. While this may seem like an obscenely short amount of time, it is worth making a shocking bid to entice the bank, if, of course, you have the funds. Chances are, the bank won’t be able to process the sale in a week to begin with. But you’ll come out looking like the hero (with a new rehab or wholesale property to show for it) and the specific lender may be more likely to want to work with you in the future.

While offering a quick close won’t necessarily guarantee the sale, it will definitely give you an edge over the competition.

2. Forego an inspection: Similar to offering a quick close is foregoing an inspection process. Why? For the same reason that banks want to sell: they want to sell fast. While an REO property can be extremely beneficial to an investor, these properties can be a huge drain on a bank.

The advice to do without an inspection is not something you will hear often; however, if you’ve found a property you know you can profit from, offering to skip the inspection process is a great way to entice the bank. If you do choose this route, it’s vital to note the importance of minding your due diligence. The property must be a low enough price to where you can still profit supposing the worst of the worst occurs (think foundation damages, roof leaks, mold, etc.).

Keep in mind, an inspection is a contingency, not a requirement. Meaning, if you assess the property before you make the bid, you can skip an official inspection to make your offer shine. Banks will appreciate the less work involved on their end and you have a better chance of reaping the reward.

3. Pay in cash: If there’s one thing to be sure of, it’s that cash is king, especially in the eyes of a bank who possesses an REO property. You may have the best offer letter in the world packed with beneficial contingencies for the selling party, but they mean nothing without cash. If you’re ready to put cash (or the equivalent) on the table, your offer will be next to impossible to pass up.

A number of successful investors attend REO auctions with their pre qualification letters direct from their hard money lenders ready to buy property. While these investors can be great candidates, usually offering full (or close to full) asking prices, they cannot compete with cash buyers. In fact, I am personal friends with an investor who checked the MLS only to find that a number of the REO properties he was after were sold for less money to investors offering cash.

If this option is possible for your budget, paying in cash is a sure fire way to stand out. Bring a physical statement from a line of credit that proves you have the funds next time you meet with a bank selling an REO property and watch a dramatic improvement in your results.

4. Be unique: There are certain occasions where doing things “by the book” can actually hurt your chance of getting an offer accepted, especially in the case of REO deals. Some unique examples include.

  • Offer an obscure number: When banks are sifting through the offers for say a $100,000 property, they are seeing a lot of the same thing over and over again. If they come across an offer like $100, 158, chances are you’ll stand out. At this point, the bank will be more willing to read through the rest of your offer.
  • Split Fees: There are other fees, aside just the cost of the property, associated with closing an REO deal. Transfer fees, escrow fees, and title insurance fees are just a few examples. Offering to split these costs will prove to the bank that you mean business.
  • Submit a pre-approval letter: While this may sound obvious, not everyone will submit a pre approval letter from their lender when making an offer. Be sure to keep in mind that pre-qualification and pre-approval are two entirely different things. A bank won’t care if you’re simply pre qualified, they want to know that if they accept your offer, that you’ll be ready to go.
  • Be Friendly: Who says that buying foreclosed properties has to be a serious transaction from start to finish. Despite negative stereotypes, bank lenders are people too. They have families and hobbies and probably like to talk about them. Get to know the banker you’re working with and humanize the experience. If the bank has it narrowed down to two offers, who do you think they’ll choose? The investor who forgot their name, or one who asks about their wife and kids?

Take the bank’s inventory off their hands by making an REO offer that is impossible to refuse. Consider these tips before meeting with your banker and come home with a brand new REO property and chance to profit.

Have you had success making an REO offer? Share your strategies in the comments below.

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