Bank deals are different than private seller deals. Banks scrutinize your offer much more closely… but there is good news! There are reo deals available in most markets for you to make real estate offers on! Banks (specifically “REO” departments) do a lot of deals. They are in the trenches every day and get “blown off” all the time. Because of this they are systematic in their approach…
INVESTOR TIP: Their “BS meters” are finely tuned…
You are not going to get away with anything. You MUST do a double closing because they forbid contract assignments, whereas in a private seller deal, you should do an assignment and avoid a double closing.
INVESTOR TIP: Banks want YOU to close
A private seller doesn’t care who closes, as long as it closes under the terms initially agreed upon. So when you are submitting an offer on a house to a bank, there are some differences.
The vast majority of banks will rely on their broker to list, negotiate, and manage the sale of the house… any red flags you raise in their mind, and you are toast.
INVESTOR TIP: You Must Play by the Broker’s Rules
I get calls and emails on a regular basis from brokers who've received an offer on a property from one of my clients (like you) who's using my proof of funds and transactional funding. They call me skeptical that the money is really available for my client… so I quickly send them a bank statement, and when they see the proof their guard goes down.
I hear stories all the time about “newbie” investors who are doing it wrong. They use the wrong contract, they use too many contingencies, they call “pre-approved” offers “cash” offers, and so on.
Take a guess at what a broker does with your house offers when they sense that a “newbie” is presenting it? If you guessed… “THROW IT AWAY” … you would be right!!! They are experts at the “sniff test”. They get investors making offers on property day in and day out: who make exorbitant claims, but cannot back them up. This is actually good news for you!
While the majority of investors are making offers on reo deals the wrong way… you can do it the right way and whip your competition. You can be new to Real Estate investing, and still look and act like a pro.
How? Follow my lead. I have been doing this a long time and in this article, I am going to show you exactly what to do when making offers on houses that are ‘bank owned’.
These rules are unique to bank deals because private sellers don’t think about these things… they are not “in the trenches” every day.
8 Rules for Making Offers on Houses That Are “Bank-Owned”
1. Offer Earnest Money
Offer at least $500. The more you put up, the more real you look… especially if you haveno contingencies. Usually 1-3% of the purchase price is the agreed upon earnest money deposit.
2. Be Careful With Contingencies
Use as few contingencies as possible. I always include a title search as a contingency, however. Every buyer should do that, on every deal. This is customary. This tells you that there are no outstanding debts, judgments, or “clouds” on the title. The rest (home inspection, partner approval, etc.) are frowned upon and make you look like a “newbie”.
3. Use THEIR Contract
Brokers want you to use THEIR form, not yours. If you make it easy on the broker and they like you, they may have other deals around the corner for you. And don’t ask them to send their blank contract to you. This makes you look like you have never done a deal. You should look for the local Realtor Board Contract online and send it along with your “proof of funds” on your first offer to buy.
4. Make Sure You Have Proof of Funds
If you can’t prove your ability to close, the broker will not submit your offer to the bank. They are the gatekeeper for the bank and everyone is busy.
You need to include “Verifiable Proof of Funds” with your offer; which tells them that you are able to do, what your offer says you can do.
If you have cash in your bank, in a retirement account, or any other place, print up your most recent statement, “black out” your sensitive info, and then include that with the offer to buy the house. This is what a broker is hoping to see.
If you do not have the cash, then you will need to line up some funding. Funding sources like hard money lenders, private lenders and transactional funding are great alternatives depending on your deal and exit strategy.
5. Shoot For A 30-Day Closing
Some banks vary a little, but 30 days is the sweet spot. Banks want to know that you can close quickly (while giving them enough time to get their “ducks in a row”). They use systems to make the process easier for them to dispose of their REO properties. Make an offer for 30 days, but be flexible in case they ask for something different.
6. Expect Addendums
Each bank has their own set of rules. The best way to make an offer on a house is by using the local Real Estate Board approved contract because that makes the broker happy. But, that doesn’t mean that the bank is satisfied. They have processed thousands of these transactions and they know what is important to them and what is not.
So they have created their own contract which rides along with and supersedes your contract. This is what is known as an “addendum”. This is especially true when you are dealing with a major bank like “Bank of America” or “Chase”. They are lending and foreclosing all around the country, and they are getting offers from investors in all 50 states. Each state has several Board(s) of Realtors which means there are hundreds of different contracts.
The asset manager does not have time to read through each of them to make sure that there is no sneaky or otherwise unwanted language. So, they created their own addendum form and tell you that you have to abide by it, or they will find another buyer who will.
READ THE ADDENDUM! Then if there’s any question about what it says, ask the Real Estate Agent for clarification.
7. You’ll Be Buying The Property “As-Is”
Banks will not make repairs after you get a deal with them. Their addendum will make you purchase the property “as-is”. I wanted you to be aware before you submit an offer on a house though, because I have seen many investors attempt to re-negotiate with the bank after a few days of putting the property under contract. That won’t fly! Include some margin in your offers in case you find something “behind the walls”, etc. after closing. If you are wholesaling the property, you don’t need to be exact on repair estimates anyways.
8. Avoid Using “And/or Assigns”
Using “and/or assigns” is the fastest way to show the broker that you are “new”. In private seller deals, you would ordinarily include language in the contract that allows you to assign it. In bank deals, it’s a BIG ‘NO-NO’!
When you’re wholesaling you have to do a “double-closing” for foreclosure properties. You will incur extra closing costs, but the margins on bank deals make it worth it! Plus, if you’re using my “no fee” transactional funding, those costs are greatly reduced. Pan to close on the property in the name of your entity and sell it same day to your cash buyer.
Conclusion Making Offers on Houses That Are “Bank-Owned”
Now that you are aware of these 8 rules, you will be making offers on a house like a pro and you won’t make the same mistakes that most investors make when learning how to deal with each type of seller.
Private sellers tend to believe whatever you say… banks tend NOT to believe whatever you say. You need to PROVE it!!!
The next time you see a Foreclosure, VA, Short Sale, REO or HUD listing – go ahead and make an offer using my 8 simple rules listed above to help you close a grea real estate investing deal!