How Much to Offer on Bank-Owned Property

Investing in real estate is a game of tactics, strategy, research, and timing.

While you’re always going to scour the active market for exciting opportunities, an entire field of investment often goes overlooked—the purchase of bank-owned properties.

Buying bank-owned properties is the practice of purchasing homes that have been foreclosed by banks due to the previous owner’s failure to make their agreed mortgage payments.

But as a less common approach to investment, much like seeking out off-market properties, key nuggets of knowledge like how much to offer on bank-owned property can often be lost on newer investors.

What’s most exciting about buying bank-owned property is the potential for purchases to be completed at prices lower than what you’d usually find on the market.

Bank-owned or real-estate-owned (REO) properties need to go quickly so the bank can clear the non-performing assets from their balance sheet, meaning angling for one of these homes offers the opportunity to make a sizeable profit.

However, knowing how to find bank-owned properties isn’t enough. We wrote this blog to explain how to buy a bank-owned property, covering everything from pricing factors to determining your offer price.

Understanding the Pricing Factors of Bank-Owned Properties

When figuring out how to buy bank-owned properties, it’s essential that you have a comprehensive understanding of the factors that will influence their pricing.

By nurturing this understanding, you’ll be able to assess the value of each potential purchase, while also giving yourself a head start on deciding how much to offer on bank-owned property.

Property Condition:

It’s important to remember that the condition of the property will have a huge impact on how its priced. The bank isn’t going to maintain the integrity of the home, meaning many REOs are sold “as is.”

As the previous owner defaulted on their payments, there’s a likelihood that the property will need some renovations or repairs, which will significantly increase the overall spend on your investment.

Location:

As with any real estate investment, the location of the property will significantly influence its price. Some areas are on the rise while others are declining, in everything from demand to development, as well as the quality of local schools and crime rates.

Consider all of these factors when assessing the price and potential ROI on a bank-owned property.

State of the Market:

The real estate market’s overall health, trends, and state of being can have a considerable influence on the price of a bank-owned property.

In a hot seller’s market, even these repossessed properties can see a multitude of offers, which in turn will drive up the price. Alternatively, a buyer’s market can offer you the chance to negotiate a lower price.

Resources like podcasts and blogs can be great for staying on top of the market.

Comparable Sales:

Also known as “comps” in the industry, comparable sales are the prices that similar properties in the same area have recently sold for. This is an essential research point, offering tangible data on the kind of price you should offer on a bank-owned property.

Thorough market research is critical when considering how to buy bank-owned property. Without a solid base of wisdom and knowledge on pricing factors, it’s impossible to make an appropriate offer.

However, while this understanding will point you in the right direction, other factors will influence how much you should be offering for an REO property. Beyond understanding, you also need a clear and calculated strategy, ensuring you don’t spend more than you have to.

Determining an Offer Price

After you’ve identified a bank-owned property that you’re interested in and assessed the state of its pricing, you have to come up with your own offer price.

Various factors will impact how much you should offer on bank-owned properties for sale, but it’s important to remember that you’re not just going for a “good deal”—you’re looking for a purchase that aligns with your overall goals as an investor.

Market Value

The first step should be determining the market value of the property. This will be an estimate based on what the property would usually sell for under the current market conditions.

The pricing factors discussed above will all come into play when considering the market value, which can be determined by professional appraisers. Once you’ve established a market value, you can put forward an offer based on it.

Repair Costs

As we know so many bank-owned properties are sold “as is,” there’s a good chance that you’ll need to invest in renovations and repairs before you can put the home on the market—a process also known as “flipping” a house.

Before you make an offer, it’s important to estimate these costs as accurately as possible, then consider whether the repairs you make will raise the value of the home enough to make the process worth it. Again, you can get assistance from a professional contractor or home inspector.

Potential Appreciation

Whenever anyone buys property, they’re hoping that the value will increase over time. This is no different when you buy bank-owned property, regardless of how long you’re planning to hold onto it.

If you feel that the area in which you’re looking to buy is up and coming with a lot of potential, it might be worth raising your offer to beat out any competition.

Leveraging Market Conditions and Recent Sales Data

Keep your eye on the market, using data from all recent sales or interactions in the area to provide a benchmark for your offer. It gives you some negotiating leverage while also providing you with more insights into the state of the local real estate economy.

If plenty of properties exist with fewer buyers, you could easily get a lower price, and the same goes for vice versa.

Conclusion

Equipped with the information from this article, you should now feel more confident in how to buy a bank-owned home or commercial space. While this can be a lucrative opportunity, it’s important that you approach it with caution and due diligence.

It’s not the same game as the typical real estate market, coming with various caveats and angles to consider.

The aspects that influence pricing and offer rate are largely similar, but it’s how you understand both of them in conjunction that will determine how much to offer on a bank-owned property at the end of the process.

Don’t feel ashamed to seek the help of professionals to get a better assessment of the situation, as that small investment could save you from a larger one falling apart.

For more valuable insights on the real estate market, check out our blog today.