You can find bank-owned commercial properties for sale at auctions, on bank websites or via brokers. Once you’ve combed through REO listings and found what you want, it’s time to start thinking about your offer.
A commercial foreclosure may seem like the chance to pitch a lowball offer. The bank wants to sell the property quickly, right? Financial institutions don’t like to hang on to REO real estate. However, lowball offers on bank-owned commercial real estate can send the wrong message.
Make them an offer they can’t refuse—or at least one that puts you ahead of the competition.
Follow these tips for making an attractive offer on a bank-owned property.
6 Tips to Improve Your REO Offer Strategy
REO listings can be competitive. There may be several investors interested in a commercial property. When banks sell real estate owned properties (REO properties), they typically choose the highest or best offer.
You can set your offer apart by researching for a good price and paying in cash. You can sweeten the deal by offering to split fees or shorten the inspection period.
Consider these tips when determining how to make your offer for bank-owned listings.
Remember whatever price the bank accepts, it is probably a loss and will come off of the bank’s earnings for the year. It’s my experience that if you are a good customer of the lending institution or they want you as a customer, it could help your chances.
1. Get the Price Right
While real estate owned properties are often priced lower, financial institutions will try to recoup the defaulted mortgage. Don’t go in too low with your offer. Take some time to research the property and the market. That knowledge will help you come in at a reasonable price.
- Find out the property’s history. How much was the original purchase price? What was it priced at auction? What was the value of the property’s loan?
- Do market research. Perform an area market analysis to see how comparable commercial properties are priced. Look for similar square footage or property conditions.
- Research the listing agent. If the bank uses a specific agency, scan through their active REO listings or see if you can find what they’ve priced similar properties in the past.
- See how many investors are bidding. How many other offers are on the table? Knowing how competitive an REO commercial property is helps you price your offer.
Once you’ve done your homework, you’ll be better prepared to make a good offer.
2. Pay in Cash (And Bring Proof!)
Cash is hard to refuse. If you come in with a cash offer, the bank may put your offer ahead of those financing.
When making an REO cash offer, you must include proof of funds. You’ll need a physical statement from a credit line noting you have the funds available. Don’t walk in with a cash offer you can’t back.
3. Get a Pre-Approval Letter
If you’re not paying in cash, banks may favor your offer if you have a pre-approval letter. This letter is different from a pre-qualification letter.
A pre-approval letter means an underwriter has given you the green light, and you qualify for financing. Go the extra mile and get a pre-approval letter from a lender to increase your offer’s odds.
You may even want pre-approval from the lender who’s selling the property. Banks often trust their lending departments over those of other institutions. Getting pre-approval from the REO property’s current lender could increase your offer’s appeal.
4. Make Closing Quick
Whether you pay in cash or with financing, a short closing period makes your offer more attractive to banks. A commercial real estate deal has an average closing window of 60 to 90 days.
If you offer a shorter closing period, the bank can offload the property faster and reduce its risk. The quicker the closing, the better the deal.
5. Shorten Inspection Times
Buyers generally conduct inspections to learn more about a property’s current state. With REO properties, you know you’ll make repairs and updates after you purchase the property.
If you propose a shorter inspection time, you may increase the bank’s interest in your offer. From a financial institution’s point of view, quick inspection periods shorten the entire process and show that your offer is serious.
6. Offer to Split Fees
The sales process includes fees beyond the REO property’s cost. These fees are extra costs banks would rather not be responsible for. Splitting these fees with the bank is a great way to make your offer stand out.
Banks need to pay:
- Recording fees
- Escrow fees
- Title insurance fees
Following these tips can improve your REO offer’s chances of being accepted. You can also decline to negotiate repairs to enhance your offer. Some investors even try using unique numbers to make their offers more eye-catching on paper. Instead of several zeros, they’ll mix in other numbers to make their offer visibly different.
On your next REO offer, apply some of these suggestions. If your offer is accepted, the bank will transfer property ownership to you or your investment group. You’ll have invested in an REO commercial property that you can renovate to expand your business or use if you’re starting something new.
Contact Top Branson, MO Broker
Commercial One Brokers is an experienced brokerage focused on the Branson, MO market. Find office, retail, restaurant and industrial spaces for sale or lease. If you’re looking for real estate owned properties, contact our team today to see what’s available in the area.
Reach out to get started. Our experts can help! We’re happy to answer questions and help you find commercial real estate that works for you.
Article written by Steve Critchfield, CCIM, of Commercial One Brokers. Steve has more than 36 years of experience in commercial and investment real estate. He is active in many Branson, MO organizations, including The Branson Lakes Chamber & CVB, The Tri-Lakes Board of REALTORS and the Taney County Partnership, to name a few.
Find Steve on LinkedIn.