Preparing to make your offer to the bank
Once you have found that perfect REO “bank owned property”, you need to prepare to make your offer.
So let’s recap… When you find a property with a lock box and no “FOR SALE” sign, the first thing you need to do is research. You need to know who owns the property and what it’s worth so you know what to offer. If you need help, re-read the previous sections on determining value, estimating repairs, and what to offer.
Next, you need to find out who owns it and by this I mean what bank, so you can find out who the REO listing agent is.
Then you need to contact them using the script that was provided earlier.
When making your offer to the bank, you can increase your chances of getting the offer accepted and more appealing by eliminating all the contingencies and weasel clauses. Banks like cash offers with no contingencies.
How to make the offer
As outlined previously, you will need a purchase agreement that complies with your states laws. It’s easy to get one if you don’t have one yet, your real estate agent can simply email you one. That will be the easiest way. If you are working with a local agent because the property is already listed in the MLS, you will want them to write up the offer and they can submit it to the bank.
When you purchase an REO, you will be responsible for closing costs. Now depending on how you purchase this property, your closing costs will vary. If you purchase this property with all cash, your closing costs will be very minimal. When you use our money to fund your purchase, all closing costs are wrapped into the deal so you don’t have to come out of pocket. This way it makes it easier for you.
If you do choose to have us fund your deal, remember we only fund same day deals, which means you’d need to flip this to an end buyer who has cash. You can see the requirements here. Whether you use us or not to fund your deal, make sure your funding is all set up before you get to the last minute and have a deadline to close. We like to have a minimum 5 day lead time.
Now, I want to spend a few minutes on the purchase and sale agreement. I know each agreement may vary from state to state, but there are some commonalities on all of them I want to go over really quick.
1. You or your company is the buyer. Don’t put and/or assigns because you can’t assign bank owned properties. If you do put it on there, they will ask you to take it off. So just leave it off in the first place. If you’re just starting out and you don’t have a company, do a few deals first, then set up a company. You don’t have to use a company to buy real estate. Besides you’re only holding on to it for 15 mins. Just make sure that whatever name you use as the buyer, you will also use as the seller when you sell the property to your end buyer.
2. Earnest money – This question always comes up. How much and what if I make a ton of offers, do I really have to come out of pocket with thousands of dollars in earnest money deposits? That’s a lot of money if you’re just starting out. So let’s talk about this for a minute. First let’s talk about how much.
There are lots of ideas floating around about earnest money. While it is true that ANY consideration binds a contract, $10 like you may have heard people say, isn’t going to cut it with the banks. Privates sellers you might get away with it. When you’re dealing with a bank and they see $10 as an earnest money deposit, they will laugh at you. They will not take you as a serious buyer.
You need to have a minimum of $500 – $1,000 earnest money deposit. Now you’re thinking, ok, so if I make 10 offers, that’s $5,000 – $10,000 of earnest money I have to come up and I don’t even know if it’s accepted yet. Well, good news is there is a solution. I learned this trick from a good friend of mine.
In the contract on the line where it says earnest money deposit, you can write “due within 24 hours of acceptance”. That way you don’t have to outlay several thousands of dollars and wait for that money to come back to you. You only have to provide the deposit “if” the offer is accepted.
3. Title evidence should be pretty close to the closing date, just a few days before. This just makes sure you have a clear and marketable title prior to closing.
4. Title insurance can sometimes be optional. I would never recommend buying a house without title insurance though.
5. Closing date for bank owned properties should be 30 days to make sure you have enough time to find a buyer (unless you already have one). You can always close sooner if needed. If you are using our funds, we like to have 5 days to prepare everything, just FYI.
6. Cross off anything you don’t want in the agreement like inspections, surveys, financing, etc. Banks hate contingencies. Just remember that when making your offer.
If it’s your first time, it’s always a good idea to have someone (RE agent) go through it with you and explain it. After you or your agent has finished writing up the offer, it will be sent (faxed) to the bank. Now you just wait for approval.
Once the offer has been accepted, the majority of the paperwork will be completed by the title company, closing agent, and/or attorney. Now it’s important when you’re doing your double or back-to-back closing that whomever is handling the closing knows what you are doing and understands how to perform this type of closing. You may need to explain to them the whole process just to be sure. If you use our funding, we can help facilitate this as well to make sure it’s done right.
(Sometimes the bank may require a certain closing agent which is also fine. They just need to know what you’re doing so they can handle both closings)
Once you have the 2nd agreement, which is with you now as the seller and your end buyer, you will give that to your closing agent as well. So yes, there will be 2 separate contracts and closings that happen in the same day. And since these closings will be happening so close to each other, a lot of times you can negotiate the title insurance fees to be a lot lower because you’re literally closing within hours or mins of each other. Not much if anything will change, so make that known to your closing agent and they may lower those fees for you.
Also, it’s best if you have your end buyer close first and provide escrow receipts or proof they have closed. Doing it this way, you’ve virtually eliminated all your risk and ours too. All you have to do is set up a time a few minutes later and close on your end with the seller and you walk away with a nice paycheck.
Then you just rinse and repeat over and over again. Not much to it once you do it a few times.
I hope this training has been beneficial for you. This is just one of the many ways to make money in real estate. We would love to help you anyway we can. So please send me your thoughts.
Let me know if you have any questions. Just leave a comment below.