Before the property goes on the market, the bank will typically secure an appraisal or a broker price opinion (BPO). These valuation assessments consider the property’s condition and any damage or deterioration. This gives the bank an accurate idea of the property’s market value.
Generally speaking, you can expect to acquire an REO property for a sum that’s anywhere from 5-15% lower than the current market value, with some banks willing to go as low as a 25% markdown. However, if the house is a good deal, like those you’ll find in Chicago’s South Side, you will likely face a fair amount of competition as you seek to acquire it. Sometimes banks simply go with the best offer they receive, but other times, they may pick the top two before instructing the finalists to re-submit their “highest and best” offer.
Deciding How Much to Offer
Look up the MLS listing with your real estate agent.
Perform a search of all that agent’s foreclosure listings for the last several months.
Compare the sales price to the list price to determine trends. If most of their listings sell for 10-12% below list price, that will be your sweet spot for making an offer.
Making an offer on a foreclosed home is no different than a typical real estate deal, except for a few details:
- Offers must be accompanied by proof of funds if you are making a cash offer or using hard money. If you intend to finance the purchase with a conventional loan, sometimes the seller will require you to be pre-approved by a mortgage company of their choice. Now, that doesn’t necessarily mean you have to finance through that company; you may just need a pre-approval.
- Your offer needs to be very specific. If you are willing to shorten the inspection period or pitch in for seller-side closing costs, you must make note of this. This could give you an edge over the others who have made an offer.
- Most foreclosures are sold “as is” so you are not likely to win concessions for repairs or inspections—at least during the offer stage.
- Expect that the bank will be slow to respond to your offer. Sometimes you can get a response in as little as 48-72 hours, but it could also take a week or longer.
The time between when the bank verbally accepts your offer and the time when you complete the paperwork to formally seal the deal could take an additional week or more. In the meantime, the listing will remain active on the MLS so the bank can review offers from others who want to buy investment property in Chicago. The bottom line is that your offer needs to be sufficiently compelling so it stands out from the crowd.
Know the Difference.
A prequalification letter is simply a lender’s statement that they may finance a purchase for you. It is not based on a credit analysis or your actual ability to purchase a property.
A pre-approval letter shows that a lender has vetted your financial abilities and has offered you a conditional commitment for financing.