How can I convince a bank to accept a lowball offer on a foreclosure? (Part 2)
In Part 1 of this series, I outlined three strategies for whittling down the price of foreclosures. In this post, I’m going to give you three more. Where the first three techniques will work for most foreclosure real estate investments, sometimes you need to apply more pressure. Here’s how:
Hire a Reputable Contractor to Estimate the Repairs
We’ve already discussed taking pictures of the real estate investment to point out problems, but you can go a step further. Pay a contractor a small fee to give you a detailed, itemized bid for the repairs on the property. You’ll want to hire someone experienced and expensive. Look for:
- A large ad in the yellow pages
- The age of the company
- Professionally designed advertisements
Your objective is to get an "authority" to give you a high bid on the repair costs. Usually, I ask them to quote me for the most expensive materials and the most time consuming labor. Legally, stretch the bid as far as you can. The contractor will know exactly what you’re doing, but as long as you’re within a reasonable margin, most are willing to play ball for a few hundred bucks.
Is it ethical? In my opinion, yes, but not all real estate investors think so. Also, if you’re investing in lower-priced properties, you may not want to spend several hundred dollars on a detailed quote. Financially, you’ll be better off moving onto the next deal.
Get the Selling Agent on Your Side
This is another morally questionable tactic. You can legally hire the seller’s agent as your buyer’s agent via a dual agency agreement. So, when you buy the house, they’ll receive both sides of the commission — 6%. On the other hand, if someone else buys it, they’ll probably have their own buyers agent, leaving only 3% for the seller’s agent.
By signing a dual agency agreement, you give them the opportunity to double their profits, if they can convince the bank to accept your offer. The motivation is powerful. If you want to add additional force, you can also agree to relist the property with them once you buy it, giving them the opportunity to quadruple their profit.
Play the Waiting Game… and Win
Many times, you’ll come to a stalemate with the bank, where neither of you are willing to adjust your price. When that happens, walk away. Tell the agent that you’re still interested in the property and to contact you if the bank changes its mind.
Depending on your market, you may lose the deal to another buyer that is willing to pay more, but quite frequently, the bank will wait a few months and then call you back with a much sweeter attitude. I buy at least half of my foreclosures this way.