How Much Should You Offer On A Bank-Owned Property?

Reading Time: 4 minutes

You found a property you think will make a good investment, but it’s a bank-owned property. What will this mean if you are interested in acquiring it? The price is discounted so you know that there will be a lot of competing offers and you’ll want yours to stand out. How much should you offer so that you win the bid, but don’t overpay?

The answer is that it will be a delicate balancing act but there are ways to come out ahead when buying bank-owned homes. Take a look at some of our expert tips below:

What Are Bank-Owned Properties?

Bank-owned properties are typically repossessed homes the bank tried to sell at auction but were unable to. Banks aren’t there to own and sell homes, so they want this property off their books as quickly as possible – meaning they’ll often sell these properties for way under their value. This is why you’ll find most bank-owned home prices considerably lower than other similarly distressed homes. 

As good as this sounds, this doesn’t mean you should be ‘all in’ on every bank-owned home that you come across, though. Knowing the best price to offer and what to look for is important before getting started.

How Pricing Works On Bank-Owned Properties

Bidding on a bank-owned home works differently than any other auction.

When purchasing a bank-owned property, interested buyers submit their ‘highest and best offer’ to the bank. The bank will then review the offers (or have an asset management company do it) and choose the best bids to work from. It’s not uncommon for this to lead to something of a bidding war between investors.

Can You Negotiate The Price On A Bank-Owned Property?

Banks almost always negotiate on the bids they receive – they rarely accept them on the first go-around. They’ll review the bids and take the highest offers, negotiating with buyers to get the dollar amount they want for the home. When the bank is setting the pricing on these homes, they’ll look at the price points of similar homes in the area which can be the first clue for investors wanting to establish how much they should offer going in. 

Before you negotiate on a bank-owned property, consider the following:

  • Look into the home’s history. Was the home vacant? Do you know how well the owners cared for it? Are there any existing liens against the home?
  • Do your own comparative market analysis. How much have homes in the area sold for recently? Are you getting a good enough deal that you’ll have room for profits when you fix and flip and/or hold and rent? Not every bank-owned property will be a great deal when you crunch the numbers. 
  • How much competition are you up against? If it’s just you, there’s a lot more wiggle room. If there is a high demand for the home, you’ll need more aggressive negotiation measures and you’ll likely have to increase your offer. 

How Long Does It Take For A Bank To Accept An Offer?

Most banks will accept offers within 24 hours, but if there’s a lot of competition, the process might drag on for a week or so while they evaluate all the offers and bidders.

If you want to make your offer stand out from the competition, you’ll want to make your negotiations as enticing as possible the first time around so the bank accepts your offer over those of other competing investors. You don’t have to deal with the back and forth and/or trying to outbid the competition. 

What Is The Difference Between A Foreclosure And Bank-Owned Property?

A foreclosure is a property you buy at auction. It’s the first phase of the process. If the home doesn’t sell at auction for at least the reserve price, the bank takes ownership. Unlike at an auction, you’ll deal with a real estate agent or the bank professionals when bidding on a bank-owned home rather than an auctioneer at an auction.

On the other hand, the bidding process is more private with a bank-owned home since you submit your bid directly to the bank rather than out in the open at an auction.

What’s The Perfect Price?

There is no perfect price to bid on a bank-owned property. It depends on the situation. The fair market value of comparable sales in the area and the amount of competition are your two most important factors to consider when you’re putting together your offer.

If there’s no competition, you have more leeway and may get away with a ‘great buy.’ If there’s a lot of competition from other investors in the area, your bid should be more targeted and probably higher than it would be if you were one of the only investors bidding.

Remember, banks aren’t in the business of holding onto real estate. They want to get the home off their books as fast as they can. As long as you know enough about the home (existing liens, necessary repairs, etc.) you can act fast, buying an investment home faster than any other process. The most important thing to bear in mind is that even with a bank-owned property, it’s essential to go into it knowing what the average property value is in that area, to assess the condition of the home, and take other factors into consideration that can affect your profitability. 

Another key aspect of buying a bank-owned property is to have your financing in order so when you make the bid you can close the deal quickly. This can give your offer extra gravitas and help you stand a better chance of getting it accepted. 

By buying a bank-owned property, you can start your real estate investment portfolio quicker without the hassle of dealing with auctions, competing bids, and the headache of real estate appraisers and tough lender requirements. While the competition might be a little stiffer, there can be hidden gems amongst these properties that cannot be overlooked.