Everyone wants to be direct to the bank when buying. Who wouldn’t? You get the best deals. You negotiate directly with the bank asset manager. Properties are free and clear and you close quickly. This is what most buyers would like to hear but the reality is much different. Unless you are a large hedge fund with deep pockets and even deeper long standing relationships with banks, you will be sorely disappointed. So how does one actually buy directly from the bank? You have three choices.
MLS property (small investor)
1. You can buy directly from the banks by cherry picking properties off the MLS in your desired areas.
2. Submit offers through the REO broker handling the disposition of the property for the bank.
3. Depending on the condition and location of the property, you may get a good deal by offering cash only.
4. Most banks are looking to get about 80% of FMV from an MLS list property so plan on a lot of rejections.
5. They key is to make as many offers as possible with the hope that a few may get accepted.
6. Most of the time, you will receive WD’s with the properties you buy.
Bulk package (large investor)
1. Unless you are backed a tremendous amount of money and are extremely well connected in the banking sector, buying a bulk package is one of the most challenging purchases a buyer can make.
2. Most banks only deal with approved institutional investors such as hedge funds and REIT’s.
3. Banks are not in the habit of filling a specific order for an unproven buyer who they have never traded with. Contrary to what you have heard, banks rarely compile and most of their approved buyers simply wait for an opportunity that meets their buying requirements.
4. If you are successful in having the bank accept your price, you may wait a week or more before a purchase agreement is issued.
5. Banks reserve the right to continue selling individual properties off your package up until closing. You may or may not receive replacements.
6. You have no control over negotiating terms with a bank. You either accept it or move on.
7. With all the challenges I mention, there are buyers who are successfully buying from banks. When done correctly, you could get a good deal.
8. The key is to follow the banks instructions quickly. Proof funds, quickly accept the bank terms and pricing, put your deposit in escrow, and during your due diligence (typically 5-10 days), you can determine if it is a deal or not. Keep in mind that if you opt out of due diligence more than two times, the bank probably will not work with you further. Yes, I know. It’s not entirely fair but they make up their own rules.
9. You may receive WD’s, QCD’s or Special Deeds.
Bid package (small to medium size investor)
1. The most successful strategy from buying directly from the bank is with a bid package (see “You got to bid it, to win it”).
2. Bank issues a bulk package, buyers cherry pick off the list, and submit a bid for each individual property.
3. Bids are accepted on an individual basis, not aggregate so if you submit multiple bids for a group of properties, don’t expect to win the bid even if your aggregate bid is higher than other bidders. Banks sell by line item bids only.
4. If your bid or bids are accepted, expect a purchase agreement same day. Bank will require you to close next day.
5. The majority of the time you will receive QCD’s. You need to make sure you do your due diligence up front since you may be responsible for outstanding taxes due on the property.
6. If you fail to perform after winning the bid, the bank will no longer allow you to bid on future packages.
7. The process moves very quickly and you need to be able to do all your due diligence up front, escrow and close in 3 days or less.
If you are wondering where I have the most success, it is with bid packages. I sell up to 10 homes per week ranging from $8500 to $20,000. Buyers cherry pick what they want. Once their bids are accepted, contracts are signed, they wire funds and we close. Fast, simple and easy. My buyers know what they want. They know the process and they move quickly.
Occasionally, I will sell a large multi-million dollar package and would love to sell many more, but it’s my success with the bid pools that keeps me happy and pays the bills.
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