Negotiating the Best Price on an REO Foreclosure

Negotiations can be one of the most thrilling aspects for buyers of any piece of real estate. Since the average member of the buying public doesn’t get that many chances to hone their haggling skills in everyday life, they often relish the opportunity to do so when it comes to their home purchase. With regards to bank-owned foreclosures, buyers who are in the know enjoy optimal negotiation positioning, resulting in fantastic deals.

Real estate negotiations begin with the context of the potential transaction. That is to say, without a full understanding of the home, the market, and the circumstances surrounding both, buyers are flying blind. The word “buyers market” has been thrown around quite a bit over the last few years, which implies that all of the leverage is on the side of the buyers. While this is largely true in many transactions, it is by no means universal. Even today, in some cases buyers find themselves in a bidding war, at the mercy of the whims of their counterparts just like a few years back. The key is to understand what is being offered, and what one hopes to achieve as a buyer.

This is a critical element of any successful negotiation/purchase strategy that is overlooked far too often. One must not confuse the feeling of “coming out on top” with getting a good deal in actual terms. Many buyers would feel better after paying $5,000 less for a home that is overvalued by $10,000 than they would by paying $5,000 more for a home that is undervalued by $10,000. By separating perceived savings from observed savings, buyers free themselves up to unearth fantastic savings in their real estate purchases, especially when it comes to REO properties.

When negotiating for a bank-owned foreclosure property, understanding the home’s list price and where it falls within the value range is a necessary first step, given how REO properties are valued in the first place. To say the very least, foreclosure property valuation is an inexact science. The Asset Manager (entity in charge of handling the foreclosure transaction on behalf of the bank) collects a series of agent-generated evaluations of a home, and makes a value determination based on these findings. Many of these evaluations are “exterior-only” meaning the agent merely drives by the home, snaps a few photos of the exterior, and are then tasked with determining the home’s value. Even when performing interior evaluations, agents must generate market values for properties while taking into consideration amenities, useful life of upgrades, and repair costs for damages. The asset manager, which more-often-than-not is located in another state altogether, then dictates the list value for a property they’ve only seen in photos.

The result is that from time-to-time bank-owned foreclosure properties are listed on the market at values that aren’t in sync with the area value range. Often times, listings that come on the market way under value are met with a storm of offers, some of which may even be over asking price. So as a bargain-hunter, should a competitive offer situation be seen as an indicator that no savings are to be had? No way! The key is to understand that a bargain isn’t defined as sale price vs. list price, it is sale price vs. market value.

When developing a pricing strategy for an offer, agents are full of stupid ideas. Some advise offering some arbitrary percentage under the list price if their clients have the only offer on the table, while others suggest offering some arbitrary amount extra over list value for every competing offer that has been submitted. For starters, one must make their own determination of a home’s market value, irrelevant of the list price. From there, buyers must determine how much of a savings they would feel satisfied with getting, vs. how much savings they would be willing to give up to get the home. If buyers fall in love with a home and will do anything to get it, then negotiating for maximum savings may not be the best strategy, especially in a competitive situation. Sometimes deal-seeking buyers get overzealous in a competitive situation, and offer enough as to eliminate all potential savings, or even go over market value altogether. A good negotiator knows that they must be able to make their own determination of value, and they must not let emotions govern their approach.

Speaking of emotions, they have clouded countless real estate deals over time, especially when the sellers have a personal interest in the home. When buying a bank-owned foreclosure, however, buyers can be as sassy as they want with their negotiation tactics without fear of hurting anybody’s feelings. The banks are financially invested, but not emotionally invested. Telling the banks that as a buyer you think a home is worth a lesser amount is fine, and is not taken as a personal affront. Yet if not done properly, it won’t lead to any positive outcomes either.

Lending institutions and asset managers rely on market data when determining a list price, and are open to relying on the same when deciding whether or not to accept an offer. If an offer is made that is under list price but is backed up with market data indicating that the price is justifiable in the market area given local value progression, buyer demand, economy, etc., then the banks are much more likely to play ball. The best way to steer things towards a positive result when negotiating with the banks is to speak their language.

Price is the primary factor that drives negotiations, but is not the only variable in the equation. Buyers can sweeten offers in a variety of ways, some of which come at no additional cost. For example, a buyer who has been fully vetted by their lender and has their inspectors on standby can tighten all of their contingency time frames, offering a faster, more attractive closing. If a buyer isn’t entirely happy with the present condition of the home, they may be able to negotiate for repair credits, something that is not generally known about buying bank-owned property. Credits are preferred by banks to performing repairs themselves, which often involves more red tape than they would like. By forming the other elements of an offer as per the specifications of the lending institution on the other end of the deal, one can add appeal to a deal that can sufficiently offset a lower offer price.

Given the market conditions across the country, there is an abundance of great deals on REO properties out there for the taking. Whether the goal is paying bottom dollar, or getting the home that is desired above all others, the path to success is essentially the same. By properly defining true value for any home, and formulating an offer strategy that is attractive to the banks and asset managers in all of the most important ways, buyers can achieve any goal when negotiating their next home purchase.

David Meerman Scott Online Conference Presentation

David Meerman Scott, author of Game Change – The New Rules of Marketing and PR, kicked off the second presentation of the Vocus online conference “Retweet: Engage or Die!” which focused on the power of realtime interaction and response.

Overview

Scott’s main example was based around Dave Carroll’s beef with United after his guitar was broken by some butterfingered luggage handlers on a flight. Carroll wrote a lil’ country song about his frustration with the subsequent “indifference” from United – the video soon went viral on YouTube. United gave no real response, missing a massive opportunity to put things right before their reputation was irrevocably sullied by the ensuing media landslide.

Engaging in realtime is not an unreachable goal – many companies online work in a realtime sense – for example United’s own realtime adjustments to flight information and prices – so why not communicate in the present too? United missed a trick. In contrast, the makers of the Carroll’s broken guitar, Taylor, responded soon after the video’s release with a freebie for Carroll to replace his broken one. Instant press and brownie points for Taylor. Then the “Dave Carroll Traveller Edition” flight case was released by an entertprising company, who struck a deal with Carroll the very same day the video was released. Someone was on the ball and they benefited from their quick reactions.

Working in public relations and marketing, especially online and with social media, we need to be responsive to what is happening right now, and grab the opportunities that will trigger a domino effect of reactions, conversations and engagements.

Earn Attention

Previous methods of PR revolved around looking back into past successes and forward into projected aims – modern marketing needs to operate in the now, in the present, and work in real time.

Scott explained traditional methods of PR to gain attention with the 3 Bs:

Buy it – with advertising, mailing lists, even paying for Scott to put your company’s sticker on the back of his laptop for all at his business meetings/conferences to see…
Beg it – with news releases, press releases and pitches to the media
Bug for it – basically: sales
Earning attention means posting great content, via blogging, e-books, links, micro-blogging, commentary and communication. The media and the public will find you if your story is interesting enough. “On the web, you are what you publish.” Make sure it represents you and engages your audience.

Working in realtime means taking chances and making the most of moments that you can turn to your advantage. Another example Scott cited was the initiative of musician Amanda Palmer (of Dresden Dolls and Evelyn Evelyn), who was stranded in Iceland during the volcanic ash cloud grounded air traffic. Rather than catching a nap or moaning, she asked for ideas and help on Twitter and managed to secure a lift to the Blue Lagoon for a quick relaxing dip, free dinner and drinks and an impromptu ‘ninja’ gig with a borrowed organ in front of over 100 people.

In the age of social media, customers can divulge, discuss and dismiss your company’s reputation just from one interaction. You need to listen to what’s being said about your business, see what works, what people love, what needs fixing, and get involved. Stop a crisis before it gets out of hand. Answer a question and make a customer happy. Broadcast some breaking news. Publicise a great competition. Share some fantastic information. Put right a bad customer service issue. Show that you are there and you care!

Successful Realtime Marketing

Nobody cares about your products (except you) – speak to your customers normally, don’t use gobbledygook and clich├ęs. Give them the information they need in the shortest possible time. (A nice point here was the use of meaningless, overused language in press releases, such as “unique” and “innovative” or “leading provide of…”, and fake images of happy employees and customers. These shouldn’t represent you – speak to your buyers in their language, not yours.)
No coercion is required – the back button is the 3rd most used web feature… because we are constantly lured onto pages which we don’t want to visit. Don’t use hooks or gimmicks to bamboozle customers onto a site which has no real value. Get your content right, and people will want to visit you.
Lose control – don’t worry about your sales. Freebies create traffic and sharing. Scott’s example was the Grateful Dead’s live tour allowing the audience to record gigs, even providing specific space and mics for the purpose, creating thousands of content shares around the world and massive publicity.
Create triggers – back to inspiring content – if you have great content, you immediately encourage people to share, talk, link, get the media involved and make it go viral.
Point the world to your virtual doorstep – Scott used “The Best Job in the World” example, which was a viral hit and increased flight bookings to Queensland by 34%.
Tips and Hints (from the live chat)

>Use social media monitoring tools such as twitter affiliates and searches to keep tabs on and respond to relevant issues and keywords.

>Designate a “realtime communications officer” (and possibly separate points of call for global realtime relations – operating in different time zones and languages)

>Sometimes it’s best to sleep on a decision – reacting freshly can be the wrong action – sit back and see how things unfold a little before you make your move in the best way for your company

>Turn negatives into positives. Great customer service is one of the important aspects of any business, and it’s what customers are most likely to talk about online.

>Respond to the “thoughtful negative” (ie someone who has considered their negative comment and is genuinely displeased) rather than reactionaries (ie someone who is looking for a hotheaded response and trying to rile you up…)

>Fight fire with fire – respond in the same media, eg: don’t respond to a video with a press release.

Well, that’s all from us today – thanks again to David Meerman Scott for a great presentation. Come back every weekday this week for the rest of the webinar summaries, and check the blog next week for our Q&A session comprised of all the questions that couldn’t get answered on the day.

Why Does Your Dog Deserve a Present?

Birthday – Everyone gets a birthday present. Your kids, your parents, even you. It’s not fair that your dog sees everyone else getting spoilt on the anniversary of their birth, but not them – and they do know, trust me. So treat your dog to a wonderful birthday present this year. Unlike your kids, they wont moan if you bought them a PlayStation 2 instead of 3, they’ll just be thankful that you thought of them.

Anniversary of when they were bought - If you can’t remember their birthday, or you can but you want to treat them for both instances, get them an anniversary dog present. I’ve heard the saying a happy dog makes a happy home, and just think how happy the home will be if the dog is doubly happy!

A ‘well done’ present – If the dog in question is a puppy in training, you might want to congratulate them on going a whole week without doing its business indoors. Even if it’s not a pup, you might want to say well done because they keep doing things that really surprise you. They might have done something courageous like saved a life, or found something you were looking for. I’m sure your dog does so many things that deserve praise, so don’t just say it, show them how proud you are.

Thank you – You might have just gone through a relationship break up, or lost a job or a family member. You might have just had an operation and are in need of a friend who can really cheer you up. If your dog has done this for you, they deserve something to say thanks.

Apology – You might have been neglecting the dog recently in favour of the cat, hamster or rabbit you’ve just bought. You might have been spending more time at work recently and aren’t giving your dog the affection they’re used to. Either way, a nice dog present ought to soften the blow a little.

Cheer up – Your dog might be upset about something too. They may have lost a companion, a cat, another dog, or their playmate from the park might have just moved away. Whatever the reason, the poor thing needs something to cheer them up, so don’t hesitate to do so.

Return from holiday – Imagine your whole family goes on a 2 week Caribbean cruise and you have to spend that time holed up with a bunch of strangers smelling your behind? Exactly. Find something on that boat that your dog will love!

Just because – A bit of spontaneity goes a long way with humans, so why not dogs? Treat them because they’re your best friend and always there to make the day a little brighter, however dark the weather may be.

I’m sure these aren’t the only reasons to buy your dog a present, but it just goes to show that there are many ways to do so. There are plenty of shops and websites available with a huge array of dog presents aimed at any dog, any breed, any age, any size and any price. Time to start shopping!