Timing your offer on a bank-owned (REO) home

If you are in the market to buy a home, chances are that you are going to come across bank-owned (REO) homes. (In King County, 11% of the listings on the market right now are bank-owned.) Bank-owned homes can come on the market at very attractive prices designed to sell them quickly. Attractive prices means that you will likely have to compete with other buyers, and one of the keys to your success is understanding how to best time your offer.

It looks like a good deal

stopwatchSome banks will price their homes at fair market prices and are willing to be patient to maximize their sale price. Other banks want a quick liquidation and will price the home significantly below market value to drum up multiple offers quickly. If you are watching the market and see a bank-owned home that seems to be a real bargain, chances are that 10 other buyers just had that exact same thought. You are likely to face a competitive bidding situation where the price gets driven back up. If you are going to make an offer, work quickly to get your offer submitted so that you don’t miss out on the opportunity.

When do banks respond to offers?

All of the banks that we have encountered facilitate offers on their homes with an online system. The listing agent for the home will review your documents to make sure all of the requirements are there and will submit the offer to a website, usually summarizing the key terms of price, loan, closing date and seller credits so that the bank can review them quickly. Offers are submitted to these websites on a first-come, first-served basis.

How long it takes a bank to review an offer varies pretty widely. Typically we receive a response back in 1-2 business days, but we’ve seen it as short as 4 hours and as long as a week. Typically there won’t be any action during a weekend, but this is not true in 100% of cases. It is important to realize that banks usually don’t respond to your offer directly. They will often use a 3rd party asset management firm to serve as the middleman, and those folks might occasionally work on a weekend to clear backlogs.

The most important thing to remember is that once a bank accepts an offer, any future offers become irrelevant because they have entered into a binding contract. If the bank choose to send a counteroffer, that also means that the first buyer has a binding opportunity to accept the counter, regardless of how many other offers have appeared in the meantime.

Do I need to be the first offer?

Being quick on your offer can help you be the winning bidder in some, but not all, cases. If your offer is reviewed and accepted quickly, you can preempt other bids, but in most cases, the moment a 2nd offer is received, the bank will send out a “call for highest and best” to all previous bidders. Let’s look at two examples.

Example 1

  • Bidder #1 – submits offer at 10:00AM
  • Your bid – submitted at 4:30PM
  • Bank reviews offers at 4:00PM and accepts bidder #1’s offer, leaving you out of consideration.

Example 2

  • Bidder #1 – submits offer at 10:00AM
  • Your bid – submitted at 4:30PM
  • Bank reviews offers at 9:00AM the next day, sees that there are two offers and issues a request for “highest and best offers” to both parties.

In Example #1, the first bidder wins because they acted quickly and the bank responded quickly. In Example #2, which is more typical, the order of offers received is not relevant because the bank will evaluate both offers before responding.

Call for Highest and Best Offers

Banks are not foolish about competitive bidding scenarios. They know that they have underpriced the home and want to give an opportunity to all bidders to raise their offers. By issuing a request for “highest and best offers” to all competing bidders, they give everyone a chance to revise their bid by a new deadline, usually a day or two later. This also gives more time for even more bidders to come forward.

In this scenario, you are not likely to know anything about the other bids. In fact, if the other agents are cagey about it, they will hold their offers until right before the deadline so that they can’t be shopped against others. It is unnerving, but all you can do is decide on what you feel is fair to pay for the home. Put your best foot forward and hope for the best. Make sure that you hit the deadline named, otherwise your offer may not be considered.

Don’t assume that you are being told the whole story by listing agents

Listing agents who represent hundreds of bank-owned listings often can’t keep all the details straight for every property. They also likely employ a staff of assistants who may be receiving offers and uploading them to bank websites. If your agent was just on the phone with the listing agent who said “we don’t have any offers yet,” that may not be true. One of their assistants may have received and uploaded an offer recently, making it available for the bank to review and accept. In this case, every hour that passes is a chance where you may miss out on the opportunity to bid.

Tips for timing your REO offer

  1. Submit your offer as quickly as possible for a REO property that you are interested in. Generally every hour that passes is an hour that someone else can bid and have their offer accepted before yours.
  2. The exception to this is when multiple bids have been received and a “call for highest and best offers” has been issued. Banks will not review any offers until that deadline is reached, and it can pay to hold off on submitting yours until the deadline so that it cannot be shopped against other bidders.