Looking at an investment property in a community.

This townhouse is a Fannie Mae Homepath property and is a REO listed for 189K.

I am trying to determine the market value of the property.

The good news is there are some properties that are basically same layout as reference points.

One townhouse that is exactly the same but slightly larger lot sold for 134,300 sold on May 2010. It was a foreclosure sale.

Another one also same layout with same lot size sold on Sep 2011 for 155000. That was a Freddie Mac foreclosure sale.

There is a townhouse right next to it, sharing an adjoining wall, and was a short sale. MLS says "PENDING" and my agent told me a contract was submitted to the bank, it was listed at 178K but no idea what the buyer offered and no idea if the bank will accept and how long it would take.

What I do know, and this is information relayed to my buyer agent from the listing agent, is the property was offered as a short sale, they had an offer for 140K, the bank countered 169K, the buyer walked, and the bank let the property goes into foreclosure and now it is offered again at 189K. The listing agent said further that he THINKS he can get the bank to accept an offer in the 170s but anything lower *HE IS NOT SURE*.

Now I know the price fluctuates a lot during the last two years, but two identical properties one at 134K one at 155K suggests the property 170s is high. The miami property appraiser website assessed it at 172K but I am not sure that has meaning beyond taxation.

It is true I have no idea of the conditions of the two sold properties, may be they were in fixer upper shape. The one I am looking looks to be in pretty good shape (don't know for sure until I have an inspection done), except I did see a major crack in a support beam, and the floor is not sloping in one direction a little (which could mean there is a settlement problem). Being this is a Fannie Mae property and they asked for an ASIS contract any sort of repair I don't think they care or will entertain any considerations should major problems be found during inspections, correct?

My buyer agent had sent me 50 other properties with closed sales as comparable data points, but those are further away and not the same, I still think the best "comparables" are the same building on the same street, which takes me back to the same two properties listed above.

I am thinking to offer 160K with a ceiling of 165K. I am trying to decide if I should start with 160K or offer 165K up front, will they counter?

I am also going to offer cash. Will this give me some leverage on prices? There are no other offer I was told at this point.

Thanks in advance for any comments on strategies, DOs and DONTs.

how about asking the listing agent to justify the listing price? BPO, full appraisal, comps, etc.

You can offer whatever you want. FNMA wants $189K for the property no matter what you believe your "comps" indicate. No one, including the listing agent can easily convince FNMA otherwise.

FNMA properties usually follow a pattern of reductions during the listing period. When thinking about making an offer on FNMA properties, your agent should look for the last time the asking price was reduced and figure that there will be a similar reduction aprx 30 days from that. FNMA reduces in a step-wise fashion waiting to see if a reduction brings an offer or interest at that price point. The trick is to catch a FNMA with a lower offer just about the time another reduction can be anticipated.

Also, in my experience, FNMA opens high; sometimes slightly higher than retail if the property is in average condition.

And please don't ask the listing agent to "justify" the asking price. More than likely his valuation was lower and FNMA never listens. Neither will he have access or get access to the appraisal (if there was one prior to listing). Listing agents have very little influence with FNMA or other default sellers.

As a Fannie Mae Homepath property they are not looking for an investor as the purchaser, they want a homeowner to buy it. Homepath properties allow a potential homeowner to purchase the home with minimal up front money (ironically one of the very things that started this housing bust anyway!). At this point their asking price is more an indicator of their current minimum net they need to obtain for the property. If the price is too high it won't sell and will eventually be adjusted. The assessed value of $182,000 is not really a good indicator of value. It will probably appraise for close to or slightly above the list price. At the present the lowest price you would probably get accepted is $179,900 with them contributing up to $1500.00 in closing costs since you are paying cash. Even at $165,000.00 you are probably wasting your time. If you do want to get any serious consideration for a low ball offer like that it should be accompanied by a earnest money deposit of at least $10,000.00 with only an inspection contingency attached and a proposed closing date within 21 days of the offer. The seller has to present it. Forget the offer of $160,000.00, go in with your highest and best offer.

I typically put in 10% deposit so I had planned on putting $16000 as deposit so that's not a problem.

However, with two identical layout identical size sold at substantially lower price, how can they appraise it close to the listing, unless they are saying since it's 4 months ago the price have trended up 22%?

Since I am paying cash there wouldn't be an appraisal.

From what you are saying, an offer to pay cash is not going to give me any additional leverage because they want to sell to owner occupants? In that case I might as well go in with a financing contingency in case I can get a good rate for a loan even though I might not need it?

In talking to my agent however, she said due to the Fannie Mae having very strict rules in determining who are owner occupants, most true owner occupants do not qualify and have to offer as investors anyways. She said the test is on the day you submit an offer if you own another home you are consider an investor. That means those who have a contract on their home waiting for closing, and want to buy another one, or those who wants to buy contingent upon selling their present home, or even those who owns time shares, cannot be considered owner occupants from Fannie Mae's standpoint and have to apply as investors. The leverage I guess is with really the FIRST TIME NEVER OWNED A HOME type buyers.

OK some new developments.

I found out something unsettling about the property.

The kitchen is an open kitchen right below the second floor. The kitchen is completely open to the living room. A span of 27 feet with no support. It got me thinking, may be it didn't used to be that open? I called up the building department and asked to see previous permits and floor plans. They did some renovations but never pulled any permits. NONE. Being an engineer myself I can see the substandard work. But the big thing is that they did take out a load bearing wall that supported the edge of the bedroom above.

This is a major issue.

I am trying to decide if I should walk away.

If I raise this point to Fannie Mae would they even care? Would they consider some price reduction due to this issue? I think not.

Even though you will be purchasing the property as-is, you still have the right to have the property inspected. Any offer must include a contingency for an inspection. You won't have to pay for the inspection until your offer is accepted. If it is then you will likely have a 10 day due dilligence period to complete the inspection. If you are not satisfied you can walk.

Since the property is an REO the lender had the property appraised before they established the selling price. That is the appraisal I am making reference to. Additionally, just because your paying cash doesn't mean that you can't also include an appraisal contingency in the offer and pay for your own appraisal. Some investors do this to make sure they are not over paying for a property.

The inspection is not an issue. I am a professional engineer so I am familiar with code and construction, so at this point I already know the issues that would have been included into the inspection. The only thing I can't test is water and electrical because those are turned off so there is a bunch of things I couldn't test. I already know by walking around what it takes to remedy these issues and have an estimate at hand. However, this is a "minimum" because I don't know what else to expect during the inspection if water and power is turned on, and of course termite inspection is separate.

The point being whatever I know now is already quite discouraging.

It is my understanding that bringing these issues to Fannie Mae makes no difference, they don't care, don't have time to care, and the offer is submitted by listing agent through online forms with no provisions of this sort.

Any deviation from the addendum with any contingency will kill the deal, my agent told me.

If I go ahead and submit the offer, and let's say it gets accepted, and later on the inspection comes up with a $5000 repair bill, Fannie Mae is not going to lower the price. So if I want some consideration for the repair, I might as well lower my offer in my first offer.

Basically I need to go in with the price I am comfortable with, taking all defects into account. However, there is no provision for me to justify my lower offer to the asset manager, correct?

The inspection is an issue because it provides you the basis you would need to present to Fannie Mae to request either repairs or a price deduction. I've never heard of a Fannie Mae provision that would not allow you to present a contract with an inspection contingency. If you go in with the idea of lowering your offer "just in case" there are needed repairs, then your offer probably won't even merit a counter offer, just a request for your best and highest offer. Offer what you are willing to pay for the property with an inspection contingency and a 10 day due diligence for the inspection if the offer is accepted. If the inspection uncovers the repairs you are anticipating then you can request that Fannie Mae adjust the selling priced based upon the estimates provided by the inspector (make sure you choose one that offers this as a part of the inspection). If they refuse then you can exercise your due diligence and walk with your earnest money. If your agent believes that you cannot make any offer to Fannie Mae with a contingency then I would suggest that you secure the services of an agent who is more familiar with the Fannie Mae process.

OK, I think there is an misunderstanding.

My offer has an inspection contingency. It allows me to walk away if the inspection comes up with any defect I am not comfortable with. My agent says, if the inspection turns up an estimated repair bill of say $5000, you can void the contract and walk away, but you cannot tell Fannie Mae to lower the price by $5000, they don't care. It is AS-IS, you take it or leave it.

I have not submitted the offer yet.

I already know what a formal inspection will bring. If you pay for an inspection, my company are the ones the inspectors themselves call for an expert opinion if they get a difficult case. So what I am saying is, I already know from my two visits to the property, what issues are at hand, and there are major issues. If an inspection is to be done, it would only be worse, if additional things can be tested once water and power are turned back on.

So my rationale is this, if I already know the inspection result (the BEST case scenerio), why would I submit an offer pretending the house is OK, only to pay for an inspection later to let me know what I already know, and if Fannie Mae will not lower the price to account for it, I will walk anyways.

On the other hand, if I take the repair estimate into account, and lower the offer right off the bet, then they have a higher chance of rejecting my offer. Seems like at least this approach it is not a total waste of time.

Of course, I am basing this on what my agent told me, which is Fannie Mae will not remedy or reduce price if inspection uncovers major issues.

For us, the inspection contingency just means that "this buyer's interest in buying the property is contingent on the Buyer still being as happy with the purchase after the inspection as s/he was before the inspection. If they're not happy, they walk!

We used to fiddle around with sophisticated inspection contingencies that had specific wording to the effect that a failed inspection was one where more that $XXXX.XX worth of latent defects were discovered; meaning that a successful inspection was one where there was less than $XXXX.XX.

What a waste of time! It made for so much additional effort in obtaining estimates from multiple contractors (of which only one(1) might actually get the work) and ensuing discussions (arguments) about what might need to be done, who's best qualified to do it, and how much it will actually cost . . . . so that in the end, we now just cut to the chase. "Either you still like the house or you don't."

If you're really so concerned about hidden defects, then obtain permission to perform an inspection BEFORE even making an Offer. Then you can structure the amount to take your discoveries into account. Your risk is the cost of the inspection (and that someone else may buy the property while you're still looking at it); but that's a cost of wanting to be so precise.

We're not building the Titan Missile over here . . . . just trying to sell Real Estate.

That was my original question, is whether I should structure the amount to offer to take into the discoveries. For all practical purposes, I am a licensed professional have already done the inspections myself, so this is like an inspector going to buy a house - the inspections have been done, I know what are the defects, if I move forward, I will hire out an inspection by someone else and get a "second" opinion, that's all.

I think the answer is yes, I should structure my offer, taking into accounts defects that I already know that are major issues.

Then don't waste your money on an "inspection"; just disclose your own credentials, which will probably carry more weight than the observations of some Inspector.

If the AM and/or the LA consider your observations to be less than objective, and indeed, self-serving, then so be it . . . . move on to another property and leave them to deal with, and disclose, your observations to the next Buyer (if they can remember to do so (and if not, deal with the legal consequences of not doing so).

You're getting some great information here.

So, to clarify, from your original post, you were at around $165K max. Your agent said you MIGHT be successful at $170K. However, you've discovered a defect you believe to exist that you believe would cost you $5K to remediate. So, are you back to your original original thoughts at $160K? If so, no matter what your offer rationale would be, that offer most likely would not be acceptable to FNMA at this time against FNMA's $189K.

With respect to making a HIGHER offer (one that is not discounted for the $5K remediation you believe would have to be done) and on the off-chance that FNMA accepts your low offer against asking, and then "inspecting" the property and "finding" this $5K remediation needed and then telling FNMA to lower the price-- in my experience that doesn't work.

What happens, in my experience is (and it's very possible that FNMA would consider an inspection by a buyer with your credentials to be valid) is that FNMA could agree to have the repairs made and tack that repair cost ON TOP of the agreed purchase price-- and that bid to remediate may be higher than your $5K estimate; or, if you fought back, saying YOU'D make the repairs and pay for them, FNMA probably would say okay, but the repairs would be performed by FNMA's contractor and you'd pay whatever that cost is.

Other agents' experience may vary.

Hysterical! You made my day!

But we are talking about Fannie here, and I personally need Titan Missiles, drones, chemicals, and all types of weaponry including covert intelligence at my disposal just to LIVE through a Fannie deal without ending up in smoke and ash.