This is a guest post by Ronald Cagape of Living Cashflow 101.
Negotiating with banks for their foreclosed assets can be scary and intimidating when you haven’t done it.
We always have this image in our mind that bankers are snobbish people who look at you from head to toe and make a quick evaluation if you have money or not. That image may have been true in the past but competition has driven banks to become better at customer service and thus be nicer to prospective customers.
Since you are a prospective buyer of real estate, they will also be nicer to you.
Here are some tips when negotiating with banks especially if you feel that you have zero negotiating skills.
- Start with the smaller banks. It can really be intimidating to negotiate with the big banks like Metrobank or BDO but the smaller ones are manageable. Usually, you will talk with account officers first. You don’t need to make an offer right away. Establish rapport first with the officer. Get to know their inventory and their processes.
- Learn how to write an offer. An offer is not just a document where you put your price and terms. Make a cover letter for the offer that explains the rationale for your price. When we bought from a bank, we wrote in our cover letter that the property needed massive repairs and the location was not desirable because of squatters in the area. That set them up for the low-ball offer that we were about to give. When you make the offer, it should be something that they will refuse. That’s right, they are supposed to reject your first offer. If they accept it right away, then your offer was too high.
- If you don’t want to negotiate in person because you are too afraid then use a fax machine. Fax your offer then follow-up on the phone. Let your offer do the talking. Make sure to appear though when the bank accepts your offer.
- Make a lot of offers. When they reject your first offer, ask for a counter-offer. If they move in price then you know that they are willing to negotiate. If not, fax the offer next month or 3 months from now if the property is still for sale.
Negotiating with banks need not be a terrifying experience. Get over the fear and start faxing your offers.
Photo credits: LuMaxArt
About The Author: Ronald Cagape is a real estate broker and investor. He teaches investing through the Cashflow 101 Game.
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Hi Sir Jay,
This is my first time po na magtry magacquire ng bank foreclosed property. I have few questions lang po regarding dito sa question na to sa FAQs section hopefully matulungan nyo po ako.
• If magsubmit po ako ng LOI or nakipag-haggle po ako sa price let’s say ang offer ko po is 60% nung asking price nila, does it mean I’ll have to pay po yung 60% right away if approved or pwede ko rin pong installment?
• Same po ba ang LOI sa Offer to Buy?
Thank you
Hi Kevin,
1. Depende kung kelan ka magbabayad sa payment terms ng bank. Of course, kailangan mo din isama sa LOI mo yung terms na gusto mo. For example, sinabi mo cash payment in 30 days, tapos na-approve, eh di dapat magbayad ka ng cash in 30 days as per offer mo.
2. Yes, yung LOI is the same as the offer to buy form. So iba-iba format ng iba-ibang banks. Pag walang standard form ang isang bank, pwede mo gayahin format ng iba, subject to approval naman yan eh.
I hope I was able to answer your questions. By the way, this FAQ is due for a major update.
How can I negotiate an offer if there seems to be no repairs needed for the property? Everything is okay except for the dust that has accumulated.
In that case, you need another reason. For example, is the property overpriced compared to other similar properties nearby? Any problems with the location, etc?
Hi Sir Jay,
Newbie investor here and this is my first time to acquire a bank foreclosed property. Supposing we already visited the property but still have no idea how much is the repair cost. How many percent below the price asked by the bank should we offer?
Many Thanks!
Hi Eman, I would suggest you get repair estimates first (if they are too high and leave no room for profit, just move-on to the next property). This should help you justify any discounts you are going to ask the bank/seller.
As replied to Jane above, the rule of thumb is either 40% below after repair value or ARV (the 40% discount helps ensure you have enough room for profit), or you make an offer equal to the actual loan balance at the time of default plus foreclosure costs (this is the amount the bank wants to recover).
Keep in mind offers are subject to management approval. Goodluck!
Hi Sir Jay!
May I ask how many percent below the minimum bid price can you offer to the bank?
Thank you!
Hi Jane, the rule of thumb for me would be at least 40% below after repair value (ARV), or the actual loan balance at the time of default plus foreclosure costs, whichever is lower. 😉
Bank of Commerce, now with San Miguel on the 22nd floor of the San Miguel Bldg in St. Francis area … forget dealing with their REPO division, yes, from the bottom to the top.
They are utterly clueless or are still staging their individual cronies to pass out the prime properties … perhaps, for hefty commissions.
Imagine this, a condo in Makati was foreclosed for 15M. Title has been consolidated, redemption period has lapsed but they have no possession but they are hyped on selling it on the Google prevailing market of 25M.
Then, when pushed, they say that “oh, we have from reliable source that former owner will take it up to the SC …” . No case of illegal foreclosure or any case whatsoever has been filed by the former owner/illegal tenant as of date.
What ever happened to “As is Where is?”
Can you dig that…
Sir Jay:
I’m not surprised reading articles regarding bank personnel being snobbish. Many reasons attributes this attitude but NOTHING will justify this.
In UNIONBANK, we are trying to reach out and as much as possible give SERVICE with a SMILE to all the clients who enter our doors especially here at ASSET RECOVERY GROUP.
Please let us know if you are experiencing “not so good” treatment from us so that we can improve our service.