Pricing Phoenix Bank Owned Homes

avatarthumbnail.jpgWhat is a lender willing to take on a bank owned home in the Phoenix real estate market? That answer depends in large part on how aggressively the bank has priced the property to start.

And so the natural follow-up question is, how does the bank determine the initial starting list price? Here’s a quick look at the process …

Once a property reverts back to the bank – the lender has foreclosed and the home was not purchased during the trustee’s sale on the courthouse steps – the bank will send out for one or two bids on the home’s value. These are called Broker Price Opinions, or BPOs.

The absolutely, positively most important thing to know about a BPO is that it’s not an appraisal. Some of the same methodology is used – researching comparable properties and making adjustments for everything from granite counters to mountain views to missing appliances to apparent needed repairs – but the goal isn’t to determine the value of the home. It’s to determine the market value – the price at which the bank is most likely to receive an offer.

In theory with an appraisal (and I’ll set aside my usual arguments that appraisers often work backyard from the sales price on the purchase contract), the appraiser starts with a blank slate and fills in the information until a value is reached.

With a BPO, it’s not uncommon for an agent to start with the suggested price based not only on recent sales but currently active listings – the competition – and work backward to make the numbers come through at the end. (Think of something along the lines of the old geography proofs in high school.)

The agent completing the BPO likely will become the listing agent so they’re sole goal is to get the property sold as fast as possible. And since the bank’s goal also is to get the house sold, more often than not the lender will use the most aggressive price (within reason) and put the house on the market at that level.

Now … here’s where the fun begins from a buyers’ standpoint.

Once the BPO has been completed and the home’s on the market, all further evaluation of the property and any offers that come in will be based on that initial BPO. So if the agent somehow misses on their estimate of market value, or if the market moves downward from the time of the initial BPO, it’s possible the bank owned home will not be priced as aggressively as it could be.

In these circumstances, though, negotiating with a bank owned home isn’t much different than working with an unrealistic seller who “knows” what their home is worth. Except the bank may be even more obstinate as all decisions are calculated based on the bottom line.

Even better, you often can find yourself working with more than one person in the bank’s REO department. This can lead to a lack of memory as to the course of negotiations.

In June, a buyer of mine spent three weeks negotiating with the lender. At one point, after a week-long hiatus in which there wasn’t an active contract, the lender actually raised the price on a counter-offer when the asset manager didn’t see the note in the file about the previously lower price.

We eventually got the lower price, but it took a few extra calls.

What’s the best thing you can do when searching for bank owneds? Be very aware of the prices of comparable sales and the competition. Don’t write an offer based on a gut feel because the bank isn’t pricing the property based on a gut feel. Use the facts.

And if you still want a deal, there are some specific things you can look for to help you in your quest. But for those, dear readers, you’ll need to contact me – there are some things I reserve for my clients.

Contact form’s at the top.

[tags]Phoenix real estate,  bank owned homes[/tags]

Jonathan Dalton

Jonathan Dalton is a 40-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at


  • Walt 9 years ago

    Hi Jonathan, great info! I was just wondering about how the banks reach their price. It’s still difficult as a buyer to decide on a price. I know all the REO houses are already below market, but it seems as if the banks should be extremely motivated. How much do you think the Phoenix REO market will change after some of the major lenders resume foreclosure activity in January? Thanks!

  • Jonathan Dalton 9 years ago

    Hi, Walt … sorry about the bug with the comments. Still working out some kinks on the redesign.

    The banks are extremely motivated but they’re also not giving homes away. Making an offer from the buyers’ side still is more art than science but you’ve got to look at the numbers to see how much room you might have to push.

    Honestly, I’m having more luck getting bigger discounts from actual human sellers than I am the banks right now yet the assumption is the banks are more motivated.

    As for the changes … there have been few. We were talking about this at lunch and, for example, the Freddie Mac freeze only applied to owner-occupied homes. So rentals and properties where the owner has vacated already aren’t part of the freeze.

    That’s just one lender. Others may be different. But I don’t see a gigantic impact so far and I’m not expecting much more a flood than what we’ve already seen when it’s over as only a subset of owners and homes were positively affected.

Comments are closed.

Real Time Web Analytics

Send this to a friend