Do you remember the Minnesota housing market in 2000-2005, when a seller would receive multiple offers (many above list price) the first day a house went on the market? As a buyer, I remember being ready to drop everything at work and drive immediately to any house that appeared on the MLS in our price range and neighborhood (with checkbook in hand)!

Multiple offers and offers above list price are actually making a come back. This time it is in regards to bank-owned

properties, also known as REO properties. Despite the large number of foreclosed and bank-owned properties on the market in Minnesota, it is becoming more common to be competing with other buyers for the same house.

Recently, I spoke to a MN Real Estate broker, that has about 100 bank-owned listings, about the REO business and foreclosures in general. He explained the time-line on how banks deal with their REO properties. At the time we were not talking about multiple offers, but as I remember that conversation, it all makes sense:

• A homeowner falls behind on their mortgage payment. Eventually, the house is sold at the sheriff sale, typically back to the bank that holds the first mortgage. Maybe they simply ride out the foreclosure process and leave the day before the sheriff evicts them. Alternatively, maybe the homeowner finds a real estate agent to do a short-sale and unfortunately they set the price too high and can’t sell it prior to the sheriff arriving.
• At the end of the redemption period, the bank gets the foreclosed house back. Standard procedure for the bank is to get at least 2 BPOs (or broker price opinions). These are essentially mini-appraisals done by licensed real estate agents to help the bank set the price of the home.
• Eventually, the bank contracts with a MN real estate broker to list the foreclosed house. Typically the initial price is too high for the location/condition/size/etc. The property has a few showings, but no offers.
• After a predetermined amount of time (known only to the bank), the bank authorizes the listing broker to lower the price. The bank may receive some low-ball offers, but will not accept any outside of their strict pricing guidelines (again only known to the bank, but generally 2-5% below list price).
• This cycle of lowering the price continues until it hits what my real estate broker friend called the “sweet spot”. This is the price at which anyone that was interested in the property finally decides that it is priced correctly. Immediately, multiple offers will flood in.
• If the listing broker is doing a good job, he should/will tell all interested parties that offers have already been submitted so you should put your best offer forward first. Most banks will take 3-10 days to consider an offer on a REO property and will continue to accept new offers and negotiate with all parties until they accept one.

Consequently, if you find yourself watching and waiting to buy the foreclosure when the price comes down, be ready to submit an offer immediately as you can be assured you are not the only one wanting that property. Also, put in a reasonable offer. Banks will often not even respond to low-ball offers. Your real estate agent should understand this process and help you with this.

I understand that most home buyers think they must negotiate a price reduction on a house or they will feel like they overpaid. If you are walking into a multiple offer situation, you need to consider making a full-price offer. In fact, slightly above the current list price may help insure your position. A 30 year fixed mortgage at 6.5% will cost you about $6.29 per $1000. Therefore, even if you offer $5,000 more than you planned, it will cost you only $31.43 more per month to own that house you really wanted!