The "Top-Down" and "Bottom-Up" approach to Bank Owned Foreclosure Properties

Buying bank owned properties is one of the best ways for wholesale buyers to find discounted bargain homes that can be passed on to rehabbers for a small fee. Rehabbers can benefit greatly from wholesale buyer's service: Identifying and negotiating a lucrative deal. Banks are very motivated sellers, although most of the time, they don't act like it. But that can quickly change, once the reality of a flat or declining market and rising inventory on their books sets in.

What are the best strategies to find bank owned properties?

There are two general concepts that you should follow in your foreclosure and wholesale business model: "Top-Down", and "Bottom-Up". Which concept applies depends on the bank's listing tactic.

"Top-Down"

The "Top-Down" approach is more common. You apply this when the bank lists the property on the Multiple Listing Service (MLS) at or near the "fair market value". Usually nothing happens for a while, until the bank lowers the price, and lowers the price again... and then again. - In a declining market this can go on for months and is referred to as "Chasing Down the Market". Once the listing is at least 90 days old, and has already been reduced a few times, you will make a cash offer at a wholesale price level.

Your goal as wholesale buyer is to get an offer accepted that is so much below the listing price that you will be able to flip the property to a rehabber. The total price to the rehabber should be below the current listing price, once you've added your "assignment" fee.

"Bottom-Up"

The other strategy, "Bottom-Up", applies when the bank lists the property at an extremely low price right on the first day of the listing. That occurs less frequently, and most of the time the property is in really bad shape - red tagged by the city or attached to some other major problem, like fire damage etc. When the bank has the guts to list the property very low, it often happens that rehabbers will bid up the price.

It is very important to scan the MLS every day for new listings because "Bottom-Up" listings usually don't last very long at all but are sold within days.

With this strategy, too, you are looking to get an offer accepted that is low enough to flip the property to a rehabber.

How can a foreclosure wholesale buyer make money?

No matter if your strategy is "Bottom-Up" or "Top-Down", as a wholesale buyer you go through the tedious process of finding the properties that have to be sold.

Some banks (and other sellers) may hold out longer to try and find a retail or move-in buyer. Others seem to have a policy (or an asset manager) that doesn't allow them to sell below a certain percentage of the "perceived value".

Rehabbers and other buyers rarely have (or take) the time to make as many offers as it can take to get a lucrative deal directly from the bank. So it adds real value to the market place when the wholesale buyer hammers out the best deals and supplies them to the local rehabbers or owner occupied buyers.

One of the great advantages of buying bank owned properties is that you have virtually no advertising overhead finding the deals, because the motivated sellers are readily available with a search on the MLS. You can work with your own buyers agent when making offers. It doesn't make a difference to your bottom line cost, and a good agent will help you find better properties and streamline the offer process.

More info on your stop foreclosure information search:

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