Buying Bank? Hurry! & Wait…
I just got a bank owned / REO property under contract. Was previously $800k, and it was now listed for $400k.
We had to bid on 6 properties before finally “winning” one (ask how we “won” without having the highest offer too!). Wow was that a pain. And people say it is a “buyers market” with tons of inventory? If a home is priced right, it will sell FAST. The key is to get daily MLS email alerts! (or ask for hourly)
So, I haven’t figured out to what degree the hassle was with the listing agent or with the bank itself.
First we have the overloaded listing agent problem. 
The banks don’t like changing who their “partner” Realtors are. Once they like one, they dump on them dozens and sometimes hundreds of listings. So the agent is overwhelmed. The listings get thrown onto the MLS with the 1 free “driveby photo” that the MLS provides (thank God for FranklyMLS.com where buyer agents share 30+ photos of these photoless properties).
And if they have 20-40 properties, they get swamped. Their voicemail fills up and emails get ignored. Recently I put in a lowball for a bank property (see why Lowball offers don’t work) and 8 days later, after 3 ignored emails and a couple phone calls, the listing agen
t had no recollection of her “got your contract” email that she (or an assistant) sent, and then was like “oh sorry they rejected that last week, we shoulda told you.” Of course this makes the buyer agent look horrible to their buyer, since it is inconceivable that the listing agent would be so non-responsive.
But the problem is this is becoming the NORM.
Then we have the overwhelmed banks losing $100,000 per deal.
Sometimes listing agents don’t even have a phone contact at the bank. They just enter in the price and terms (don’t forget that terms DO matter!) into a website and they wait, and wait.
The listing agent can’t bug the bank and say “hurry up” since they will get fired. So they wait.
The bank rep has no incentive to do anything quickly. No bonuses, no commissions. And the longer they wait, the more likely another offer will come in (ie good for banks). Buyers LOVE putting offers in once another person puts in an offer. It knocks them off the fence, and into the market.
Put a deadline? Yeah, like that will work. They don’t care.
Put an escalation clause? Nope, they just cross off everything and put your max price as a counter.
So REOS are still 10x better than Short Sales, but expect to wait. It can take a week just to get a reply to your offer. How is that for sleepless nights.
How to write a strong bank offer.
- Don’t forget TERMS! While banks care about price, they care about TERMS too. They too frequently see deposit checks bounce, or people back out after the inspection. So if you make your contract as lean on contingencies as possible, it can help you get a LOWER price. Yes, if they think you have a 95% chance of closing, but you are $5,000 lower than another buyer that they think has a 60% chance of closing, they will take less money (obviously not always, but you get my drift). I still would NOT recommend buying without a home inspection.
- Run a FranklyCRA to see if you can find some trends with that bank or the listing agent.
- Multiple offers at once? This is tricky. For the most part, legally (I’m not a lawyer yet) you can not do this without fully disclosing the fact to all parties. Saying “I’ll use the condo docs to get out” if both ratify at the same time, that doesn’t work (since you broke your obligation to the contract BEFORE your rights to review the condo docs kicked in). But I did get legal counsel on how one CAN legally obtain the same end result (ie multiple offers out at once). I’d love to write about it, but then I would be giving legal advice, and somebody in North Dakota would sue me after taking my advice and something went wrong.
- DO NOT REMOVE THE HOME INSPECTION. It might be tempting to remove the home inspection, but that
is a little too aggressive for me. Actually many bank addendums will put BACK IN the inspection (that was a really important point, but you probably skimmed and missed that) for liability purposes. Some people have run inspections BEFORE putting in the offer, and others can have the inspection with a “take it or leave it” language in the contract. Don’t do the “informational purposes only” garbage. (sidenote: if I get that when I am the listing agent, I say, “feel free to inspect it after closing, since it is only for informational purposes.” I got burned too many times with that one!) - Don’t make your closing too soon. If you put in 30 days, and it takes them 2 weeks to sign it, you have 2 weeks to close. Consider “Within 40 days from ratification date as chosen by buyer.”
- READ the bank addendum (see post)
(Sidenote/update on Short Sales. More are closing. Before I called them “Fake Listings” since only 1 in 20 was closing, then I made a Top 10 Short Sale Questions to ask before considering short sales. Previously 3 had closed in all of Arlington in the last 6 months. Now I would guess it is more like 1 in 8 short sales close. And in my building at Clarendon 1021, 3 or 4 have closed in the last few months. If the listing agent has short sale experience, the close rate can jump to more like 60%-70% (after 2-3 grueling months).)
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-Written by Frank Borges LL0SA- Broker FranklyRealty.com
Also read Tony Arko’s: Are Foreclosures Listing Agents Leaving Thousands on the Table?
Report typos please. Photo Credit: 50% off by Robert Brook , Sheep and Wolf by manitou2121 Wideload by The Web President Squirrel on Fence is by Gilles Gonthier,
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I have seen the responsiveness of listing agents that have foreclosures become so horrible it is disgraceful. I have never received a return phone call from one. They never acknowledge my offer and most times they don’t even give my client an opportunity to submit an improved offer because they don’t even tell us there are multiple offers. This is the one that gets me and my buyer extremely frustrated. On several occasions my client was willing to increase his offer if he was aware of other contracts and the bank ended up selling for less than my buyer was willing to take. I am currrently waiting for a bank to counter our second offer that we increased during the negotiations. The first counter from the bank took 10 days. We are currently at day 13 of the current counter offer and the agents voice mail is full and she doesn’t return emails. No wonder real estate agents are perceived as incompetant by the general public…they are.
I don’t think the REO listers have time to lie about multiple offers. One told me that he had 70 listings and just didn’t have time for shenanigans…on one weekend he had multiples on 8 different properties.
Frank,
In my experience both working with REO and with teaching on it for awhile, I’ve heard countless stories. REO agents are amazing and some of the best and the brightest or they are just horrible! The later is the majority. However, the Lenders have taken a huge hit just in the cost of taking possion of the house and then re-listing it. So, they are typically eager to sell them, but also limit their lost. I know that you know all of this, and hearing that this is the “norm” doesn’t make it better, but all of these people are just overwhelmed, the slacker agent hasn’t (IMHO) fulfilled their fudiciary duties to your client (their customer) or their client.
Honestly almost everything that you’ve put in your post is what the CSP program and I teach agents to do and not do, respectivly. It’s a LONG wait…
There are lots of caveats to all of this, the reality is that to abide by the “rules” just isn’t humaly possible right now. The system wasn’t designed for such an incredible volume of distressed inventory. I am not a fan of the govenrment telling people how to conduct business, but in this instance until the governement mandates reponse times for lenders, they’ll continue to get around to it when they get around to it….
I want to add a little more.
I’m working an REO now for a buyer and we had to modify our strategy. On the first property of interest we offered and were immediately told to provide our best and final offer by the listing agent. My client didn’t believe it, so I recommended that we not change the price at all to call the bluff. If we had raised and the client won there would always have been some doubt long after the transaction was closed. I like the client (I like ALL my clients) and I don’t want bad feelings after settlement. Raising the offer just couldn’t be an option, and I told my client that. The client lost that one to a higher bid. Instant believer.
We found while picking through REOs that houses with high numbers of day on market had more than minor problems, things which would have cost a few thousand to maybe even $20K to bring the house to acceptable standards. Then, EUREKA! As I called listing agents to verify (yes, I was able to get through) whether there were any other offers on their properties so we weren’t wasting our time with a multiple offer situation, I found that the multiple offers were most frequently on NEW REO listings. So, off we went to see a new one with zero days on market. The house was move in ready and was listed over a weekend beyond the window of opportunity for internet bargain hunters. We looked at it, got our offer in FAST and I pushed (nicely, of course) to get that offer delivered to the bank. The counter came, we countered back and won!
Go after brand new REOs. Get in there before the masses find them, get the offer in, and PUSH.
After the win on a new REO be prepared to PUSH your settlement company to get the title work done NOW. We did, and found the foreclosure deed hadn’t been recorded (a common occurence, a settlement company attorney told me today) so we round-robined (buyer, title company, and me) the seller’s title company to cure the defect because WE WANT TO CLOSE ON TIME! The strategy is working.
It takes extreme flexibility between agent and client to get in the car and go immediately to a new listing, and then an all stops push the rest of the way. I think listing agents are happy to see the long slog on most foreclosures cut short. It makes them easier to talk to and they don’t mind the PUSH. Every listing agent wants to see their property sold in a day, and they push right along with you!
Just my opinion!
Frank, I commented on your 10 Questions to ask the listing agent back in May on Short Sales. I passed that information on to my buyer agents and I can’t tell you enough how much that help us.
I just had a short sale listing fall apart, two offers, waited 3 months, First Horizen said no, because the sellers had PMI they were going to get their money, so sorry.
I took it off the market today, can’t sell. Buyers waited and waited.
I have worked on several bank-owned purchases in the last year, one being my own purchase. I’ve experienced a variety of response levels, both from the bank and the listing agent. I’ve worked with great agents that are at the mercy of the bank that won’t respond quickly. In fact, several months ago, after 3 weeks of negotiations (via email since the head-honcho won’t sign off until all terms are agreed upon) and my Buyer expected their counter, they increased the price. The listing agent was embarrassed and my Buyer and I were frustrated.
Last year I bought a bank owned property that had been on the market 2 months and they had just dropped the price $25k. When I decided to make an offer, I ran a FranklyCRA and saw the listing agent only listed bank-owned properties, had close to 100 Active listings, and tended to get close to asking price. Upon calling to inquire on the status and any contract details, he said he already had 2 contracts in hand. I decided to offer higher than originally planned but put very stong terms (no contingencies, $10k escrow, 20% down)….but still put an offer for less in for $15k less. A 4th offer came in at the same price or slightly higher, but the Bank accepted my contract. The listing agent was hard to track down, but did say he was suprised they didn’t counter.
I’m working on another bank-owned now scheduled to settle next week, pending the 5 outstanding liens/judgements/unreleased trusts. Fortunately my Buyers chose a fabulous title company, Monarch Title – Old Town, who are working diligently to make sure my client has a clean title to transfer. They did turn the water and electricity on for my clients to have a home inspection and agreed to $2000 towards home inspection items, after negotiating a great price.
Moral of the story is that you can get a good deal on a bank-owned property, IF you are willing to deal with the annoyances and hassle factor that goes along with it.
If Fannie Mae only guarantees conforming loans, how is it that they will take
back a jumbo $933,000 loan at a foreclosure auction and how motivated will they be to unload it? After 50 days as an REO it is at $790,000.
After our 7th attempt we finally “won” on a bank owned house. I have been reading your posts, sending my agent to your blog and educating him on staying away from short sales. I read somewhere that you are able (upon request) to get the papers you will be signing at closing at least 24 hours in advance….Is this true? We would like to have time to review them beforehand.
Thank you for all the useful info you have provided!
The hidden stuff isn’t in the papers, it is in the addendum. As for getting stuff 24 hours before, I guess it depends if you accepted their bribe to use THEIR closing company. I hope you didn’t.
If you did, make sure the title is fully warrantied, or marketable. I don’t remember the exact lingo, but some closing companies are giving a type of title insurance that is worthless, hence the lower rate they can charge for it.
For closings, I want somebody that I hired to give the green light. Even if it costs $1,000 more.
Frank
We are using our agent/broker’s title company NOT the banks. We just want to read it all and make sure the numbers are correct. In the last 3 houses my parents bought they have found number errors. So it would be a reasonable request to ask for this in advance?
As long as it isn’t an ABA!
Ask them, I guess that would be fine. You will surely get the HUD1 with the numbers, but not sure about the 3 inch stack of papers to read.