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                                 How To Buy An REO

Start By Finding the Right Buyer’s Agent The best deals are often gone before the average buyer even knew they were available. The properties that remain are left for everyone else to compete for. That being the case, How do you get priority access to the best properties?  Your first step to success is finding an experienced Buyer’s Agent. Finding the right agent to represent you can be the most difficult part of the process . . . Keeping a good agent is even harder!  Good agents, that are actually familiar with the REO market, will typically have a long list of clients looking for a particular property types in a particular area. The very best homes, at the very best prices go to their very best clients.   Good Realtors invest a big chunk of their time to search through all of the properties entering the market to find those good deals.  When they find them, these agents contact their clients, who they have prepared to respond immediately.  

They are pre-approved and educated to the process. If you have not committed to an agent, do not responded immediately or are indecisive, you will end up on the bottom of their list of clients to call. So get prepared.  Have a pre-approval through a direct lender or be prepared to provide proof of available cash.  The time to ask questions about your qualification, motivation and goals is not during the process and a qualified Buyer’s Agent will know this.  If a potential buyer’s agent doesn’t interview you before taking you on as a client, you may want to stop and ask why. Even if you are their only client, they’ll need to know what to be looking for on your behalf.  

Get Pre-Approved Before You Shop For Your Home 

How to Write a Good Offer for an REO Bank Owned Property

It is important to understand that when making an offer on a bank owned property, you’re not only dealing with an REO listing agent, you are dealing indirectly with their Asset Manager who may, or may not be affiliated with the financial institution or investor who has the final say on disposing of the asset. When your offer is submitted to the listing agent they then forward your terms and conditions to their Asset Manager who generally has the authority to negotiate and approve those terms subject to Managements final approval.    

Patience is a virtue that you’ll need when making an offer on an REO property.  Expect lengthy response times, very little communication and a lot of competition for the best deals. Choosing a good Realtor to represent you can alleviate some of the stresses associated with the process. But unfortunately even the most experienced Realtor cannot expedite the process.

Can I Make More Than One Offer At a Time?

If you’re making multiple offers, even through different agents, the Asset Manager may likely be the same. Although you may think that making multiple offers is a great idea, you may be actually undermining your own efforts. Once agents and Asset Managers see this happening, you’ll probably find it difficult for any offer you make to be taken seriously. Asset Managers don’t have time to engage in playing games. Their job is to facilitate in completing the sale, not process make believe offers from buyers stacking their odds and playing games.

Some buyers make offers on multiple properties, just in case one does not get accepted.  Is this a good idea?

Making Offers at Far Less Than List PriceLenders and their Asset Managers price their homes according to their market indicators. By the time the property is listed for sale, they have obtained 2 BPOs (Broker Price Opinions) and 1 appraisal from a licensed Appraiser to ultimately determined the price.

When making an offer, you need to remember the seller has already done their homework. Could their price still be higher than you feel the market will bear? Certainly but, lenders seldom accept or counter offers that are far less than the price they have already established to be fair market value especially in the first 30 days of  the listing. Sellers expect some negotiation, but understand that the bank has no emotional attachment to the property and they're only interested in disposing of the asset at the highest price with the best terms . . . for

them. 

Don't Miss Your Chance to Make a Good Impression

Offers are transmitted through an online system that requests the name of the buyer, the buyer’s offered price, the amount of their good faith deposit, down payment and any requested closing costs; any other items requested by the buyer; and space for very brief comment from their listing agent about the buyer’s offer.   So your offer will have to speak for itself.  You won't have any luck trying to Include an excuse letter trying to justify why you’re making a low ball offer.  It will not be seen by anyone other than your own agent. Asset Management systems are very basic and most corporate sellers will not even see your written offer during the initial offer process.  

 

How Much Should You Offer?

As a rule of thumb, offers are taken serious when written between 5-10% of the current list price. But in the case of multiple offers, bank owned properties have been known to sell for considerably more than their listed price. An experienced Realtor, familiar with the area and local real estate market will be able to guide you in the right direction when making an offer.  But remember that offering far less than the asking price will typically not result in an acceptable counter or even guarantee a response.  Don’t forget the seller has already done their homework. You can either agree with their assessment of value and make an offer close to their asking price (within 5-10%) or you can choose to move on to the next property and save the frustration of potentially being outright rejected.

At times, there are situations that will warrant a substantial difference between the listed price and your offer . . . like when the home that has been on the market for many months with little or no activity. But even then, offering 25%-50% off list price may do you more harm than good.  A good agent will guide you through the process and provide the information you need to avoid jeopardizing your future efforts.   

The deal you find today and want to think about overnight, someone else saw last night and will be writing an offer Today!

  When this happens, being the first to submit an offer is your best bet in securing the property. Don’t go in with the idea that since the price has been reduced the bank may now take even less. If you and your agent see a good deal, be prepared to move on it quickly.

Realize that it is not unusual to see significant price drops on homes that have been on the market for some time. Good agents will track potential REO listings and have their clients ready for a potential price drop.

Asset managers have guidelines that must be followed when considering a successful offer. Listing agents convey these directions directly to the selling Your offer will need to be submitted on the proper forms along with a copy of your good faith deposit check (Typically 1% of the purchase price), a pre-approval letter from your lender or proof of funds when paying cash. Your Realtor will also attach any required addendums with your offer prior to submitting. After your offer is submitted and received by the REO listing broker, your offer will be entered into an online asset management system or, in some very rare instances forwarded on directly to the asset manager. 95% of the time, Asset Managers do not see your actual offer. They only see the information submitted into thebrokers. These directions are displayed in the MLS system visible to participating Realtors along with any required addendums.  ir system - your name, the purchase price offered, the general terms of your offer like if there is financing involved, the amount of your deposit,  the amount of your down payment and any other contractual provisions. There is no need to explain your offer or provide additional details, they will not see it. The simpler your offer is the better.

Patience is a virtue. You hounding your Realtor or them hounding the listing broker will not speed up the process. Nothing will speed up the process at this point other than a clean easy to accept offer.  Even then, there is no guarantee your offer will receive a quick response. When responding to your offer, the bank’s Asset Manager will do so using a counter offer.  The counter will address any terms on which they do not agree.  You’ll be expected to respond to them within a specified period of time (Usually 1-3 days) after which their offer will be considered null and void. Time is of the essence, so be prepared to respond timely. You can either accept their countered terms or have your Realtor complete a counter offer to their counter.  Just keep in mind that while you and the bank are trying to come to terms they are also available to negotiate terms with other more realistic buyers. Rarely will an Asset Manager complete more than 2-3 counter offers. If you cannot reach an agreement after 2-3 counter offers it is usually time to move on.

Once your offer has been submitted, received and entered, all you can do is wait. Sometimes a response will be received within 24 hours, but typically the response time is from 3-10 days.

It's a Deal!

 Once the terms are agreed upon and the counter offers and addendums are returned, your original offer and counter offer(s) will then be returned to the bank for signatures. It may take an additional week or more for them to be returned and escrow opened. It is imperative that all the terms and conditions contained within their final counter offer are followed regardless of being returned and escrow being opened.  Some counter offers will state that your contingency time frames start from your signature and others will state that these periods start only after escrow receives the signed documents from the seller/bank.

Your Offer's Been Accepted...   So What's Next?

Be aware – even though it is rare, that it is possible for the seller to accept another, more desirable offer, before your contact is signed. If this does happen, there is nothing you can do other than leave your offer as a backup offer and move on. Contracts are not fully ratified until signed by you and the seller/bank’s representatives.

Opening Escrow

When obtaining a loan, you will also need to complete all of the required paperwork within specific time frames. The closing dates set by the bank are firm and their contract will usually contain a daily per diem charge for going beyond the closing date specified ($50.00+ per day). During this time you will also need to complete your home inspection, termite inspection or other agreed upon inspections contained in the contract. Failure to complete your inspections or other required conditions within the specified time frames could put your deposit at risk. Time is of the essence. Your Realtor will help you through the process but, ultimately, it is your responsibility to follow the contract.

Once escrow is opened, the escrow officer will forward original documents for your review and approval. These documents need to be filled out, signed and returned within the time frames allowed by the bank.

• Once you have completed your inspections, • an appraisal has been completed and all other conditions

have been met and accepted, your loan should be fully approved. 

• Your lender will then order loan documents. Once loan documents are received by either your lender or Escrow, you will be scheduled to sign the loan documents before a Notary Public. This can be done at the Escrow office, at the lenders office or, at your home or office. 

• Once signed and returned to Escrow, your lender will review the documents, complete final verifications and then prepare for funding of the loan.

• Escrow will provide a closing estimate which will include the total amount that will need to be deposited in certified funds to Escrow; any conditions of funding must be completed prior to actual funding; once Escrow has receipt of those funds and verification that all conditions have been met, loans will typically fund, if no other issues exist; once funded, Escrow will record and confirmation of that recordation will be generally received within 24-48 hours.

• any conditions of funding must be completed prior to actual funding;

• once Escrow has receipt of those funds and verification that all conditions have been met, loans will typically fund, if no other issues exist;

• once funded, Escrow will record and confirmation of that recordation will be generally received within 24-48 hours.

• Once you receive confirmation of recording, the property is yours!

NOTE:  There is NO possession and you should never commence any repairs on an REO property prior to close of escrow. Attempting to move into the property or to start repairs prior to confirmation of closing could void the contract.

Congratulations! 

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