"GUIDE TO BUYING REO PROPERTIES"
This page was prepared to be an informative guide in the REO purchasing process. It is not intended to be a binding agreement of any sort. The information contained herein is designed to create an informed consumer and to lessen the stress of the home buying process for the Purchaser, Selling Agent, and Listing Agent.
Pricing an REO Property - Typically REO Companies and Banks have had several "Broker Price Opinions, (BPO's)"and/or "Appraisals" done. The seller looks at all the opinions and arrive at a "list price"(you don't have to agree). These Asset Managers know what the "Repaired Value" (Value in Good Condition) " should be and what the "ASIS Value" (Value in Good Condition minus Repairs) should be, and typically have to stay with a "range" of the list price. Usually "lowballing" an REO listing is not generally recomended if you really want the property, if you do, don't be surprised if your offer is rejected, other companies won't even counter low offers or may counter back full price (they think you are fishing). Some like the VA accept offers based on the highest net to seller after a certain time frame on the market, typically 7-10 days (within the range)and reject all others, others like HUD accept the first offer (not necessarily the highest)(within the pre-defined range).Sometimes they even have several rehab bids from contractors, some have inspections done. These are generally for the sellers use only.
Most of the time, however we know very little about the homes (we only do visual inspections, (you see what we see), that is why I always recommend buyers do hire there own inspectors for their inspections. Typically you have 7 days to inspect and accept or reject the home after inspections, in any case, the property is to be bought in ASIS condition. Some properties are in such bad condition that inspection cannot be done, in such cases they are bought ASIS with all faults.
If you don't think you want to make an offer within a range of the list price, typically MMR's (Monthly Marketing Reports) are prepared by the listing brokers each month and the list price is adjusted according to the number of showings and/or offers or lack thereof. Your buyer rep can advise you on market repaired vs asis values based on comparable sales in the area. My advise is always make your highest and best offer first, as in mulitple case offers most companies may only take the highest net offer to the seller and may not even counter other offers. I have several clients who will ask all buyers for their highest and best before they accept any offer tho.Hint!!!"I have missed out on some real sweet deals because I started out too low and someone else made a better offer and the seller did not even counter my offer!" Also you should ask your buyer rep to put you on the automatic search from the MLS.... the best deals sell within a days or two on the market, if you are an investor and are not getting a daily list of new listings you are missing out on all the sweet deals! Have your financing ready and be ready to act fast!!!
Hints on getting the best deal! My best hint is ask your buyer rep for DOM (days on market). If the property has been on the market for longer than 90 days, you are more likely to get a discounted offer accepted. Find out if there are other offers being considered. Timing of offer is critical. Are the other offers Cash or with financing? Ask what concessions if any are being offered. The banks motivation is to sell the property with as little hassle as possible. Making your offer simple, with few or no concessions will make your offer more attractive. Make sure you are fully approved by your lender. Make sure your lender can finance the property, i.e. is the home habital ASIS? If not you may not be able to get a loan. If the roof insurable? If not you may have to install a new roof after closing to get the roof insured. Are you financially able to repair the home to a habital conditon? Remember home inspectors cannot see inside the walls, or under the ground, and you may find other problems after closing. In any case, at closing, all buyers are buying ASIS with all faults.
Submitting an Offer – REO (Real Estate Owned) Departments & Asset Managers require that any offer submitted be on their “Offer Worksheet” or the Online equivalent. This is aimed at simplifying the process for the Asset Manager, who will more often than not, have a large number of assets under management and often in multiple States with vastly different forms. These worksheet will have the “basics” only. Price, Terms, Concessions, Closing dates. Upon acceptance of the offer all documents are sent by mail to the Seller/Asset Manager.*** NO: Promissory Notes, or Offers Contingent upon the sale of another property. “Cash” offers MUST be accompanied by Proof of Funds. All offers w/Loans MUST have a letter of approval from your lender to be submitted.***
How long before we (Agent & Client) hear back? Timing varies depending on the Institution, the time of month (month’s end taking longer), and the Asset managers file load. Often the Institutional Seller is in a different time zone which creates delays in response times. Additionally, the more complex the offer, conditions, etc. the more likely that approvals or responses have to come from “management”, again delaying response times. As the Listing Agent, I am waiting too and I WILL FORWARD THE INFORMATION AS SOON AS IT BECOMES AVAILABLE TO ME – Asset Managers (as stated above) have a large number of assets under management and do not respond well to multiple and/or daily queries. Continued multiple and/or daily queries slow down the process for everyone involved (and for other agents and purchasers you have never met in other states). Please be considerate, we are all working towards the common goal of closing on the subject property. IF YOU HAVE NOT HEARD FROM ME IT IS BECAUSE I HAVE NO UPDATE TO GIVE YOU OR YOUR PURCHASER.
Counter Offers – since all offers are submitted on the worksheet or online if your offer is countered it will be in the “worksheet” format. Once an offer is accepted the entire “package” i.e. offer on the OREF forms, counters, addends, copy of the check, et.al. is sent to the REO department for signatures. CAREFULLY READ THE NEXT TWO ITEMS.
"I’ve received a Seller’s Counter Offer with no signatures". - Yes you did. These forms are generated by the Lender’s REO Manager or the Outsourced Asset management company (and often come to the Listing agent as an email attachment). Once an agreement is in place the file is then given to corporate management for signatures (much like your files are given to the Principal Broker)
**PLEASE FORWARD THESE DOCUMENTS TO YOUR LENDER (unless a Cash offer) SO THEY MAY BEGIN THE LOAN PROCESS.**Verbal Agreements – once you are informed that your offer is accepted, it is. (acceptance may be accompanied by the afore mentioned worksheet). REO departments and Asset managers give the “ok” and then go to their managers for signatures. (In over 6 years, and literally hundreds of REO Transactions I have not had an Asset Manager “unaccept” an accepted offer. Yes, you could be the first, but it is highly unlikely.)
Time Frames – Generally you will have 30 days from mutual acceptance to close the transaction. Often the proposed closing date on the original offer is unrealistic due to the elongated negotiation and acceptance process with the REO departments. The Asset Manager knows that (unless your offer is cash) you can’t close in a week and a half (for example). They are not here to work against you, Asset managers know that appraisals, inspections and the loan process take time. They will assume that you have taken the time prior to making an offer to become pre-approved for the loan and that there will be no trivial delays beyond the 30 (to 45) day closing period. Read the Bank Addenda carefully – there is often a per diem late fee assessed for tardy closings caused by the buyer, usually around $100/day.. The Institutional Seller will not suffer delays due to the Purchaser’s Lender not performing in a timely manner. Begin your inspections upon being alerted that your offer is accepted.
Escrow – Like it or not, the REO Company chooses. Period. (the Listing Agent has no say in the matter either - I have my favorite Escrow companies and Escrow officers too, so were all in the same boat.) This is due to the fact that they have significant amounts of Title work done during the Foreclosure process. ESCROW COMPANY CONTACT INFORMATION COMES WITH THE SIGNED DOCUMENTS FROM THE SELLER. In all likelihood the Listing Agent WILL NOT HAVE this information prior to receiving this document package. While we all want to submit Earnest money on a time line in accordance with the Purchase Agreement, the Listing Agent WILL NOT HAVE this information prior to receiving this document package. I am waiting too and I will forward the information as soon as it becomes available to me. Continued multiple and/or daily queries slow down the process for everyone involved (and for other agents and purchasers you have never met in other states).
Always keep on top of the closing process with your lender to make sure they get ALL closing instructions to the title company 48 hours before the scheduled closing date. Corporate sellers require 48 hours to examine the HUD-1 and approve it. Please be considerate, we are all working towards the common goal of closing on the subject property.
Inspections & Utilities – It is absolutely essential that you give 3 BUSINESS DAYS NOTICE PRIOR to scheduling your inspection. Some utilities (such as electricity) will likely be on prior to your making an offer, others will not (such as water if the property is winterized) The Listing Agent has NO control over the work schedules of OG&E, ONG, or City Water employees. As such the Listing Agent will not be responsible for re-inspections &/or associated fees. It is not a bad idea to visit the property a day PRIOR to the inspection to check if systems are working.
Condition - Banks sell Property Assets in AS-IS, WHERE-IS condition. As a rule ONLY issues which are LENDER REQUIRED will be addressed. REO Asset Managers are VERY familiar with what constitutes a Lender Required repair and will not approve “cosmetic” “dated”, or “wear and tear” related issues. Addressing non-Lender Required issues can be accomplished by raising the price and having the Seller “credit back” for the repair. Generally, these repairs will not be authorized to be completed prior to closing.
**If you have negotiated significant price, closing cost, or other concessions from the seller it is VERY UNLIKELY that they will have enough “room” left in the file to grant repair concessions as well – if this is the case do not be surprised! REO / Asset managers have “caps” on concessions they are allowed to give on each file**
TO: All brokers: Seller requirements:
This pamphlet was prepared to be an informative guide in the REO purchasing process. It is not intended to be a binding agreement of any sort. The information contained herein is designed to create an informed consumer and to lessen the stress of the home buying process for the Purchaser, Selling Agent, and Listing Agent.
Please feel free to contact me with additional questions or concerns by filling out the information below. I look forward to working with you toward the completion of your transaction!___________________________________________________________________
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