Wake Up Call To Selling Foreclosures

Posted by: Andrew Duncan on May 8th, 2009

It’s no common secret that the real estate market over the past year has continued to dramatically change towards a market concentrated in short sales, foreclosures and REO’s.  

For those of you that don’t know what REO means — it means Real Estate Owned.  It’s a term used to identify a property is owned by a bank.  Banks actually consider REO’s a liability instead of an asset because they are in the MONEY business not real estate business. 

As a Top Selling Team in Tampa and St Pete, we have modified our business to help service these “niche” markets.  In the first quarter of 2009, nearly half of our business was selling (either listings or homebuyers) distressed properties.  We have learned through much education, courses, certifications, and trial and error the best ways to represent buyers and sellers in these specific situations.

If you are a Realtor and haven’t started working these markets — WAKE UP!  If you are in a market that has not been hit as hard with foreclosures, don’t worry its coming.  It’s time to prepare now.  

If you are a new real estate agent, read up!  I had a new agent join our team this week and just like I’d send this information to a prospective home buyer, I wanted to review it and tailor it to him so he understands the urgency needed to work buyers on bank owned houses.

Below are tips for Realtors representing buyers on bank owned homes.

To some of you, this may seem elementary but as an agent trying to break through to the REO level, I was told by many REO agents at a recent conference that nearly half of all contracts they receive are incomplete, missing signatures, missing pages, missing pre-approvals, or for some other reason unable to be submitted to the asset manager for review.

Bank Owned Foreclosure Homes 

Make Your Offer Quickly!  

Banks price properties well below market.  Average time on market for the best bank owned homes is much less than the average time on market for the average as a whole.  The average time on market in some of our target markets for bank owned homes is 7 days!  And that’s because it takes the bank many days to draft their “special addendums”.  In the foreclosure market, if you snooze, you lose.  You must be willing to have a plan to act quickly when these properties hit the market.  Have your customers on listing drips, do not rely on them to find them via your IDX searches.  If they are not automatically getting new listings, the best bank owned homes will sell before they ever see them. 

Use an As Is Contract and try to save originals.  

HomeSteps/Freddie Mac typically require original signature contracts to be sent to them.  Don’t ask a bank to make repairs on a hot bank owned house.  Banks don’t typically make or allow for repairs.   Once your offer is accepted, you will receive a “special addendum” which will likely modify some of the terms and conditions and is typically not negotiable.  It addresses some of the unique scenarios with bank owned homes and discloses typically that they haven’t occupied or inspected the home, may have to satisfy liens, etc. You need to have the buyer return it quickly with escrow so that your offer moves forward. 

Make your offer as STRONG as you can, especially if you are financing or using an FHA loan.  Banks want cash so if you are financing, the following is even more important.  Quick inspections, quicker closing, sufficient escrow, strong price and terms, and include a pre-approval letter or proof of funds with the offer. You are up against competition.  You want to make sure you look motivated and able to execute.  Don’t be afraid to tell your buyer your opinion of value and that they may need to offer above list price considerably, especially if FHA or financing when they are likely up against cash offers.

The most important thing to consider is what is the home WORTH, not what they are asking.  They want an auction type response most of the time to bid the home price up higher than list.  I’ve recently seen bank owned homes sell for 20-30% ABOVE list price. 

Be prepared for hoops to jump through!

Bank owned homes typically have title issues that need to be cured during the closing process or asset managers that are overwhelmed and can’t get documents back in a timely manner.  Don’t take it personally — PREPARE your customers for this inevitability when buying a bank owned home.  They may not get the addendums back quickly or the executed contract back quickly, you will just need to work with them to modify any required dates if they delay things. These people are overwhelmed with work and unable to keep up.  You do want a clean title so don’t be surprised if the bank needs more time to fight with a servicer or hoa about a lien in order for you to close.  Just plan on not closing on time, that way if you do, you’ll be happy.  

Also, plan on having to hassle with the title company the bank has selected and make sure to pay attention to all of the closing details.  Bank owned title companies are overwhelmed as well and in my opinion are more prone to errors/mistakes due to this.  You don’t want one of their oversights to affect you or your customer.

There are surely other great tips out there from agents working the REO market but I thought this would be a great baseline to help everyone and for new agents or those looking to break into the bank owned business.

Good luck and Happy Selling!



6 Comments on “Wake Up Call To Selling Foreclosures”

Chris Bennett

While there are more foreclosure properties now because of the economic crisis, it is not all doom and gloom. Those that are fortunate enough to invest in property right now will not regret it.
In a few years time those property investors will be making a very handsome profit and good luck to them.

Caleb Cobane

I know very few realtors that specialize in this type of sale, the ones that do nobody envies. It is a very timely endeavor that is mostly held up by formalities from the underlying Lender and the client Lender. The few realtors that specialize on the negotiation end of these sales do well because of the experience that it requires to create a smooth transaction. We all know that comes from trial and error. As for Lending,it really comes down to communication between the Loan Officers. YOU MUST KEEP IN MIND ONE IMPORTANT THING MY FELLOW L/O’s: The guidelines and stipulations vary Underlying Lender to Underlying Lender. Product guideline stipulates one thing while the Underlying Lender stipulates another. IE: A client purchasing using an FHA product dictates the seller can pay up to 6% for closing costs, the agents draw the contract accordingly, somehow the bid gets accepted in the the carelessness of the Underlying Lender and your 24 hours out from closing with an P’d off client because the Underlying Lender’s policy states they only allow 2%. That is where Realtor and L/O experience comes into play.

All in all, its a good niche that is growing. Most listing agents don’t have to do too much as the buying parties are the ones that must deal with the specifics.

Caleb Cobane

Also, I highly encourage realtors looking into REO properties to tap into the HomePath market by Fannie Mae. This is one heck of a good product for clients that want a minimal investment (3% down for Primary Residence) and AN EXCELLET INVESTOR PRODUCT! 10% down, with no Premium Mortgage Insurance, and the most important part: NO APPRAISAL REQUIRED. More information is available at http://www.HomePath.com. Enjoy.


Fredie has another program for buyers.

Real Estate Listings

this is too good for and We all know that comes from trial and error. As for Lending,it really comes down to communication between the Loan Officers. YOU MUST KEEP IN MIND ONE IMPORTANT THING MY FELLOW L/O’s: The guidelines and stipulations vary Underlying Lender to Underlying Lender.

Power of Sale

Great website for foreclosure information. foreclosure is the best for invest nowadays. Thanks so much for this useful information.

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