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!