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August 2008

Buying REOs/Foreclosures – 10 Tips to Help Get Your Offer Accepted and Closed!

Avoid the inevitable frustration and stress so many real estate agents and buyers are currently experiencing by educating yourself and your buyers about the REO (Real Estate Owned) buying process! 

Here are 10 REO Tips to help you get your offers accepted and closed:

  1. Know the market – do a thorough comparative market analysis on the subject property prior to writing the offer.  Look for trends – is the market steady, declining?  Look at the last 2-3 months solds as well as the current pending sales. Many banks are using a tactic that results in a lot of activity and multiple offers.  They get two appraisal values (market and liquidation).  Then they have the REO listing agent list the property at the lower appraised value which attracts multiple offers and ultimately drives the final sales price up and sometimes over the market value.
  2. Verify availability and multiple offers.  Obviously it is important to determine whether or not the property is still available or if there are multiple offers before writing the offer.   Counsel the buyer accordingly and let them determine if they want to compete for the sale.  Read any agent to agent remarks in the MLS for any specific instructions when writing and presenting your offer.
  3. The actual offer package.  Legibly write the offer– or better yet, use typed or online forms.  Ensure your offer is complete and spells out in clear, concise language the terms and closing costs.  Consider scanning and emailing your offer vs. faxing it for the better readability factor.
  4. Seller concessions and closing costs.  Encourage the buyer to write his/her best offer first.  It really is all about the final net to the bank.  If the buyer is requesting closing costs, prepare the buyer that to compete with multiple offers she may need to write an at list price or above offer.  Some banks are only willing to pay certain closing costs and are countering with the buyer to pay for what would normally be considered customary seller costs – In Nevada - transfer tax, CIC fees, title insurance, for example.
  5. Inspections and repair costs.  Write the offer with a reasonable due diligence period (5-7 days but no more than 10 days).  The bank may limit or counter repair costs.  We recommend including this clause or something to the same effect:  “Seller to make, at their expense , any lender-required repairs as a result of the inspection or appraisal.
  6. Earnest money.  Have the buyer write the EM check for at least what is requested in the MLS.  Ensure you have a current (not stale-dated) check if you have been writing a lot of offers and in the REO game for a while.
  7. Buyer Pre-Approved for Financing.  Pre-Approval (not pre-qualification) of the buyer is a must and a proof of funds letter can also strengthen your offer.   Don't waste everyone's time if the buyer is not willing to get the approved financing in place first.
  8. Seller/Bank addendum.  REO Properties are sold as-is, no warranties or guarantees.  You may be able to get the seller to pay for a home warranty – it depends on all other concessions, costs and net to the bank.  We are finding many banks will not complete disclosures required by Nevada statutes:  Seller’s Real Property Disclosure for example.  Be prepared to carefully review all of this with your buyer and other language in the bank’s addendum to the purchase agreement.   
  9. Time frames.  Allow a minimum of 1 to 2 weeks to hear back from the listing agent regarding a response from the bank.  If the bank accepts your offer, expect that you may only receive a verbal or email counter and/or acceptance subject to the buyer executing the bank’s addendum and accepting any other terms.  Once you have approval, open up the escrow and get the buyer going on their due diligence.  Also be prepared for a closing time frame of 45-60 days or more depending on whether or not there are any issues to deal with like liens, judgments, or other clouds on title.
  10. Communication.  Saving the best for last!  Here is where your patience, tenacity, positive attitude, communication skills, knowledge of the REO process and how well you have educated your buyer will come into play.   Communication, or rather the lack there of, is the biggest complaint and issue of everyone diving into the REO market.   

    Foreclosure_crisis_5 OK everybody, let’s face the reality of “what is”  concerning the current real estate market...
  • Some REO agents are overwhelmed and may have bitten off more than they could chew too fast
  • Some of the seasoned REO veterans are experts on the process and working diligently to improve and expand their services as their business has grown exponentially
  • Still other REO agents have broken the code and have excellent systems in place to handle all the additional tasks and requirements for success
  • Many agents are aggressively trying to break into the REO market and may be relatively inexperienced – learning as they go or on their first batch of REO listings
  • Many buyers agents are not educated to the process and may be writing their first REO deal with an agent who may or may not understand the process themselves
  • The banks & asset managers are also overwhelmed and trying to figure out how to handle the out-of-control workload
  • Not everyone is equally schooled and skilled at educating the buyer on the REO process
  • We are all doing the best we can with what we know and what we've got... practice patience, compassion and focus on solutions.

The bottom line… if all of the above statements are true then in the infamous words of Forrest Gump – “Life (REO) is like a box of chocolates, you never know what you are going to get.”  Each REO experience has the potential of being anywhere from a dream to a nightmare.  I for one believe we can all make the experience more of a dream by the way we handle ourselves personally and professionally. 

Educate yourself and your buyers and, if necessary, the other agent!  Set realistic expectations – and focus on what you want, not on what you don’t want.

Related posts and resources:

More articles on REO, Short Sales, Foreclosures

National Association of REALTORS Field Guide to Foreclosures

International Listings Blog: The Foreclosure Investing Web Guide: 100 Useful Resources


Qualify the Short Sale Listing – Questions to Ask the Listing Agent Before Showing a Short Sale Listing

Shortsalelisting Are you considering buying a short sale?  Are you a real estate agent showing and writing offers on short sales?  Have you considered “qualifying” the listing before showing it to your buyer?

I submit to you that asking the listing agent the following questions and allowing your buyer to make an educated and informed decision about submitting an offer could save everyone a lot of time, money and frustration. Knowledge is power after all – and time is money!

1.    Have you ever closed a short sale before?
2.    How do you handle offers?  Do you submit them all to the bank, not having your sellers sign (which, in effect, means there is no valid offer and acceptance) and let the bank figure it out?  Or do you use multiple offer protocol, notify all agents to submit their highest and best offers, review them with the seller, have the seller accept or counter the best offer and them submit to the bank(s) for acceptance?
3.    Have you requested and received the short sale package from the bank, including the hardship letter? 
4.    And more importantly, has the seller completed the hardship package?  Have you confirmed receipt of the package from the bank?
5.    What communication, if any, have you had with the bank?
6.    Has the bank approved the list price?
7.    Have you received any other offers that you are waiting to hear back on from the bank?  Has the property been approved for a short sale prior and not closed?
8.    Does the loan have PMI (mortgage insurance) which may require another level of approval or a pre-payment penalty?
9.    Is there 1 or 2 deeds of trust?  Any other liens? 
10.    What is the name of the bank(s)?  Is the loan FHA or VA - again may require additional levels of approval?
11.    How long do you estimate that the lender will take to provide an answer to an offer?
12.    How far away from foreclosure is the seller?  Has a Notice of Default or Notice of Sale been filed?

Thanks to real estate agent Debbie Tuttle of Prudential Americana Group, REALTORS in Las Vegas for passing along these great questions at a recent REO & Short Sale Panel held in our Henderson office.

More articles on REO, Short Sales, Foreclosures


The Short Sale Process – Educating Your Clients and Setting Expectations

What is a short sale?

Simply put, a short sale is selling a property for a less than what is owed to the underlying mortgageShort_sale_process holder(s).  The final sales price is essentially what the buyer is willing to pay for the property with the mortgage company/bank having the final approval of the associated closing costs, commissions, terms and acceptance of a discounted payoff(s).  The seller should always consult with an attorney, CPA or tax advisor to determine any legal or tax consequences of a short sale.  We have seen the gamut of scenarios from mortgage companies accepting the discounted payoff and releasing all remaining debt to deficiency judgments and negotiating a settlement or new payment plan with the homeowner.

The pre-short sale process begins at the time of listing the property for sale.  An experienced short sale real estate agent will counsel the seller about the entire process and assist the seller in establishing a competitive listing price based on the current market conditions.   The primary responsibility of the seller is to request and complete a short sale package from their bank or mortgage company. 

Sellers should be prepared to provide the following documents and information for the short sale packet:
•    Hardship letter – clearly outlining their financial hardship and substantiating the reasons for requesting the short sale
•    A financial statement/budget – delineating all income and expenses
•    Most recent 2-months paycheck stubs
•    Most recent 2-months bank statements
•    Past 2 years income tax returns
•    If self-employed, 6 months of Profit & Loss statements
•    The listing agent may request additional information:

o    Current copy of mortgage statements or any notices from the bank/mortgage company
o    Copies of HOA statement showing current or past due amount (if applicable)
o    An authorization form signed by the sellers that will allow the listing agent to communicate and negotiate with the bank on the seller’s behalf

The short sale process begins in earnest when an offer to purchase is received from a qualified buyer.  The actual process from submission to the bank to final approval can take weeks to months.  A successful short sale can depend on several factors, among them  –
•    how solid and complete the offer is
•    the buyers ability to successfully obtain their financing
•    the bank’s particular process and workload
•    the seller’s completed and acceptable hardship package showing the bank(s) that there is a true financial hardship
•    the knowledge and communication skills of the agents
•    the resulting BPO/Appraisal ordered by the bank
•    the patience and determination of all parties involved

To ensure as smooth a transaction as possible, buyer’s agents must also be knowledgeable about the entire short sale process and take the necessary time to brief the buyer and set realistic expectations.  Some key points to include in your buyer’s interview and qualification meeting:

  • What is your buyer’s time frame?  Are they prepared to wait for possibly weeks to several months for the transaction to close?
  • Are they interest-rate sensitive?  If interest rates go up will it negatively impact their ability to get a loan?
  • Prepare your buyers for the reality of limited information about the status of the approval and the need for patience if deciding to go the short sale route.
  • Be aware of numerous roadblocks along the way to closing.  Everything from getting approvals from 2 separate banks to liens and clouds on title to be cleared prior to closing is possible.
  • Do your homework when showing properties and be cognizant of the below-market list prices.  Some listing agents will list the property well below the comps to entice activity and offers.  What seems too good to be true to you and your buyer is usually proved correct when the bank counters the sales price to actual market conditions.  Don’t fall into this trap!
  • Strengthen your offer by having a pre-approval (not pre-qual) letter and proof of funds letter from the buyer’s lender. 
  • Remember the bank wants the highest net possible after acceptable closing costs.  Are there multiple offers on the property? Encourage your buyer to write his/her best possible offer first.

Make sure to include the appropriate short sale approval contingency clause and due diligence timeframe to begin after short sale approval by the bank. Las Vegas agents should use the GLVAR Short Sale Addendum in the best interests of their clients:

SHORT_SALE_ADDENDUM_0408.pdf

More resources and related posts:

Short Sale Protocol - 15 sSteps to Success by Sue Saunders, General Counsel to NVAR

Download ShortSaleProtocol1.pdf

Short Sale Tips for Real Estate Agents and Sellers

Mark Stark on Short Sales

Short Sale Posts from Darren Welsh:

For Las Vegas Realtors:  Our MLS issued this memo in April 2008..."Stop, Before You Enter a Short Sale, Foreclosure or REO Listing... Read This."    Download and read the first 4 pages of the 10 page document for MLS rules and specifics.  Download glvar_reo_short_sale_stop_read_this.pdf

More articles on REO, Short Sales, Foreclosures


RE Blogworld Sept 19-21 - Save $100 until August 22nd

Do you want to learn all the latest about blogs, podcasts, video blogs and social media?  Then sign up today for the 3 day conference coming to Las Vegas September 19-21, 2008.  Friday is a full day of workshops and panels geared for the real estate professional.  Your conference registration ($350 until August 22nd then it goes up to $450) also includes both days of the Blogworld & New Media Expo. 

Visit the REBlogworld Blog for more details and check out this post from Todd Carpenter What does my registration get me?


Knowledge is Power... Know Your Market and the Real Estate Industry

Are you staying informed on the latest news and current trends in the real estate industry and your local real estate market?  Knowledge is not only power it is the key to confidence!

There are numerous resources available to you for this purpose:

  • Inman News - Subscribe the free daily headlines; visit the Inman blog for latest RE Industry news; join the community
  • RISMedia - sign up for the free daily eNews
  • Realtor.org
  • Your Local and State Association of Realtors
  • Local and National Real Estate Blogs - just do a google blog search
  • Local Business Journals, Newspapers
    • Set up a Google Alert for the keyword phrases that best match your local market. ("las vegas real estate news" or "las vegas real estate market" for example)  It's easy to setup and you will receive daily or weekly emails with anything posted on the internet that matches your keywords.