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Get Your Offer Accepted! Insider Tips on Buying a Bank-Owned Property

Monday, May 19, 2008 - Article by: Lender411 Member

About a month ago, I wrote about the frustrations some agents were feeling. They couldn't understand why it was taking so long to get their short sale offers accepted.

I received many emails thanking me. Many wrote the same thing, "Aaron, now if you could tell us how to get our offers on bank-owned foreclosure accepted, we would really be grateful!!

Here you go......

During the housing boom, thousands of people stayed on the sidelines as the Las Vegas and national housing market skyrocketed.

With home prices doubling and even tripling in some areas, some of these people ended up getting priced out of the market. Many feared they would never be able to afford a house every again. They were wrong. Their day has come.

Today, Las Vegas leads the nation in foreclosures. Home values are down nearly 30% from its peak. In some neighborhoods, prices are at their lowest levels in seven to eight years. And banks are the sellers of most of our inventory.

Those who stayed on the sidelines during the last boom, as well as many investors, are hungry to make deals. Many more foreclosures are expected to flood the market in the coming months. This is creating a new, smaller, buying boom.

However, there is a tremendous difference between buying a home from an individual and buying a home from a bank. Failing to recognize these differences will likely result in a substantial waste of your time and your client's time. It is not uncommon today to spend tens, if not hundreds, of wasted hours with each other because your clients don't understand the difference.

I know agents who have now spent weeks and months with clients in a futile effort and no sale to show for it.

Let's try and end some of this today.

Leslie Carver is an agent at Prudential Americana and one of the top REO agents in Las Vegas today. I spoke with her about this challenge. An REO agent is one that specializes in representing bank-owned properties. There are not many REO agents in our market. Certainly not as many as you would expect. There are a lot of reasons why. Experience in REO being the biggest, but that's a topic for another time.

Leslie is a terrific, well-respected agent, who handles listings for many of the top banks in the country. Leslie and I have had transactions together in the past and she has spoken to groups on this subject recently.

According to Leslie, the number one thing you need to understand today about making an offer on a bank-owned listing is you will likely only get one chance at it.

"Buyers need to present their highest and best offer," says Leslie. "In cases where we get multiple offers, it's a one-shot deal. The bank will take the best offer and probably not counter any of the others. Put your best foot forward and don't plan on a counter offer. It's probably not coming."

Another challenge today is buyers making low-ball offers 20% or more below list price.

On average, local experts say, bank-owned properties are selling within 10-15% of list price. Anything lower than that, if the property hasn't been listed longer than six months, is probably a waste of time.

The bank and their listing agent have done a lot of research before listing the property for sale. In many cases, the bank has received at least two BPO's (broker price opinion) and at least one actual appraisal before determining the list price.

I spoke with an asset manager who said, "We are not desperate like so many want to believe. We price our properties based on a lot of research in the local market and we expect to sell them at market value."

They list it to sell and, in most cases, the listing agent and asset manager at the bank are tied down to this price. The asset manager then has limited authority to go a bit lower if necessary.

Anything substantially lower than this price usually exceeds the asset manager's limited authority so the offer has to go back to bank management for approval. According to most experts, that's not very likely. Many asset managers simply reject it and don't even bother passing it on.

If a house doesn't sell over a certain period of time, the bank will usually lower it as much as $25,000 at a time.

The best deals you can get are those that have been on the market the longest. Although there are great deals sooner, banks are most negotiable once the property has been on the market 90 to 120 days.

The chances of you "stealing one" by offering 25-40 percent below the bank's asking price is remote at best. If you have a buyer who has you making tens of offers all below 20% of list, you truly have to consider your time vs. opportunity. The time commitment is tremendous. The opportunity is likely minimal.

According to Leslie, and others, buyers should forget the list price in determining their offer. Your offer should be based on the true value of the home. "Some people are afraid to make an offer over list," says Leslie. "However, in nearly every multiple offer situation today, the accepted offer is over list."

Buyers should get with their agents, make their own determination of the property's value, and make their discounted offer based on that figure.

For example, let's say you see a bank-owned property you like, it's been on the market four weeks, and it's listed at $250,000.

You get with your agent and you believe the home is really worth $285,000.

You have to understand that the bank and their agent have done their research as well. Likely much more research than you. They have priced it at $250,000 to move it quickly.

You want a 20% discount so you make your offer off the list price of $250,000 and not the $285,000. You are probably wasting everyone's time by making an offer of $200,000. An offer of $228,000, which is 20% off from the $285,000, has a chance. Probably not a great chance but certainly worth a shot....if that's your highest and best offer.

"Your offer has to be reasonable," says Leslie. "In many cases today, the banks are getting multiple offers. Don't let list price be the main factor. We have already listed it low. The low-balls won't even be considered."

Leslie says most REO agents today submit all offers to the bank immediately. However, the banks tell the agents it can take up to five days for a response. This can, and often does, result in multiple offers.

Some banks will not even review an offer until it's been on the market at least five days.

And while you are making your offer or waiting for it to be accepted, email is the preferred method of communication with the very busy REO agent. Because of how few REO agents there are in Las Vegas today, some of them have hundreds of listings. As a result, most have developed automated systems to deal with the volume.

"The banks and their asset management teams are automated today. We rarely speak on the phone with each other," says Leslie. "There are only a handful of REO agents in Las Vegas today and we are all automated too. Everything is online. Some buyer's agents are having a tough time making the transition but email is the absolute best means of communication in the REO world today."

The next biggest challenge today on making an offer on a bank-owned property is to know the offer rules of the property you are trying to buy.

Leslie says offers that come in where the listing information has been ignored are not likely to be accepted. If you want your offer to be taken seriously, read the listing carefully, and follow the directions.

For example, if the listing says you need an "approval letter from ABC Bank," and you send one in from XYZ Bank, the offer will probably not even be considered.

Keep in mind, the seller is a bank. They understand the lending challenges today. They don't want to waste any time as time could mean further depreciation and costs. Your offer needs to come in from a respected lender whose bank they recognize. Quite often they want you to be approved by their own institution.

If the listing asks for "proof of funds on all cash offers" and your offer doesn't come with the proof attached, plan on rejection.

"The banks are so automated that if an offer comes in without a mandatory offer condition, the bank's advanced system may reject it automatically without review from the asset manager," Leslie says.

Know your property as well, Leslie advises. The bank hasn't been in the property. However, when there is something wrong with it, they usually know about it through the listing agent.

So let's say you make an offer on the property, yet you don't address the property challenges. This makes your offer very weak and will likely result in it being rejected or not even considered.

For example, you are buying a home and you are doing an FHA loan. FHA requires that the home be marketable, sound, secure, and safe.

Some of the items FHA will require to be fixed are broken windows, rooms without flooring, faulty plumbing, broken entry and exit doors, missing A/C units, etc.

So, you love the home but it has a few broken windows and there is no flooring in the master bedroom.

You meet with your lender and you decide an FHA loan is best for you. You don't tell the lender about the window and floor. Then, you make an offer, yet you don't address the windows and flooring in your offer.

The REO listing agent is usually a very experienced agent who works with banks. They know their lending guidelines. They know FHA today. They know these fixes will cost money and they have usually prepared the seller to make these changes for the buyer.

Let's say, they have estimated the cost to fix these items at $2500.

They know you can't close your FHA loan without fixing these items, yet you make no mention of the windows and floor in your offer.

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