Archive for the ‘Buyers Agents’ Category

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Reality REO 101

Monday, August 30th, 2010

Just a few random thoughts to share with anybody considering making an offer on, or working with a buyer who wants to purchase, a bank foreclosed (REO) property.

The bank has at least two different opinions of value.  They will sell the property for very close to those values or if it has not sold after 60 days, they will order more opinions of value.  No matter what you see on late night TV, the bank is not going to give these properties away for 50% of value, just so you or your buyer can make that extra 50% on a flip!

Banks are closed from 5pm Friday until 8AM Monday.  Don’t submit an offer at 4pm Friday with a deadline to respond of 4pm Saturday.  Won’t happen.

I read somebody giving advise on buying bank REO suggested including a buyer biography.  Interesting idea but not sure it would ever be seen.  Many systems for offers have no way to include this information.  Really, unless your buyer is a not for profit that wants to use the property for some better society objective, I would not spend a lot of time telling the bank about your buyer.

I would get the very strongest, clearest, accurate proof of funds or financing that is possible.  If you want to tell the bank about your buyer, do it through your proof that they can actually close on their proposed offer.

Have an inspection contingency in your offer and be prepared that if the inspection findings are troublesome, the buyer should be prepared to walk.  You can ask the bank to make repairs but a credit is going to be your most likely response.  Lately though I do not see the bank changing their net so they operate with the idea that if given a $3k credit for repairs, buyer will pay $3k more for the property.  This is why a lot of REO deals never close.  Buyers need to have some cash in the bank to make repairs.  It is OK to ask though.

Bank offers that are accepted are accepted verbally and usually subject to corporate approval.  A buyer needs to be prepared to wait for a bank written addendum to the actual purchase agreement.  This document is not negotiable.  When presented it needs to be executed.  If the buyer does not like certain terms, it is cold and harsh, but the bank will just cancel the accepted offer and sell to somebody who will sign their addendum.  Bank’s lawyers write these addendums, and nobody in the REO department is authorized, or will even invest a minute, in negotiating them.

So, these are just a few random thoughts on issues that seem to always trip up transactions.  Don’t get me wrong.   There is an advantage to buying a REO property and it is often based on a discount to market.  It is just not the size of discount that seems to be expected from some buyers today!

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Why You Should Consider Buying A Bank Owned Foreclosure

Friday, August 20th, 2010

Everything I open today seems to be a mouthpiece for complaints about the entire process involved in buying a bank owned home. Granted, the process has its quirks, and the proliferation of really bad information from people calling themselves experts is hurting the cause. Yet, there are some benefits to not ruling out a bank owned foreclosure when you are shopping for a home or property.

Emotions

If you are the type of person that really prefers buying a car and not dickering or playing games with a sales manager, buying a bank owned (REO) property is pretty similar. Despite all the information that provides secret negotiating tips for these homes, let me give you a big tip. Make a really good offer up front and at best make one counter offer. It is a straight forward process making an offer. If you start super low you will get the response your offer deserves. If you make your offer really complicated, it too will be received with a thud. Banks have this selling process figured out. You are not going to out-think them. The KISS principle has never been more relevant.

Piece of Mind

If you are an investor and are thinking buying pre-foreclosure or short sales is the way to go, I know you take a lot of steps to make sure there are no hidden liens…right? A property that has cleared foreclosure and is marketed by a bank with title insurance is going to allow you to sleep at night and avoid those unexpected expensive surprises.

More Piece of Mind

Is that possible?  Yes, because unlike dealing with a home bought at the actual sheriff sale, you can place an inspection contingency in your offer and make sure whatever defects are discovered are ones that you are willing to accept.   Even experienced investors are well served utilizing a skilled inspector.  Also, a little known point about bank properties is that a home needing a lot of repairs has been valued based on not just the broker’s opinion of value.  There has also been an appraiser on site and between both parties there is a pretty good value given to the bank that considers many of these issues.

Paying Too Much

Every time a buyer questions our list price for a bank owned property I run this statistic by them.  In the last 12 months (and for the last several years) the Wilmoth Group’s average sale price to list price ratio has been 98%.  That means almost all of our listings sell very close to the list price.  I am not bragging, this is just an indication that the appraiser and broker are getting it right, and the bank is not gouging on the list price.

Compared to buying any other type of real estate, the process for acquiring a bank owned property is very straight forward.  True, in today’s market there are preference periods for owner occupants.  The primary issue is financing and a lot of these properties clear the preference period and become available to investors or second home buyers. 

Don’t let somebody else give you a bad story on buying bank owned REO until you try it yourself!

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How To Show A Bank Owned Home

Monday, August 16th, 2010

I am motivated to write these few suggestions after having an agent spend time with a buyer recently, completing a non-authorized pre-offer inspection, and then asking if it was alright to make their offer contingent on the sale of the buyer’s home.  I wanted to say “You have read nothing the Wilmoth Group offers about selling a bank owned home…have you?”  Instead I politely explained that a bank is not going to consider an offer with such a contingency. In the back of my mind I thought about how much time had been wasted by all parties!

If you have decided to show a bank owned home, lets start with the hundreds of requests we still receive daily for the filter known as “do you have any offers“?  Do you ask traditional sellers for this information?  I still wonder..why does it matter unless the Agent really does not want to do their job and provide advise to a buyer on a home because they want to have no competition!  Last time I looked, almost 80% of our listings receive more than one offer.  Many of those offers will never make it past first base.  Yet, agents want to NOT show a home if there is another offer.  If there are multiple offers, the bank almost always lets the good competitive offers know.  Stop making this a criteria for showing a home.  Worry about old fashion ideas like what is the home worth in today’s market and does your buyer want to make an offer based on this value?  A fair offer will stand a great chance!

While most banks are no longer making it a mandatory item, I would not show a bank owned home to a buyer without a pre-approval letter or proof of funds.  How you confirm the buyer has the ability to provide this is up to you.   Submit an offer for a buyer without one and you have dropped to the very dungeon of offers…where to even have a chance the bank is going to come back and ask you to provide one for your buyer. 

I see Agents spend more time worrying about if there are any offers and little to know time verifying the buyer’s ability to actually support an offer with some type of proof of funds.   Put your energy in the item that really counts first.

Don’t show a bank owned home and walk through it telling the buyer that the seller will HAVE or NEED to fix or repair anything. ”Sold as-is means sold as-is!”.  Buyers need to make offers assuming there will be no repairs.  If a buyer has a inspection, and something not visible in a normal showing comes up..it is OK to ask the bank to repair.   How the bank will respond is any body’s guess. 

Don’t let your Buyer believe they can come in and make repairs or renovations prior to closing.  I see this one a lot.  Hey its a vacant house..so who cares?  The bank cares so much I have seen them have the local Sheriff come chase buyers under contract off the property as Trespassers and then cancel the contract.   The answer to this question is NO due to  LIABILITY. 

These are just a few basics.  Did I mention, don’t waste buyers time if they have a home to sell?  The market might be tough enough that traditional sellers are now pulling their homes off the market to allow these buyers the time to sell their homes, but there has never been a bank in 20 years that I have seen even consider such a proposal.

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Make Your Offer The One That Is Accepted And Closed!

Tuesday, July 27th, 2010

I follow many different periodicals, blogs and forums..both in print and on line..related to the topic of foreclosure.  There is some really bad advise out there for people as to how easy it is to buy foreclosed properties.   Today I am going to focus on a few simple facts that likely go against what many of these self-proclaimed knowledgeable people state. 

You Should Make Your Offer At 50-60% Under List Price

Only if you wish to waste every body’s time.  Most foreclosures are priced today where they receive multiple offers.  The list price is where the discount to market exists.  Sometimes the bank gets it right, sometimes they need to move the property.  Just know that our average sale to list price ratio on bank owned homes over the last 12 months stood at 98%  That is for almost 600 properties in four different markets!  HINT: There are properties for sale, often by third party servicers or investors, where they do not seem to want to accept the market realities and over-price.  These properties will be on the market for 90 or more days.  Sometimes a more aggressive offer might fly.

Use A Superstar Agent Who Leads The Market In Their Sales Production

What..because everybody will cow-tow to their super stardom?  This one cracks me up.  It is a myth put forward by the large franchise real estate players in support of their top producers who are not funding as much overhead in today’s markets.   Actually what you want is to find an agent who will follow the bank’s very specific instructions for how to submit an offer!  If they are the superstar agent, then fine.   In my experience, they often are not.    For some reason, after years of foreclosures being a major part of the market, there still seem to be agents who think the banks will do business THEIR way and act like they can control the seller.  If you choose one of these agents because of the confidence they seem to exude, you will likely not end up with an accepted offer.  Buying bank owned foreclosures is a rather black and white program.  Your agent needs to be somebody who excels at following instructions and details step by step.  Find out how many bank owned homes they have sold or if you insist on using your cousin, make them share every shred of paper that comes to ensure that things are being done correctly.

The Process Drags Out So Don’t Expect Things To Happen Fast

Again, quite the opposite is true.  Be Available!  Whether by electronic communication, in person, or proxy, now is NOT the time to take that international vacation.  Nobody from the listing agent to the bank really cares if the proposed buyer has to leave the country and will not be available to review the bank addendum contract until next Tuesday when it is due on Monday.  Your accepted offer will be cancelled.  Remember black and white.

The Bank Will Accommodate The Buyer’s Need For Repairs Discovered After A Inspection

Negotiation for repairs kills more accepted deals than anything else.   Yes, I will admit the banks seem to have more tolerance for making a home habitable for owner occupant purchasers than ever before.  Start with considering the type of buyer you are when you feel it necessary to request that the leaking kitchen plumbing be repaired.  If you are investor, please refer back to some of my as-is means as-is posts.  If you are going to live in the property, this request is a wild card.  I do not know how the bank will respond.  The first question I often am asked is “could the buyer have seen this need for repair on their own prior to making the offer?”  If the answer is yes, chances are not good that the bank will front the repair.  TIP-If you really want the property, do not haggle with the bank’s response.  They usually make one response and if you do not accept it they cancel the deal. 

A commonly heard order from Asset Managers is “BOM”.  Back On The Market.  Nobody is ever happy when this happens.  Avoid these pitfalls in order to improve your chance for success in your foreclosure purchase.

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Realtors Should Think Twice Before Giving Access Information To Their Clients!

Friday, July 9th, 2010

Through the years, case after case has occurred where we found a buyer unaccompanied by a Realtor in one of our listings.  This practice is so ingrained that many investors believe it is acceptable.  An investor has an agent they promise to write offers through if the agent will just provide them with access information to properties when requested.   When it involves bank owned properties, the thought is these homes are vacant so I can go at my leisure.  I understand that thinking but it is the resulting problems that always made this a no-no for the Wilmoth Group (and also other brokerages).

Problems?  The most common problem is the key that did not get placed back into the lockbox.  I won’t throw out any accusations on why this occurrs but leave it to be said it makes it impossible for the next agent to show the property.  We now have a bank owned client who insists we use electronic lockboxes to prevent this problem.  A second problem involves a representative from the seller bumping into an unaccompanied buyer.  Seller’s REALLY do not like this!  Guess who gets blamed for allowing it to happen?

If you are a Realtor, or a buyer/investor use to this practice, please be advised that as of January 1, 2010 the Realtor Code of Ethics has created a new Standard of Practice which states:

“REALTORS® shall not provide access to listed property on terms other than those established by the owner or the listing broker.”

In almost all cases, the seller of a property requires a buyer to be accompanied by a licensed agent.  This new standard creates a Code of Ethics violation when a Realtor permits:

  1. Entering a vacant or occupied property without an appointment;
  2. Re-entering a property at a later time without making a second appointment;
  3. Giving a lockbox combination to unaccompanied buyers.

Note: #1 and #2 are behaviors of a Realtor.  Again, vacant bank owned properties seem to be thought to be some kind of exception.  We are actually required to provide a monthly report to our seller’s detailing showings and feedback.  Accuracy is demanded.  We make it easy to show any of our listings by calling Centralized Showings from 8-9pm daily.  The number is on the listing sheet.

Now, if we so desire, we can actually file a complaint with the Board when we learn of a violation of this Standard of Practice.  I hope word gets out soon to all the Realtors who believe these are acceptable practices.

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Credit Use After You Have A Contract To Purchase

Thursday, June 24th, 2010

We are just getting our first taste of how the Fannie Mae Loan Quality Initiative, implemented June 1, may screw up closings with uninformed buyers.  This initiative stems from a  lender letter dated February 26, 2010. The letter noted that, during the past three years, the need had been highlighted “for an improved approach for working with lenders to deliver loans that meet Fannie Mae’s underwriting and eligibility guidelines.” This language is code for “too many loans we purchased did not meet our guidelines and this was not discovered until we actually funded the loan”. The idea of the Loan Quality Initiative, which became effective June 1, 2010, was to focus “on capturing critical loan data earlier in the process and validating it before, during, and immediately after loan delivery.”

Borrower qualification was not the only issue of concern. Among others were determining owner occupancy, verification of social security numbers, a new policy on excluding certain entities from Fannie Mae loans, and updated quality-control requirements.

 While not specifically making it a policy, the letter provides a suggestion that a lender run an updated credit report on their borrower (the buyer) prior to closing.   This last minute credit information might disclose an increase in debt that pushes the borrower’s debt to income ratio beyond the acceptable percentage for their loan.  Or, the opening of a new credit card, with no balance, that negatively affects a credit score.  If this happens, the loan can be last minute declined as not meeting Fannie guidelines and the whole deal crashes.

Testing this initiative did not take long.   Despite a solid gold pre-approval letter, a purchase of a home that is scheduled to close next week may fall through.   The buyer’s mistake…furnishings.  See…this is a first time home buyer couple who has recently been married.  They want to furnish the home and have the ability to be financed to do so.  They also could use their savings but they were advised to not touch those reserves as they were needed for the loan approval.  So, the local furniture store is offering “six months same as cash 100% financing” with delivery guaranteed on July 1.  Have you ever noticed when a retailer offers a “same as cash” deal it involves opening a credit card of some sort?  Yep…Big Credit Supplier of America has approved the addition of $7500 of debt for the buyers of our listing with not a penny due until 2011!  What a deal!

Frankly, who can blame Fannie or the lender for making more prudent lending decisions?   Updating a credit report  just emphasizes a good practice that I recall in the old days was always a matter covered by lenders in the pre-funding period.  I guess the reserves had become a bigger issue.  There is little argument that the addition of this much debt changes the borrower’s financial position.  In the debt oriented society we occupy, many people do not understand this relationship we call capacity.  Particularly when marketed with “six months same as cash” programs.

So, today we are not sure if this debt will kill the deal or not.  The borrower is asking if they can somehow cancel the furniture purchase and the debt.  I don’t see how that is going to work.  The fact they have these reserves in cash may actually save the deal.

The lesson..those pre-approvals we all rely on just got weaker.  Second, if the lender is not telling the buyer, there is nothing wrong with all parties to the transaction reminding the buyer to not make any purchases that involve more credit until closing is complete!

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Home Path-Still The Best Thing Going!

Monday, June 21st, 2010

If you are looking at a Fannie Mae property, and you are dickering with a lending institution for a pre-approval…I really think you are making a big mistake not pursuing Fannie’s Home Path program.

Here is how I responded to a recent inquiryasking me for ideas because they were struggling getting a pre-approval letter in order to submit an offer:

I really want you to take a look at the seller financing available at www.homepath.com.  Put in the zip and the property you are interested in will come up.  This is the perfect program for you as you can get up to $30k of renovation funds.  

I would click on the link for “Find A HomePath Renovation Lender” and contact a lender tomorrow about financing this home with HomePath.  This will by far be the best way to go.  

Just let me know.  Go HomePath..it will make this process much smoother.

To review the benfits of this program:

  • Low down payment and flexible mortgage terms (fixed-rate, adjustable-rate, or interest-only)
  • You may qualify even if your credit is less than perfect
  • Available to both owner occupiers and investors
  • Down payment (at least 3 percent) can be funded by your own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer
  • No mortgage insurance
  • No appraisal fees
    •  There are also renovation programs for investors!  This program is called the HomeStyle Renovation Mortgage…offered through the HomePath Renovation lenders.
     

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    Not Getting A Response

    Wednesday, May 26th, 2010

    I hate this.  I really do.  All day long, phone call and emails from Realtors who do not want to show a property until they know if there are any offers on the home.  I get why they (or their client) don’t want to waste anybody’s time.  I also understand that in traditional sales, a seller often encourages telling buyers to make an offer because there are others on the table.   In traditional sales, this strategy works.  In bank foreclosures, it does not.  The buyer usually does not feel compelled to hurry and look at a property.  Instead, often lead by their Realtor, they cross the bank owned property off the list once they learn there are offers.

    So bank sellers have learned that advising that there are multiple offers needs to be an orchestrated affair.  Therefore, at the seller’s request, we follow a step by step procedure as to acknowledging the existence of multiple offers.  Every email or call we receive asking if there are offers, placing us in a dilema.  If we answer based on our procedure, and the Realtor Code of Ethics, then we get to spend 10 minutes arguing about how supposedly “everybody else discloses this information.”   Not a great use of our time because we are only going to disclose when our seller tells us to. 

    If you need a refreasher for the Realtor Code of Ethics (or if you are a buyer and your agent is saying bad things about the Wilmoth Group not responding to this question) here is the independent standard we are expected to uphold as part of being able to call ourselves a Realtor.

    Standard of Practice 1-15 REALTORS®, in response to inquiries from buyers or cooperating brokers shall, with the sellers’ approval, disclose the existence of offers on the property. Where disclosure is authorized, REALTORS® shall also disclose, if asked, whether offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker. (Adopted 1/03, Amended 1/09)) The answer is really simple…sorry, our Seller does not authorize us to discuss other offers or the existence of them.

    So, if you do not hear back from us, this is why.  We respect our seller’s and their right to instruct us as to how to disclose the existence of other offers.  To those of you who try and trick us by calling with one question, and then really trying to find out about other offers, I know you will get a courteous response but the approach will not be appreciated. 

    Can we stop needing to talk about this now?

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    Fannie Mae Owner Occupant Sales Enforcement

    Tuesday, May 18th, 2010

    With the creation of the First Look program, and the extension of the Home Path incentive, Fannie has decided to really crack down on ensuring owner-occupant, primary users of these homes are getting all of the benefits.  Fannie is now requiring all proposed buyers and their agents to execute this certification attesting to the buyer not owning another property that they actually occupy.  The First Look program and the Home Path incentives do not include second home buyers. 

    This certification will cause most buyers or their agents who are trying to scam the system, second thoughts when faced with a $5000 penalty and additional costs including loss of earnest money.  If you are a Realtor be aware if you are working with a buyer.   As a buyer agent you are being asked to also execute this document, you need to make sure your buyer is not scamming you as to their intents or you will also be legally obligated to pay Fannie $5,000.   Like it or not, the burden is being shifted to the buyers agents.  I also am aware of systems being implemented to test these certifications against public records. 

    Please be aware of the seriousness of this matter when asked to execute this certificate.

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    Multiple Offers On Bank REO Revisited

    Tuesday, May 11th, 2010

    Not a week goes by that I do not engage in a spirited discussion with an agent who expects me or our company to disclose if we have offers on a property.  Combined with the unlicensed public (who are given a pass on this topic because they are not licensed and trained so I would probably ask also) we spend a huge investment of time addressing this issue.

    Just a brief bit of background.  In several places on our website for Realtor FAQ (referenced on every MLS/BLC sheet) we suggest agents visit www.BuyWilmothREO.com in order to prepare to show or write an offer on one of our listings.  I would also say that this data base of questions is an excellent education source for any agent wanting to sell foreclosures listed by ANY Realtor.  Specifically..the multiple offer issue is addressed as it relates to the Realtor Code of Ethics and why multiple offers should not be disclosed unless a seller authorizes the disclosure.  For some reason, the standard of practice has denigrated to a level that, in any other type of residential sale, would have the Professional Standards committees busy with hearings.  I would guess that most bank sellers either are not aware of the violation or just have to many other things on their platters to file complaints.   Yet, I have discussed this very topic with many Asset Managers and they all agree.  Information as to how many offers exist should only be revealed in a carefully orchestrated way so as to ensure the end result is a highest and best acceptance.  

    The majority of the questions I receive on the existence of offers is so that a Realtor or buyer can avoid this process of the bank orchestrating a highest and best scenario.  That is fine and a small part of me understands.  The small part is the buyer perspective.  Not a clue why a Realtor would not want to make the effort if the property might be a good opportunity for their buyer. 

    Yesterday, a slightly different argument was received.  Here is the discussion I had via email with a Realtor after I informed the Realtor that the seller does not authorize our release of information on status of other offers.  

    In my 6 years of selling real estate, I’ve never had an agent tell me that they can’t disclose multiple offer situations. It’s in the sellers (in this case, the bank’s) best interest to always disclose multiple offers in order to get the highest and best offer. It’s my experience that in most cases buyers NEVER offer their highest and best, thus the reason for negotiations.

    My response:

    Just to clarify, I did not say we would not disclose if there are multiple offers.  Different banks handle this a multiple of different ways. In the right situation, they can orchestrate to get the “highest and best” offer.  Unfortunately, with the plethora of foreclosure properties today, and the demand, it is not working in the way you expect.  Just like your buyer, many are using the fact that there are offers to not even look at the home.  Therefore, it is not at all in the sellers interest to disclose until they are ready to ask for highest and best offers.  This is the only way to keep buyers looking (after the first offer is received).
     
    The other side fact is I have seen buyers walk away from even looking just because there are offers..when the offers we had were total trash.  Seems to me it is in everybody’s best interest to take a look at the property and decide if you are interested.
    We also have a FAQ that describes the common Multiple Offer disclosure scenario  to help an Agent prepare their buyer.   Final note: I think buyers need to be prepared for this process.  If it gives them a bad taste, it may not be appropriate for them to be shown foreclosure properties.   There is a very high percentage in the current market that receive multiple offers before one is accepted.  It may be like looking for a needle in a hay stack to try and find one that is not affected. 

     

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