REO Properties
Over the last couple of years with the increase of foreclosures, real estate agents who shy-ed away from Real Estate Owned (R.E.O.) properties have found themselves delving in to them head first. Reason for shying away include everything from elitism (I have been called a bottom feeder for working R.E.O.’s) to ignorance for understanding the dynamics in working an offer and dealing with a bank. For the purpose of this post, I will assume you are the latter rather the former.
As a real estate agent who deals with R.E.O. Properties, I rely heavily on my time spent as a Foreclosure Team Leader and Senior High Risk Property Analyst at J.P. Morgan Chase default department. It has afforded me a unique perspective and knowledge on how to work with these special properties from the side of the buyer, the agent, and the seller . Not only the understanding of the institution itself, but the quirks that follow along with the Asset Manager (Remember this person works 8-5 M-F and has 300 files on his desk).
The following information was altered from a fax that my good friend Alan Plager in Tampa developed. It is in no way definitive since every transaction is different. Every time there is a scheduled showing on R.E.O. home I have listed, this information goes out to the buyers agent.
20 Things You Should Know When Writing An Offer on a R.E.O. Property.
#1. Verbal offers are rarely accepted, considered, or responded to.
#2. Seller is an institution or government agency and does not respond to offers on weekends or holidays. Offers presented during these times will be presented the following business day!
#3. Be aware, the possibility of multiple offers exists, all offers will be presented to seller. Please read items 4-8 carefully.
#4. Seller is looking for HIGHEST AND BEST OFFER, this means that the highest offer may not be accepted. The institution definitely weighs all of the risks associated with offers. Contingencies and sales terms are considered to determine with whom they will enter into contract.
#5. Response times of 5 to 7 business days or longer are not unusual. Your offer will sometimes require the signatures of multiple parties. Be advised that all efforts are being made to give the buyer a timely response. The listing agent has no control over this time frame! The listing agent has the same desire as you, to see a successful closing!
#6. Due to the nature of R.E.O’s, once there is an acceptance of your offer, the usual turn around time for an executed (fully signed) contract is 7 to 10 business days.
#7. Because of items 2 – 6, once an offer has been sent to the seller for FINAL (fully signed) approval, all offers after that are considered back up offers.
#8. Seller may respond with a “reject offer” with no counter.
#9. Due to the nature of REO clients needs, Agents can be out of the office most of the day. Email is the preferred method of contact. Most responses are by email and/or fax.
#10. If you need to reach the seller’s (listing)agent by phone, PLEASE LEAVE only ONE MESSAGE .
#11. Seller is exempt from property disclosure and has never occupied the property. Buyers must rely on their own inspections.
#12. Seller will complete no additional repairs other then what has already been completed.
#13. If you need financing in your offer, most properties will need some amount of repairs to have either, FHA or less then 80% LTV. Seller will not grant permission for buyer to complete any repairs prior to closing. Because of the possibility of lender required repairs, most offers of this type are usually rejected.
#14.Special contracts and Addendums will be required. Some sellers provide the addendums themselves after all negotiations have been completed. All addendums and special contracts are written to favor the seller.
#15. Curb offers, and offers that are assignable will run the risk of being rejected without a counter offer.
#16. When presenting offers, please remember that full contact information of all parties involved must accompany the purchase offer along with other forms your state may require. This maneuver will expedite the response time & quantification of intrinsic risks.
#17. Cash offers will require “PROOF OF FUNDS.” Generally, a letter from the buyer’s bank stating that buyer does have an account, the funds are readily available, and the amount being held by their institution, will suffice.
#18. Offers subject to financing will need a PRE-APPROVAL letter stating that buyer’s credit has been reviewed.
#19. All properties are sold “AS IS†with no guarantees.
#20. All real estate transactions are different, this document is intended for information and education purposes regarding only an REO transaction. Please review with a licensed real estate agent and/or attorney.
There you have it; simple information that makes the purchase of an REO home smoother for the buyer, the seller, and all agents involved. Keep in mind the R.E.O. listing agent has the same goal as you: To have a SUCCESSFUL CLOSED TRANSACTION!
When writing on an an REO property, patience is the key!
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Absolutly on the mark. Yes we are getting into it and yes it can be frustrating. The spoils go to those with patience
Thank you for this post, Rocky. I am recommending this to several of our buyers who are looking to buy bank-owned or REO homes.
FYI, some institutions do not accept electronic signatures like Docusign. I have had only one reject the offer and demand it be rewritten and signed. When can we kill the fax machine!
This is very useful information. The other thing I am finding is that the pre-approval must be from a direct lender and the type of loan should be specified.
Essentially correct … but can I point out some exceptions?
#1) For initial offers, verbals don’t get you anywhere. Not so for counteroffers. Have had banks come back verbally, have come back to banks verbally, then we write everything up at the end.
#2) I’ve received an answer from a bank on a Saturday. Still don’t know how, but it happened.
#11) If it’s something major, it may be worth asking. Was able to get a $3,700 price reduction for one client when it was discovered the 35-year-old air conditioning unit no longer worked.
The point? These are great guidelines but not hard and fast.
It has been my experince that some banks will do some verbal negoiations after the intial offer. However the greater majority of banks like their electronic communication (some use propritary software) with a few prefering paper.
Your observation about Saturdays is an exception too. When I worked for the bank, I was known to pop in on a Saturday and/or Sunday to catch up on work when the powers that be allowed. The people employed by the banks are mostly paid by the hour. So unless a bank is allowing for overtime and/or weekend scheduling, it is best that you do not expect an answer over the weekend.
Lastly, as the buyers agent should ALWAYS ALWAYS ALWAYS write an inspection clause in the offer. You would be amiss if you did not protect your client that way. I myself have seen up to $30,000.00 come off due to roof damage the bank did not know about. Remember, they do not occupy these properties.
As I mentioned, this list “is in no way definitive since every transaction is different.”
Like you suggested, it sometimes does not hurt to try! Great point!
Good list. Something like this should be included in continuing education.
I do have to respectfully disagree with #13 and #10 though. I’ve had several FHA financed buyer offers accepted by the bank and they fixed the issues that came up after the FHA appraisal/inspection without argument.
And if the listing agent has not returned your email or phone call from a week ago, you have every right (and duty to your buyer) to continue “bugging” them until you get in contact with them. If you’re too busy to return phone calls to buyer agents that you have a verybally ratified offer with, then you need to either stop taking any more listings and/or hire an assistant.
Danilo, You are totally correct, there are some exceptions to the rule and some banks will make repairs. Once again, this list is not definitive.
As for #10 I should have quantified it that if it is your first time calling in, only leave one. By all means, if they have not returned your call in 24 hours you should continue calling them.
I have actually had an agent call me every 1o minutes to leave a message after submitting an offer. Not all are that extreme, however when you have 2 or 3 agents leaving multiple messages, it can be nerve racking to clear your messages out.
Thanks for the post!
Hi, My name is Harry and I,m here in Seattle.I did,nt know that you could assign a R.E.O.
property to a end buyer.If you can that what would you have to do to do that.Plesae explain?
Harry in Seattle