Making the Offer- What is R.E.O. (Real Estate Owned) Post-Foreclosure Sale Defined
When a bank forecloses on any property that finds no bidder at a public sale willing to pay at least what’s owed on the mortgage note, the property becomes Real Estate Owned (REO) by the banks who own the note that was foreclosed upon. Banks are not landlords and don’t want to be in the business of holding real estate. This presents a buying opportunity when developing an analytical plan to achieve savings.
The best way to locate an REO property is to contact an FSRefund.com REO Listing Specialist. Usually REO listing agents give a professional services discount (reduce their commission) for the banks which they subsequently make up by spreading themselves thin doing volume. This leads REO Listing Agents to have assistants answer the phone and not provide their private cell phone number making communication difficult. To attract more buyers, often banks will even offer the savings given back by the listing agent (usually 1% of the purchase price) to the buyer’s agent! In that case, you the FSRefund.com user achieves even greater savings!
Experienced REO listing agents will always include instructions for offer submission in the MLS listing. Every bank has varying procedures and requirements. To make your offer attractive and accepted, following all details to the letter, usually including the contemporaneous submission of all offer documents, a copy of the deposit check, the pre-approval letter, the funds verification, buyer’s credit reports, a loan application (you’re not obligated to receive financing from the bank selling the property) as well addendums and disclosures. Ensure everything is completely filled out with all required signatures and initials on EVERY page. Missing even one detail is sufficient to have your offer rejected, so triple check it.
- Ask your FSRefund.com Realtor® to Investigate Property History- including the foreclosure sales price listed on the Trustee’s or Sheriff’s deed, generally found on the tax rolls or through a Title Company. If the current list price is attractively under-market, the bank will accept an amount somewhere between the foreclosure sales price and the original mortgage balance.
- What Are the “Comps”? – The comparable sales of an area help establish the sales price of homes in any given neighborhood. All comps must include property address, year of construction or manufacture, total square footage, lot size, total bedrooms
and baths as well as sales price. Try only to use those homes that most closely match the property in square footage, number of bedrooms, baths amenities and condition. Ask your FSRefund.com Realtor® to retrieve six months of comps divided (trifurcated) by: #1. Active Listings; #2 Pending Listings; and #3 Sold Listings. Ask your FSRefund.com agent to call the listing agents on the Pending Listing sales to discover the accepted offer price, (those listing agents aren’t obligated to tell your FSRefund.com agent but if he or she is one
smooth talker they’ll at least get a pretty goof clue for you.) Be sure to personally check out the comparable active listings because they are the only homes available for buyers to look at, helping to establish what your desired property is worth.
- What are the REO listing agent’s closed sales? - Ask
your FSRefund.com agent to pull the history of those closed sales so that you may establish the agent’s average list-price to sales-price ratio, looking for patterns. Most REO agents only represent one or two banks. If a clear majority of the REO listing agent’s properties close escrow above or below asking price, you’ll know where to go with your offer.
- How Many Offers Does the REO listing agent
have? If there are no offers on an REO property you can probably offer below list price. However if there already exist multiple offers you may need to offer more than list price to be considered, especially if there are any other ALL CASH offers, which banks love because it means no financing contingency. Remember, your offer price will have to be substantiated by an appraisal if you’re financing.
- Earnest Money Deposit- Banks want to see good faith deposit funds in an amount equal to 1% of the sales price. If a buyer is financing, make sure to include the buyer’s lender pre-approval letter with the purchase offer.
- Include Realistic Close of Escrow Deadline- In the current marketplace; a financing buyer will need at least 45 days to close escrow. Banks will usually counter offer with terms that include a per diem penalty of up to $150 per day, every day past the predetermined closing date. Unless you are a cash buyer, don’t agree to a three weeks escrow.
- “PROPERTY TO BE PURCHASED AS-IS” – Buyer’s legally have the right to inspect any property for 17 days after formation of the purchase contract in California but banks’ will probably ask you to purchase the home as is. Examine the property carefully as some foreclosures have assets stripped from them. Certainly in states where closings occur on a pre-arranged day, inspections are encouraged before contract formation. Keep in mind anything in writing requesting Inspection Reports can complicate an FHA loan. Pay for all inspections at the time of the inspections and DO NOT pay them out of escrow unless in the unusual
circumstances the bank is covering the costs. All inspections are part of transactional disclosures (at least in California); however your expense submissions to the title company or the lender will only slow down the successful close. – (Usually “As-Is” language can be written on page 6, Section 25 Standard CAR Purchase Agreement)
- Ask the Bank to Split or Cover Transactional Costs, City or County Fees & HOA Dues – Lately, most banks have moved away from paying traditional transactional closing costs. Some fees such as transfer taxes, county and state fees as well HOA dues are usually paid by the buyer and not the bank unless those fees are significant. Banks also. Banks also do not often pay for pest report, repairs or home warranty plans. Banks negotiate bulk-rate discounts with service companies (i.e. ALTA title insurance, escrow) so make sure to check the fees those companies will charge as they usually will tend to charge more to make up the discounts given to the banks. It’s usually best to allow the banks to select choice of services especially if you request that they to pay. Simply leave the service company fields blank after selecting seller’s choice of services, taking care not to write the banks’ “recommended” Title Company anywhere in the purchase offer as they may try and use this fact to heap fees on the buyer later. If the bank won’t pay the closing costs as part of the deal, raise your offer price to effectively receive the “banks’” discounted pricing. It never hurts to ask, the bank will just counter-offer out of any purchase offer terms or conditions they deem unfavorable.
- Don’t Request Personal Property - State “all items per the MLS.” Banks’ don’t sell appliances so if it’s still in the home at Close of Escrow, lucky you!
- Offer Submission to REO Listing Agent- Unless otherwise instructed, the offer should be e-mailed to the REO listing agent as
a .PDF because he or she is likely required to upload it into the bank asset manager’s website. Scan the purchase offer in black and white at no more than 300dpi or you may jamb the REO Listing Agent’s e-mail inbox. Ask for a confirmation receipt and don’t ever take for granted that it’s in the REO listing agent’s hand until you hear as much.
- Counter Offer or Offer Rejection- You may have to patiently wait 7 to 10 and at times 14 days before receiving a banks’ reply. Additionally, sometimes an REO listing agent simply won’t communicate directly to the buyer that their offer has been rejected instead changing the listing’s status in the MLS to Pending Sale: aggressively priced post-foreclosure deals are usually put together in days or weeks usually, not months. When an REO property has
more than 30 DOM and the bank rejects your competitively priced offer, resubmit in another 30 days with the same paperwork, conspicuously lining out the old dates. When the bank does respond “favorably,” usually expect them to counter with a purchase contract or addendum drawn up by the bank’s lawyer. If you don’t understand any counter offer from the banks and your FSRefund.com Realtor® isn’t a lawyer, get a licensed attorney to
review the details for usually around $500; it could be the some of the best money you’ve ever spent. Moreover, keep in mind that some banks won’t sign a counter offer until its terms are verbally agreed to with your FSRefund.com Realtor®.