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So You Wanna Buy an REO? Are You REALLY Ready?

By Jeff Dowler, CRS

Real Estate Agent with eXp Realty of California, Inc. CA DRE #01490977

March 10, 2010 03:14 PM

Lots of Carlsbad buyers are seeking REO (real estate owned; bank owned; foreclosed) properties in our area. True all over I suppose. More so in some areas than others

There are some things I like to know when starting to work with REO buyers since they have some hoops to jump through, and I am learning more all the time. Part of this comes from past experiences as well as my own thinking, but also from a recent CRS 111 class and working on my SFR certification.

REO Buyers have hoops to jump through

I decided it made sense to formalize my questions as a starting point for a good discussion with Carlsbad buyers. But I'd be interested in what others have to say. This is a partial list but a good beginning.

WHY DO YOU WANT TO BUY AN REO? WHAT IS THE MOTIVATION?

Getting at motivation is important in any real estate purchase, and understanding what is truly driving someone in a certain direction is essential. It can be a good indicator of seriousness, or lack of. And in the case of REOs it may, in some areas at least, be more an issue of budget and what's available, versus having a keen desire to snare one of these properties.

CAN YOU PROVIDE PROOF OF FUNDS?

This is almost always requested with an offer - certainly so for cash buyers - but it makes sense. Buyers need to be able to provide this (I do upfront even if not asked). If they can't or don't want to, well, that's a big red flag. No POF, no offer.

ARE YOU FINANCIALLY PREPARED AND ABLE TO GET TO CLOSING?

This is NOT just about being pre-approved (that's a given before getting started). It also has to do with additional expenses the Carlsbad buyer might need to pay at closing because the REO lender will not (e.g., termite repairs, escrow fee, title insurance). What if you need or want to lock in your loan, or relock it? What about the costs of repairs you will need to do? How about those missing appliances, fixtures and more you might need to buy?

ARE YOU WILLING TO BUY "AS IS?"

Knowing how squeamish the Carlsbad buyer is about a property that may need cosmetics, repairs or more is kinda important. Many REOs are not exactly in move-in condition, and it is unlikely the seller will do any repairs if asked. The inspection (which in my book is mandatory) may be more informational and educational for the buyer rather than to develop a repairs list. If the buyer wants only a turn-key home, we have a major challenge ahead because of supply. It may simply not be realistic.

ARE YOU FLEXIBLE WITH REGARD TO CLOSING TIME FRAME AND POSSESSION?

Delays are not uncommon, and you can, of course, never be 100% sure an REO closing will happen the day it is supposed to. If you have a drop dead date (e.g., end of a rental) and no alternative plan or option, this could be a problem. And delays mean other issues - changes in moving trucks, utilities, insurance and more.

Is this all to ask? Heck no.

How about understanding how patient the buyer is?
Or if they are prepared to make an offer the day the right REO comes on the market?
Are they willing to make an offer based on comparables and not take the "I want a home for 75 cents on the dollar."

You get the idea.

Any great questions YOU like to ask?

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All content copyright © 2010 Jeff Dowler Carlsbad Homes and Real Estate Tidbits

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Tere Rottink

CoastalVa Realty Inc - Virginia Beach, VA

I think buying an REO has a lot to do with the agents. We have a local REO that is a nightmare to work with.

Mar 11, 2010 10:57 AM

Renée Donohue~Home Photography

Savvy Home Pix - Allegan, MI

Western Michigan Real Estate Photographer

Sounds like my world. Everyone wants the bargain yet no one wants to work for it! Great buyer primer!

Mar 11, 2010 11:27 AM

Georgie Hunter R(S) 58089

Hawai'i Life Real Estate Brokers - Haiku, HI

Maui Real Estate sales and lifestyle info

I see we're all in the same boat here - and the boat is getting crowded isn't it? I'm looking forward to reaching the shore!

Mar 11, 2010 11:59 AM

Carla Muss-Jacobs, RETIRED

RETIRED / State License is Inactive - Portland, OR

Great post! REOs are not for the faint of heart, mind OR wallet! And buying AS IS . . . of course you'd want to get the home inspected, but don't think the banks will negotiate repairs. They won't.

Mar 11, 2010 12:53 PM

Conor MacEvilly

RE/MAX On Market in Ballard. Seattle - Seattle, WA

Hi Jeff

The only bank-owned (non-short sale) home I sold went through without any hitches, took only a week longer then a conventional sale. We got the bank to pay closing costs and $7000 cash back at closing for some repairs! Then again, 1 bank owned sale, doesn't make me a expert.

thanks

Conor

Mar 11, 2010 01:03 PM

Jeff Dowler, CRS

eXp Realty of California, Inc. - Carlsbad, CA

The Southern California Relocation Dude

Pam - yeah it was a tad long. I thought of just listing the questions with no commentary but couldn't help myself. Good luck with your SFR, too.

Mike - that's true, and why education from us is so important. Some folks won't listen until they go through the process, unfortunately.

Mary - and they are not particularly good at it

Jerry - thanks. Glad to hear you are having some success with themm. They can be a challenge.

Ron - well there's a strategy. The question used to be - how much under asking will the seller take. But it is now more commonyl - do I need to go over asking and how much? There are still those that are of the 50-75 cents on the dollar mentality.

Good points, Neal. And we ARE seeing lots of cash buyers and investors. And, of course, getting a loan on the increasingly common "flipped" homes by investors is practically impossible.

Jeff

Mar 11, 2010 01:28 PM

Jeff Dowler, CRS

eXp Realty of California, Inc. - Carlsbad, CA

The Southern California Relocation Dude

Betty and John - ain't that the truth?!

Richard - I actually don't get as many calls about REOs as I used too. BUT so many callers now are in the price ranges where the REOs are so they have little choice if they want to buy a home.

Missy -Agreed. The REOS ARE easier in many ways. At least they sell. I have some other thougths on Shorties but many of the questions are the same.

Pam - I'm not sure if ANY of the REOS here go without multiple offers. They are NOT all over asking, though, at least in the higher price ranges.

Jeff

Mar 11, 2010 01:34 PM

Jeff Rainwater

John L. Scott MPV - Maple Valley, WA

I agree with Teresa. It's frustrating when people say "I'm looking for a foreclosure property" or sometimes I even get people saying they are specifically looking for a short sale. Thing is, in my area, its pretty much even in terms of about half of the properties on the market are short sales or bank owned and the other half are not,

When we do a CMA or a BPO, we clearly see that half of the comps fall into those categories so in reality, the arms length transactions pretty much have to follow suit for pricing just to stay competitive. If they are not priced competitive with the bank foreclosed properties then theirs won't sell.

I took the long way to get to it but the conclusion is, JUST BECAUSE ITS AN REO OR A SHORT SALE DOES NOT AUTOMATICALLY MAKE IT A BETTER DEAL!!!! I'm constantly trying to get buyers to understand this. Look for what they want first, then we find the best deal that meets their needs and desires, regardless if its bank owned, shortsale or otherwise.

Mar 11, 2010 09:57 PM

Joseph Keech

Blue Atlantic Properties - Leland, NC

Great post. Buyers need to be aware of these things.

Mar 11, 2010 10:17 PM

Aaron Silverman

SuccessfulRental.com, Bluewater Property Management, LLC and Lowcountry Turnkey Properties, LLC - Charleston, SC

Improving Real Estate Experience through Education

Good discuss on the potential problems of a REO property. The AS-IS part can be scary for a homebuyer if the property has been vacant for a while. Vacant properties open a whole other can of worms.

Mar 11, 2010 10:32 PM

Jeff Dowler, CRS

eXp Realty of California, Inc. - Carlsbad, CA

The Southern California Relocation Dude

Scott - and they are often full of surprises.

Lisa - well they are easier here, too. But getting folks to the point where they can participate competively is a challenge.

Jenna - and sometimes loving a home is not enough, with the competition.

Brian - so true.

Michelle - it's a key issue in my mind.

Clayton - good for you. That's a different story than many tell.

Debbie - well that's an important question in any sale, I think.

Chris - we see a lot of homes listed that must be purchased for cash only. Keeps alot of first time buyers out of the market.

Patricia - don't hold your breath. I suspect we are looking at years of this.

Jeff

Mar 12, 2010 12:15 AM

Lee & Pamela St. Peter

Berkshire Hathaway HomeServices YSU Realty: (919) 645-2522 - Raleigh, NC

Making Connections to Success in Real Estate

Hi Jeff, great topic for a post. You've got some very good questions for buyers. Usually it's the investors that go after many of the REOs Lee works with. It's very up front - the terms are and conditions are worked out right from the beginning so the buyer knows what to expect. Inspections ARE encouraged even if the property is being sold as is. If something comes up on the inspection that the buyer doesn't like, they can usually walk away and retain their earnest money. One thing to mention is that REO properties (because of the as is addendum) won't work with FHA loans.

Mar 12, 2010 12:25 AM

Jeff Dowler, CRS

eXp Realty of California, Inc. - Carlsbad, CA

The Southern California Relocation Dude

Nanette - but often patience is not enough.

Valeria - it's a mixed bag on pricing. Some REOs are priced very well, and if they are in good shape and you can get them , they are a great value.

Joyce - a lot of similarities here

Linda - so true. But many of thenew homes are beyond the biudget for a good chunk of the first time buyers. But our new home market has picked up substantially.

Geoff - true. Many listings say the lender will not make any decisions until the home has been on the market 5 - 10 days. And by then you are looking aat mnay offers, sometimes in the double digits. So getting in early does not matter in some casess. But making a strong offer DOES.

Jeff

Mar 12, 2010 12:45 AM

Anonymous

Frank Serio, REMAX By The Sea, BEthany Beach DE

Great post Jeff, good timely information.

Mar 12, 2010 02:15 AM

#88

Melissa Zavala

Broadpoint Properties - Escondido, CA

Broker, Escondido Real Estate, San Diego County

I wrote a similar post a few months ago. Buyers think that REOs are "all that" but . . . sometimes they are not. Glad to hear that you are working on obtaining the SFR Designation.

Mar 12, 2010 06:59 AM

Jeff Dowler, CRS

eXp Realty of California, Inc. - Carlsbad, CA

The Southern California Relocation Dude

Peter - I have had that experience too. Or they are willing to buy an REO but NOT a short sale. Unfortunately a number o fmy clients have no choice but REOs and investor-owned properties becuase of budget.

Marsha - bidding "wars" are unavoidable here in the lower price ranges (under $400K or so). If you want the house you have to compete and expect that you may not be the winner. Many folks have to try several times to be successful.

Mary - yep we see that here too. And there are folks, especially the ones with cash, who are wiling to buy these homes. We are seeing a lot more attempts at flipping adn some reasonable success.

Jeff

Mar 12, 2010 08:41 AM

Damon Gettier

Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA

Broker/Owner ABRM, GRI, CDPE

It is amazing how many people don't listen when I explain what AS/IS means. No matter how well we explain it, it seems that buyers don't listen. AS/IS means what you see is what you get.....say a prayer and get a home warranty cause the seller and your agent are not fixing anything or writing any checks.

Mar 12, 2010 01:48 PM

Elliott S. Topkins

Topkins & Bevans-etopkins@topbev.com - Boston, MA

Massachusetts Real Estate and Title Atty

Hey jeff--

Our law firm, Topkins & Bevans, does a lot of work with REO Servicers in Massachusetts. In fact, we probably do the most of this kind of work of any firm inour state. I could not agree with you more, in terms of your points, and I intend to re-blog your post so the admimnistrative people we work with and the sales group who are marekting the REO's can present this type of picture to their potential Buyers.

REO investment or home ownership is not for everybody, that is for sure.

Elliott Topkins

www.topkinsandbevans.com

Mar 13, 2010 08:24 AM

Joan Whitebook

BHG The Masiello Group - Nashua, NH

Consumer Focused Real Estate Services

An excellent post and it applies in all markets across the us. REO's are not for everyone and most buyer really don't understand what is required. I always have the "the TALK" when I first meet with buyer so they can determine if they are the type of buyers who can handle REOs or short sales.

Mar 13, 2010 08:30 AM

Cari Anderson

Danville, CA

Great questions: I will pass this along for sure. Thanks for the info!

Mar 14, 2010 03:40 AM