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What Happens When Banks Get into the Real Estate Business?

Confusing Times in Real Estate A few years ago Realtors® were up in arms about the thought that banks might get into the real estate business. Letters were fired off, hearings were held and the NAR spent thousands to make sure that banks stayed at arms length from the real estate transaction.

Fast forward to today and across the country, banks and lenders ARE in the real estate business. In fact in some areas of the country there are more bank owned properties listed in the MLS than there are seller owned properties.

What makes this so frightening is that the banks and lenders have no clue how a real estate transaction works. It isn't that they aren't trying but the employees behind the scenes have never handled the listing or sale of a home in their lives. So when a contract comes across their desk they have no idea what they might be seeing.

Over the last two weeks I have been involved in a transaction that has completely baffled not only me, my clients and my broker but I am sure the other agent who also has an offer in on the same property. As listing agents one look at the contracts and we would have been able to give our seller a simple recommendation. Offer A is for x dollars and Offer B is for y dollars. Offer A is higher and all other terms and conditions are the same so let's select offer A.

However the bank decides to ask both Offer A and Offer B to make a best and final offer. What happens? Both Offer A and Offer B come back with identical amounts and terms. Alright wise ones now what do you do? You send both offers a counter outlining the price and subsidy that you will accept. Excuse me you send both offers the same counter offer instead of letting them choose what they want to counter?

What did the bank think would happen? Perhaps that someone would blink and pull out of the process? Instead they get back the exact same accepted response to their counter offer. So you still have the same offer from two prospective buyers. Would an experienced agent ever have gotten a seller into this predicament? I highly doubt it. While the bank is trying to sort all of this out both agents submit contract amendments changing the amount of their last offers.

Now Offer A and Offer B are back to being different again. Does the bank decide that enough is enough and it is time to select the current highest offer in their hands? No they ask once again for best and final offers. At what point does this go beyond stupid to the point of ridiculous? Meanwhile they have a home that could be two weeks closer to settlement

If banks want to be in the real estate business then they need to hire brokers and real estate agents in house to unlock the mystery of how a real estate transaction works. I'm not going to tell them they can't be in the real estate business because folks that ship has sailed. Instead now we have to figure out a way to get inside their doors and help them understand the process and that when you have multiple offers you don't under any circumstances counter with the exact same terms to TWO different contracts!

Posted by Cindy Jones-Northern Virginia Real Estate & Military Relocation Services on 07/02/2008 12:25 PM

Comments (59)

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Originally posted at: : What Happens When Banks Get into the Real Estate Business?

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59 Comments on What Happens When Banks Get into the Real Estate Business?

JUL

2008

Sounds like a mess to me. The dopwn side is the banks didn't want the property in the first place.

Great post! Unfortunately, it will most likely take a lot more of these frustrating time wasting negotiations and a lot more losses by the banks before they get their act together...if they ever do!

Judging from how banks and bankers have handled the foreclosure crisis thus far, I'd say they're completely unqualified to enter the real estate industry.

NAR has been fighting this for years. Now, all they need to do is point to the ineptitude of the banking industry.

Shuan-which makes it even more frustrating when they screw up a deal with poor business practices!

Gail-I don't know that the banks will get their act together unless we continue to bail them out. They wanted into the real estate business and now that they are they are finding out it isn't as easy as they thought it would be :-)

Wayzata-the mess the lenders are making with the sale of foreclosures should be all the ammo that the NAR needs to keep lenders out of the real estate business. If not then lenders are going to have to open up their own brokerages quickly to keep from shooting themselves in the foot.

It will be a real tragedy if both buyers find other properties and move on.

It is amazing that banks think they have what it takes but I guess that is why they are in such trouble.

What a mess! I'm sure that there are local agents who would LOVE to have a steady income working these deals on behalf of the banks, rather than leaving this in the hands of the uninitiated and unqualified. I hope this works out, but I'm sure it will happen again and again until they realize that they are not currently equipped to do this on their own.

JUL

2008

I gues "best and final" really doesn't mean "best and final". My hat's off to you, Cindy. I'd get my buyer and move on to the next one.

Randy-it is a test of wills at this point. The bank doesn't have a clue of how crazy this is.

Gene-I think the banks are starting to figure out this wasn't as easy as they thought. This is the one time I do wish the feds would step in and say STOP trying to be real estate brokerages to the lenders but by the time they do it will be to late.

Lisa-I do think there are agents who would rather be handling this mess from the inside instead of tromping through the foreclosure properties with clients. It might be a start to straightening out the mess we are a in.

Ken-the best and final wansn't the problem. It was the counter offer to both offers dictating the terms that got them into trouble. You can't say we will take either x dollars or y dollars with a subsidy of x to TWO buyers. No matter how you cut that you are going to come up with the same net. DUH! It appears that my clients have "won" the bidding war and now we have the stack of addendums to sign. SIGH :-)

What makes banks good at what they do makes them bad at what we do.

I agree... banks should be selling real estate. Now, if we could convince Realtors to stop trying be mortgage originators we would be on to something.

Banks see this from only one perspective. To them, the ability to add real estate services is a means of expanding their income. It's a profit point. And they have one of the largest and most powerful lobbies in Congress.

It was not only the NAR that lobbied to stop Banks from getting into Real Estate Brokerage. The National Auctioneers Association also worked dilligently with the support of its members to prevent this. Even Automobile Auctioneers, Personal Property Auctioneers and Heavy Equipment Auctioneers got involved. The rationale was that as soon as Banks could sell Real Property they would quickly move to selling the Personal Property, the Business assetts, ect.

The situation you describe could have been prevented not only by the lending institution listening to you as the broker, but with a Live Auction of the home. That way Buyer A and Buyer B could make their offers in a live format knowing exactly what the other offer was. Simple, fast and when the bidding was done a contract could be executed. Even the bank would not be silly enough to ask for more offers at the end of the process.

With so much Lender owned property coming on the market it will be interesting to see where this leads.

We get to see how banks handle real estate. Think about this before you answer. Would you hire your banker as a REALTOR. Those lobbing efforts did more for the public than it did for REALTORS. Again we do what we do and they do what they do. Before you mortgage guys jump me no I don't believe that REALTORS should also be mortgage brokers. I think there is the potential for a problem there.

It is not only the banks who have become very large owners of unwanted real estate but also corporations that are forced to buy homes of those relocation sellers unable to sell their homes. Known as inventory homes. In many cases, the homes were bought at a price based on an appraisal done at the time of the job offer to the seller, which exceeds the present market price. Because of that the corporations purchase price they are losing serious money.

A good example happened thru our office. The corporation placed a home in inventory at approx. $1mil based on an appraisal done 6 mths prior to their purchase. The home sold for just over 500k just less than one year later. And this was after offers of 650 (the home was priced at about 700 at the time). The cost to our office for keeping this home certainly exceeded the commission earned, but was even worse for the corporation that owned it. Not only in the loss of the real estate but also the costs to hire the original seller, and their moving expenses, etc. The reasoning for the home selling for why it did was not due to the agent handling the home. As a matter of fact, there was weekly conversations with the corporation who simply had their hands tied.

Point is unlike the banks who want to be in the real estate business, these corpoations realize the need and importance of the Realtor. And we as Realtors need to remind the public the need for us, not by bragging about how great we are (the public does not care) but how much we can assist them in their real estate needs. We need to leave our egos to ourselves. Besides the only person that cares about you is you. People value you and your your services for what you can do for them. Once we as an industry can get that in our heads we as an industry will get the respect we deserve from the banks also.

"Happy sales to you, until we blog again"

My favorites are the bank owned properties that were trashed at move out, but they're asking full price anyway. Just looked at one today that said "price $20K below neighborhood". Unfortunately it needs about $60 in work just to be livable.

Lately Countrywide in my area has been insisting all offers on their repos be pre-approved by no other than Countrywide. Guess they have to do something to get people to use them. (my apologies to any countrywide loan officers on board!)

to all of you complaining about the banks:
Wasnt it you that assisted in helping all of these people buy these current REO properties?
let me guess. it's not your fault either?

Jim

Cindy,

I had a favorite lender but his bank decided to buy a real estate company and compete with me so I changed mortgage lender.

I hear people ^ ^ ^ say we assisted - yes, we are trying to help our buyers and we are sticking to the laws and guidelines we promised to. Banks selling, government lenders selling - they are making their own rules like it's the old west!!!

One agent at my company said, you just have to be proactive - how pray tell, when they are changing the rules mid-transaction and asking for things like proof of engagement??? How can we be proactive when the underwriters don't even know the guidelines...

Cindy, you are completely right -the banks are in the real estate business, and they are here to make our lives miserable so we will leave. They reduce our fees because they can, name the title company because they can, refuse to pay fees because they can, decide the lender because they can, set prices too high, because they can...and we do not have deep enough pockets to stop them.

Banks and lenders are making this country groan and suffer. It is a shame.

I worry in our local market right now with the new lending laws making lenders not independent contractors but W-2 employees that it opens up the door for the argument for real estate agents to be the same.....not likely but its a argument.

I have not really decided if Banks and what not having a real estate and mortgage division would be all bad.....if B of A offered me a salaried job with bonuses to come work for them...I guess I just don't see the problems that other see. I would still be an agent going to an office everyday and working with buyers and sellers I would just be a bank employee.

I know this is a sore subject for most and don't mean to piss people off but after 10 years in the business and technology moving as fast as it does its hard to stay on top of the biggest and best thing and I think we will be in the near future needing a full time office tech in each office that really wants to be competitive as so many agents are just not technology savvy and many questions I have am able to go to my Microsoft and technology oriented friends but most do not have this outlet.

Maybe this is because I live and work in Western Washington the home of Microsoft and most buyers are so technology savvy but I guess it would be nice to have a technology department and the backing of a bank. this would give me more time to work with customers and give customer service rather than so much lead generation and learning technology.

Just a thought don't hang me....lol

Todd Hueffed

The banks are making their own rules up and some of them are definitely biting them in the beeehind. I kind of like to see them make more mistakes.

This is a great post, Cindy! And the banks could get really lucky and have both buyers move onto other properties. Of course, they're likely to bank-owned as well and yikes!

If there is an upside to the current debacle it's that it's now apparent that banks can barely handle their own business right, they don't need to be messing in ours. Banks are in real estate today only to the extent they are default owners of lots of homes. We, and NAR, need to make sure that once this cycle is over, they don't decide to stay in the business.

I laugh every time I think about banks in the real estate business. Geez. It would set real estate sales back about 10 years.

If there were ever any doubt, the past two years of short sale debacles should end the argument.

Barry-this is probably true. They certainly are garnering my vote of confidence right now.

Gene-I'm not sure if they think they have what it takes but if this is how they are going to operate then they are in for a long road.

Eric-all they have to do is ask a number of brokerages about the "profit" in real estate and they might decide it isn't worth it. Right now their profit is in making agents pay all of the upfront costs related to selling their properties right down to the utilities and maintenance.

Michael-the only way the banks seem to understand the auction process in our area is to have an entire convention center filled with people and try to create auction fever. It seems to be failing miserably as most of the properties are still overpriced.

Jeffrey-you bring up up another great point. I'm working with two relo clients now, one where we have a quick offer on their home and another where it is likely that they will have to accept an offer from the company. Relo companies DO take a share out of a Realtors pocket though. Even if the client was yours before they signed on with the company the Relo group wants up to 35% of your commission in order to let you keep working with the client that was already yours. UGGGGH

Jim-I believe Countrywide makes everyone who wants to make an offer on one of their properties get a Countrywide preapproval. It is a bit much considering the confidence in Countrywide is not very high in a consumers mind these day.

Jim-Personally I don't have a single client who has lost their property in this market. I have always advised my clients to think rationally and not emotionally when it comes to a home purchase. I am helping homebuyers now who couldn't afford a home 3 years ago. I can sleep at night but I know of some agents who I wonder how they do.

Mike-they bought a real estate company? Do they think that they can everyone to use them for a mortgage as well? What is that I smell. Possible RESPA violations cooking?

The banks being in real estate or not being in real estate would have no bearing on this. If the banks were allowed to compete, they would be hiring experienced agents and brokers just like any business breaking into the market. And seriously, if real estate companies can write mortages, why can't banks sell houses?

But, at this point in time the red tape factories haven't a clue how to run a transaction.

If banks want to be in the real estate business then they need to hire brokers and real estate agents in house to unlock the mystery of how a real estate transaction works-Well put Cindy. Great post.

I have a dumb question: How are banks allowed to act as real estate agents without the benefit of a license?

And number two: Are the people making the less than brilliant decisions entry level people, or are the banks recruiting top notch folks to handle this complicated business stream they have taken on?

It's definitely an adventure working with banks in the Las Vegas market. My question is 'how do the bank REO departments explain to senior management why properties take so long to sell (if they sell) when they're receiving so many multiple offers?'

Cindy: A very interesting situation you have here. I agree.. the banks need to hire licened agents if they want to be in the real estate business

Thanks Cindy.... No question that banks are in the real estate business in a big way over the next couple of years.... There do seem to be a number of business that are in start up mode to support this phenomenon, but it's makes for a chaotic environment till the dust settles a bit...

JUL

2008

There are so many of these situations like you describe that it is just plain ridiculous. Frustrating for the buyers and agents big time.

Sounds very confusing. I think you are safe for awhile!

Cindy - Your excellent post not only highlights the banks' issues, but just how astute (and patient!)any agent handling bank sales must be. Thanks.

This mess wasn't created overnight, nor will it be solved overnight. The situation you explained absolutely sounds chaotic and unproductive. Your best bet is to keep the lines of communication open. Pick up the phone, make a phone call to the bank and have the bank explained their process to you.

For example: I am an AE for an FHA lender working on a loan for an REO property. The seller for the property is correct on the first page of the contract, appraisal and title. The contract is signed by the sellers "servicing company". This would be OK as long as I have the proper POA, which in this instance I don't. I asked the mortgage broker to contact the listing agent and request the correct POA. Return call from the broker states the listing agent does not agree with the lenders request that "this is how we always do it". (However, in similar circumstances in the past I have had the broker lie to me because they never made the call, so not sure what to believe.) I would call the listing agent myself, but I have a copy of an incomplete contract and I can't even read the listing agents name or company because the writing is scribbled. I use a magnifying glass and am able to make out the the seller signature and company. I research on the web and find a customer service phone number. I call and POLIETLY ask them for help locating the person who signed the contract. The operator, who was at first suspicious of my call, then connected me to the REO specialist on the east coast. The REO specialist listened to my predicament and was more than willing to help. I was then given a number on the west coast to call. I had to leave a message, but was very relieved to receive a call back. This person was also very helpful connecting the dots. This property's REO transaction actually involves 2 servicing companies and a bank. It turns out that the property should have been quick claimed to the second serving company prior to the sale and the POA was indeed the wrong one, and should have never have been used. However, I am to receive the correct POA and I have the REO Closing Team Leaders information should my underwriter have additional questions.

As a lender I am not trying to make anyone's life unbearable, but I have to make sure the transaction is "legal". No one wants to buy back the property because the transaction was not executed correctly. The only suggestion I have is again, pick up the phone if you have any questions. Let's help each other out. POLIETY has been capitalized to remind us all we have a job to do TOGETHER.

Banks are not in the real estate business - that is the stupidest thing I have ever heard.

Consumers got too greedy, bought houses they couldn't afford without regard to their variable rates, banks were stupid enough to lend to them - the owners defaulted and now the bank has the sell their house. Plain and simple. Banks didn't get in ca-hoots to decide to become real estate agents, they aren't that smart...

Annoyed-banks are selling houses, I don't think there can be much debate on that issue. Banks have for years been lobbying to open their own brokerages to go along with their mortgage business. One stop shopping for home buyers. Until all of the recent chaos in the market they had not been successful. Now they are sitting on huge amounts of inventory and they are dictating the terms to buyers and agents as to how to handle a transaction. Many of them require that the buyers must pre-qualify with them. Talk about data capture. Even if the buyer decides to use their own lender all of their information is now in the lenders database. How much mail do you think the buyer is going to get from that lender in the future?

The asset managers who are handling these transactions don't know how a real estate transaction works. And why should they? I don't fault them for not understanding the real estate business any more than I would expect them to fault me for not knowing the mortgage business. However now that they are sitting on all of these assets they need to learn about the business. If that means they need to "hire" realtors as advisors or as processors then they should. It would never take two competent agents 2 weeks to ratify a contract even when there are multiple offers.

I'm sorry you think it is the "stupidest" thing you have ever heard. For me the stupidest thing I've heard is the clerk at the local drive through resturant asking me if I wanted my order to go!

Mary-I'm okay with a bit of chaos and certainly keeping the lines of communication open is paramount in any transactions. And I don't fault the lenders for not throughly understanding a real estate transaction. I do have an issue that we are well into the problem, no matter who we want to say created it, with bank owned properties and I don't think we are seeing any improvement in the process. In our area there were another 800 properties that the lenders acquired in May and I'm sure an equal amount in June. They can't handle the inventory, yet there are plenty of buyers out making offers and getting frustrated and walking away. I've had multiple deals die because the bank just couldn't or didn't respond. I continue to hold out hope that it will improve but just as other industries I've worked in when through business process reengineering I think it is time for our two industries to put our heads together and work this out.

Todd-I'm a believer in a variety of business models and if working as a salaried employee to sell real estate is appealing then by all means why should someone fault you for that. I can envision this happening in my real estate lifetime. I say that strictly from a buyer's agent perspective. There are already some real estate brokerages out there following this model. I'm ready to be hired as consultant by any lender who wants me to help out with reengineering their processes to help deal with all of this mess. The sooner we clear out the inventory the better it will be for everyone.

Cindy, lets go over some points. I'll underline my responses.

Annoyed-banks are selling houses, I don't think there can be much debate on that issue. Banks have for years been lobbying to open their own brokerages to go along with their mortgage business. One stop shopping for home buyers.
Quite a few Real Estate agencies do this already. Coldwell Banker mortgage as an example?

Until all of the recent chaos in the market they had not been successful. Now they are sitting on huge amounts of inventory and they are dictating the terms to buyers and agents as to how to handle a transaction. Many of them require that the buyers must pre-qualify with them. Talk about data capture.
Data capture: telling your clients which lender they should, telling them which home inspetor they should use. Conflicts of interest?

Even if the buyer decides to use their own lender all of their information is now in the lenders database. How much mail do you think the buyer is going to get from that lender in the future?
Does that even matter? I get so much mail from the local pizza place i despise. I just throw it out.

The asset managers who are handling these transactions don't know how a real estate transaction works. And why should they? I don't fault them for not understanding the real estate business any more than I would expect them to fault me for not knowing the mortgage business. However now that they are sitting on all of these assets they need to learn about the business.
Now that the mortgage business is changing so fast, you need to learn about the mortgage business.

If that means they need to "hire" realtors as advisors or as processors then they should. It would never take two competent agents 2 weeks to ratify a contract even when there are multiple offers.
How many realtors do they send their reo's to?

I'm sorry you think it is the "stupidest" thing you have ever heard. For me the stupidest thing I've heard is the clerk at the local drive through resturant asking me if I wanted my order to go!
The stupidest thing i ever heard of is the Home Depot CEO making 16 million a year while i have to check out my own hammer and light bulbs at the check out counter. Where has customer service gone?

Jim-Yes there are real estate companies that have their own relationships with mortgage companies but do they require a buyer to pre-qualify with them before they can make an offer on a property? NO!

You can throw out all of the junk mail you receive from the pizza parlor just remember that they haven't asked for your SSN, your employment history, your bank account information or any of the information required to apply of a mortgage loan. I think that is a lot different than being in a geographic area for a free pizza.

If my clients need assistance with home inspectors, contractors, lenders they get a list and have the freedom to choose anyone they want. It isn't a YOU MUST USE situation.

I have regular conversations with mortgage lenders to ask what are the latest products available. What I don't do is try to process a loan or tell a lender how they should process a loan. That is their primary business. My primary business is putting together the best offer for my clients on a property they want to buy and having a lender control that process instead of being a partner in the process is where the difficulty resides.

We have agents in our area that are handling 100's of REO listings. There are processes that can be put in place that would eliminate some of the time it takes to review an offer and make a decision. In a previous "life" I spent a good deal of time working with large institutions on business process reengineering and the process can be streamlined and improved.

You have the choice at Home Depot to go to self service or to go full service. People have begged for self service in just about every industry you can imagine. Now that they have it they complain about the lack of customer service. Talk about a no win situation.

Deborah-if builders can have non-licensed people selling model homes I wonder if lenders could have an employee model that might allow non-licensed individuals to sell home? Currently the bank isn't technically selling the house since they have them listed through an agent or auction house. They are however controlling the process of how the transaction takes place. I've dealt with some folks who have "VP" in their title so I'm going to give them the benefit of having experience just not with selling a home.

JUL

2008

We closed a bank owned home 2 months ago, there were 2 offers on the table, the bank chose ours because it was $100.00 better. No counter, no negotiation, yours is better we'll take it. Huh? Well OK, no problem for us, but, is this how you run a business? ANY of us would have countered and I'll bet the other agent was distraught...

JUL

2008

Now that the banks have all of this real estate inventory, does it not make sense that they might want to hire competent people to handle the business? How dumb it is to let offers on short sales go because they don't have the personnel to handle the deluge of files? It's kind of a basic supply and demand issue.

JUL

2008

Frank and Jodi-I lost a deal by $500 once but that was when an agent, who I now know is famous for this trick, sold it to his own client after he got our "best and final". If they had taken our originally addendum they deal would have gone to us. I've never made that mistake again.

Deborah-short sales are a whole different game. I'm amazed that a lender who can respond to a foreclosure sale in 48 hours can hold onto a short sale for 90 days and still not make a decision. Common sense alone should prevail but doesn't seem to.

Cindy, hoo boy that STINKS!!!

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