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Do's and Don'ts when writing an REO offer

By
Real Estate Agent with Alain Pinel BRE 01367196

As many times as I've written offers on REOs, I enountered an REO agent who included with her disclosures a guide on writing an REO offer. She requested that the agent initial and return the guide to her so that everyone is clear on what to expect.

After reading her guidelines, I put together a Bullet-point summary that I am sharing with my buyers as further testimony of the importance of writing the BEST and HIGHEST offer. A lot of the do's and don't can apply to writing offers on REO, short sales, and regular sales.

REMEMBER

  • Seller/Lender calls all the shots
  • Offer is negotiated with an asset manager
  • Some terms may be deleted from the formal contracts mandated/sanctioned/prepared by the State Association of REALTORS
  • Conversely, some terms may be added by the Lender that may not be familiar to the Agents
  • Review these guidelines with the Buyer
  • Seller/Lender likely has two or more Broker Price Opinions (BPO) and appraisals so they have a clear idea of what the property is worth
  • Seller/Lender are not interested in even looking at seriously low ball offers
  • Seller/Lender may prefer using Title or Escrow Company of their choice. In some cases, Seller/Lender may pay some escrow and closing fees.
  • Seller/Lender is exempt from providing real estate transfer disclosure statements and may not sign any or all disclosures. Seller/Lender relies on selling and listing agents to provide visual inspections.

DO:

  • Submit offers with the following:
    • Pre-approval letter. If you are required to get an additional pre-approval letter by the Seller's Banks, DO submit a pre-approval letter from the Lender you are planning to use as well
    • Verification of Funds. Don't wait for the Seller to request it. Just go ahead and include it.
    • Good faith deposit check. Include photo copy. If Seller requires using their own title company, your buyer can write another check payable to the selected title company.
    • Other documents that the Listing Agent/Seller specifies should be included with the offer. Some Seller/Lender require Addendum specific to REOs. Read carefully as there is often a per diem late fee assessed for late closings and terms on that addendum that will supersede contract terms.
  • Be aggressive with your time contingencies. 0-10 days for inspections is preferable. 7 days is becoming the norm
  • Note that usual turn around time for contract to be returned from Seller/Lender may be 3-10 days. Upon receipt of the formal and written acceptance from Seller/Lender, the Listing Agent will change status of property from "Active" to "Pending"
  • Start the loan process and order inspections upon verbal acceptance from Seller/Lender in order to meet your contingency periods for loan approval and buyer investigation.
  • Provide agent visual inspection/observation
  • Always check with listing agent regarding commissions. Posted commission is based on net of seller concessions if any, from gross sales price.

DON'Ts

  • Avoid writing significantly low offers. Everyone wants a good deal, but unless the Buyer can document why Seller should take significantly less than asking price (i.e., contractors provide estimates of repairs, etc), don't submit this type of offer
  • Don't change lenders, loan terms or programs during escrow. No surprises. Changes could delay process and subject Buyer to per diem penalty or even lose initial deposit/earnest/binder money.
  • Don't enter name(s) of Seller on any documents. Tax records do not always reflect the current seller on record.
  • Don't ask for credits or repairs. Normally, property is sold AS IS. If there is a health and safety concern, this may be an exception.

If anyone has more thoughts to share/add, by all means, let's expand this list!

Comments(13)

Judith Reppert
United Country Countryside Realty - Mount Vernon, MO

Pacita, thank you, this is very helpful.  I have learned some of this through transactions, but it's nice to see it in one place.

The only thing I can think of to add is:  Don't try to match a "Everything must be repaired before closing" buyer's lender (such as the VA) with a "Nope, we aren't repairing anything and your buyer can't have it repaired either" selling entity. 

Duh, right?  But I tried it.  Didn't work.  Maybe someone else will be saved from my error if they read this.

Aug 28, 2008 12:35 PM
LS Rogers Realty
LS Rogers Realty - Richardson, TX

That's what I've found to be generally true. Bank's rules on bank's time and bank's terms.

Aug 28, 2008 12:55 PM
Jim Curry
Long & Foster - Frederick, MD

Very good information; any thoughts on escalation clauses?

Aug 28, 2008 12:59 PM
Abacus Properties, Inc. DBA Apple Dream Homes
Abacus Properties Inc. - San Diego, CA

great info! Thanks for the post

Aug 28, 2008 01:12 PM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Oh, add another Do's.....trust but verify!

I had called/emailed about an REO several times. Agent didn't return phone call. Made appointment with tenants to show property. Drafted an offer. Finally got through to the REO office. Receptionist or whoever answered the phone said that the listing is pending and has been for several days. When I protested that it's still showing as active on the MLS and that if this is indeed pending, they should change the status! She promptly transferred me to the listing agent's voice mail. Still no return phone call from the agent.

Then lo and behold, I see that the listing status has been changed. This time, it's "Price change". Not pending.  Not pending show for backups.

So I called the office after hours (6 pm). An agent answered, said he's the "only idiot who's still in the office". He said to go ahead and fax an offer. He can't provide answer on the status of this listing --- after all, they have over 300 REO listings right now.

Thus, I am emailing and faxing an offer just in case it's still available.

But goodness gracious --- how can we tell what's the REAL status of this listing?

Aug 28, 2008 01:29 PM
Eric Egeland
RE/MAX SUBURBAN - Libertyville, IL
SFR, e-PRO, CDPE

Thanks for the post Pacita,

There is a lot of great information here....follow the steps and everything will move a lot smoother

Aug 28, 2008 02:09 PM
Ed Tse
richvalley - Florence, TX

Well, I disagree with what a banker says.  It really depends.

No way to choose your title or escrow for a buyer unless you agree to pay all the fees.

No repair?  Huh... I just canceled an escrow last May even the banker offered me to repair anything inside the California condo (very close to your city) and promised to fix it up in time.  In most of the case, your buyer still can steal it unless your REO is owned by a bureaucrat in a bureaucracy like HUD.  So make sure whom you are dealing with by ordering a title profile first.  Then, you mean a business.

Last, a seriously low ball.  What's that? 

In the past 4 years, I made my offers at or bellow 50% off the current listing price (in some case, 80% off the initial listing price) and bought my properties almost all the time.  Don't jump in to make an offer when it is new on the market.  Let it cool down for at least 2 weeks if you really love the REO property.

In 1997, a realtor/ friend literally begged me to make any offer for her listing (asking for $110K more or less), I agreed to give her my offer of $50K.  In 10 days, I got it for $58,000 (my down payment is $8,000 and a hard money loan of $50K.)  So, could you tell me how low is a low ball offer?

 

Aug 28, 2008 02:36 PM
Thomas Moore
www.eBrokerHouse.com - Las Vegas, NV

I agree that you need to be aggresive with time contingencies. Great information here

Aug 28, 2008 04:39 PM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Hi, Ed

The natural response to what's a low ball offer is "It depends."

If the list price is already at 50% of what the fair market value is, or if if it is 20% of what the price the bank foreclosed on, I'd say if one makes an offer of 20% less than list price, then that would be considered a low ball offer.

It also depends on location. I read where a house in Detroit sold for $1. But that's not happening in my area (around San Francisco and Oakland). Stockton, Pittsburgh, Antioch are not in the immediate vicinity.

What we're encountering when we write offers on REO properties at list, or even slightly above the list price, we are getting beat out by other buyers/investors who offer more and with better terms. My buyers all follow the media. They know it's a buyer's market. They're astute and seasoned buyers. But they are also getting tired of bidding on REO properties. So it's time to be more aggressive with price and terms.

This is probably not the same where you are....but this is the reality where we are.

Thanks for your insightful comments. Wishing you the best of luck and success.

Aug 29, 2008 06:32 AM
Ed Tse
richvalley - Florence, TX

Dear Pacita:

I love your words "it depends."  flexible and creative enough.

We have at least tens of thousands real estate markets in USA.  I couldn't agree more with you when you mentioned each one is different. 

My point is this: I would like to remind all my fellow agents of one thing: Don't pretend you are the seller.  Some agents refused to write up an offer appearing "low ball" to them.  I hate those agents believing themselves as the sellers.  

An agent could be often surprised at how the seller would be doing, reacting and accepting.  Keep in mind an agent is simply just an agent, not the principals or decision-maker.  Let the seller do his or her part of job:  to decide whatever he or she wants. 

Besides California law asking an agent to present ALL offers, an agent has to be smart enough to keep in mind that "Who's the boss."  Angela or Tony? Good question.

In March 2008, my friend asked a lady agent to write up an offer of $320K to buy her listing of $360K.  The agent refused to take it by saying, "it is a low ball"; and very unprofessionally insulting at my friend.   There is no deal could happen in the case.

Guess what happened in a few months?   She lost the listing, a possible sale, and the seller lowered the price to $308K.  I am just wondering she may be in regret for not taking the offer from my friend and letting the principal decide.

 ps: Sorry for my mistake to assume your city is in Los Angeles County.

 

Aug 29, 2008 08:24 AM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Ed

Well, it takes one "It depends" to know another "It depends."  :)

To rephrase a cliche, it's never completely white or red. Sometimes, it could be pink!

You're right: a realtor should never forget who the client is. For each offer that I write, I provide as much information as I can to the client -- current tax assessment, sales history, comparables, fair market value. But I have not refused to write for my buyer, nor have I refused to present an offer to my seller.

If you're ever in my neck of the woods in Alameda, here's a typical day on the beach with fabulous view of San Francisco. Come see us!

Aug 29, 2008 09:51 AM
Ed Tse
richvalley - Florence, TX

On one condition, I will take your rain check: join my APFE group.  Hope someday we can work together to legally "rob" a banker for the poor.  It is my dream!

Keep your smile on your face that is a beauty, no matter what.

Have a nice day!

Aug 29, 2008 01:42 PM
Freddy A. Saavedra
Essential Properties - Goodyear, AZ

Great post, thanks for the advice!

Sep 02, 2008 12:32 AM