What is biggest mistake REALTORS® and their clients make when submitting an offer on REO, Foreclosure, Bank Owned property?
Failure to fill out all documents completely (per instructions) is the biggest mistake. Second is the failure to read those documents. Example: Ordering title work from the buyer/lender side, though the addendum specifies that the seller is to select the title company. Fill out all of the forms, do not make changes on the addenda, and actually read what you sign--that's the best advice I can give.
Overall, though, the biggest mistake agents make is assuming that they can "drive" the deal, if they just write in enough contingencies or deadlines. Wrong! The REO seller's addenda actually drive the deal, so anything you write into the state contract is changeable on the addenda. If you make your deadlines too stringent, you may just kill your own deal or have to redo your paperwork after it expires.
What is the normal turnaround time on offers?
Offers usually get a counter in 2 to 3 business days, but final acceptance of an offer may take longer. Acceptance may entail "management approval" or third party approval, such as PMI or investor approval.
Listings which are contracted through a third party vendor (rather than directly with the seller-owner) often take longer for any type of response. For instance, I do Fannie Mae direct listings, but I also have some Fannie Mae listings that go through third party vendors. I get faster responses on my FM direct listings than on the third party listings. As a buyer agent, you probably will not know whether the listing is a direct listing or a third party listing.
Offers that are full price or nearly full price may get a fast response, because the asset manager does not have to seek management approval before responding.
Responses on Friday afternoon or over the weekend are unlikely. Think "banker's hours" and you will probably be right. If you have not heard anything by Friday at 5 pm, you probably will have to wait until Monday.
How are offers submitted? As they come in or held and submitted on a specific day?
Unless the seller has specified otherwise, all complete offers are submitted by the end of the next business day (but usually on the day the offer is brought). I say by the end of the next business day, because I might be out showing property when your offer comes in or the seller website might be down. If your offer comes in late in the business day, I will deal with it the next day.
If the offer is not complete, it may not be submitted until the package is complete. Incomplete packages include offers that:
Do not specify financing type
Do not include required items such as lender letter or a copy of the earnest money check
Do not specify whether buyer is investor or owner occupant (when listing specifies that buyer type is required)
Sometimes an REO seller will hold all offers for a pre-specified amount of time. Holding offers until day three of the listing is common. The vendor will tell the listing agent whether to submit offers prior to that time or to hold them and present all offers at once. Investor offers may be treated differently than owner/occupant offers. Fannie Mae, for instance, gives "First Look" preference to owner/occupants for the first 15 days of the listing. Buyer agents should still go ahead and submit their investor offers, but those offers will not get a response until the appropriate timeframe has passed.
Are cash offers considered first?
No. The seller gets cash at closing even when the deal is financed. A cash offer that is significantly lower than a financed deal is NOT automatically a superior offer. Cash offers are attractive only when they are also competitive in bottom dollar, and they usually must have 10% earnest money. Cash can trump other offers if inspections are waived, but the bottom dollar still rules.
When a listing states that all buyers must be approved by a specific company do the buyers have to use that company?
No. The REO seller just wants a prequal from a lender they know, and that lender may actually be contracted to provide the prequal services (in other words, the prequal lender is NOT the owner of the REO). Be aware, though, that the prequal lender will court the buyer and try to "reel 'em in."
If a buyer is pre-approved would they still have to be approved by the company listed on the listing sheet?
Yes. The seller is trying to be sure that the prequal is a legitimate one, and they will require it to come from a source they trust.
Are REO companies willing to help with closing cost & minor repairs?
Requests for seller contribution to closing costs should be part of the original offer. Such requests have the effect of lowering your client's offer.
Yes in regard to repairs, with the operative word being "minor." Often, however, the counter offer will clearly state that cost of any lender-required repairs will be added to the contracted amount.
CAUTION: Investors should not expect repair or closing cost concessions.
Since appraisers have to list all items that don't meet HUD minimum requirements will REO companies consider adjustments to fix these items since they must be done to get the loan? Items such as; broken windows, heat, GFI outlets, floor coverings, etc
When the REO seller accepts an FHA, VA, or USDA contract, they know that they may have to make minor repairs or concessions-or allow the buyer to do so. In those deals, the REO owner may approve required repairs; however, the same is not true with a conventional loan or a cash deal. In all instances, the seller's counter-offer may stipulate that the cost of any lender-required repairs will be added to the sale price.
Again, investors may get an entirely different answer if they request repair concessions following an appraisal.
What types of contingencies will REO companies accept?
Appraisal, inspections, and financing are suitable contingencies. If the seller does not believe the property will pass specific inspections and/or appraisals, they may limit the type of financing they will accept. The seller may also negotiate shorter inspection/financing timeframes than are on the offer.
Sale of another residence or closing of a pending sale are not acceptable contingencies.
Possession prior to closing is never acceptable.
Lease with an option to buy is never acceptable.
Non-licensed or non-insured workers making repairs prior to close is not acceptable. This usually means that the buyer cannot make lender-required repairs but must hire qualified vendors to make those repairs.
Is there a minimum earnest money requirement?
EM amounts usually are negotiated amounts, unless the EM amount is specified in the listing. Cash deals almost always require 10% EM.
What primary REO company do you work with?
You give me your client list, and I will give you mine! ;-) No kidding! You might be surprized how often agents ask me how to get into REO or which companies I work with. Come on. . . would you give me YOUR client list?
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