Monday Apr 27 2009
Broker focuses on things buyers need to know about REOs
By: Miki Garcia
Dear Miki: I’ve been an asset manager in the past for one of the large banks (I’m no longer active in real estate.). I’ve been reading articles about real estate owned properties (REOs) in many publications, and am pained when they leave out facts that unsophisticated buyers need to know. Thanks for your consideration. Ellen Cardwell, Broker What buyers should know about REOs Banks don’t have to tell you anything about the property; i.e., structural weaknesses, water intrusion, work done without permits, etc. Therefore, it’s wise to take a reputable contractor or home inspector with you when previewing the property to get their opinion of the home’s condition and an estimate of repairs to make it livable. Will you have enough after escrow closes to do the work? Banks prefer you use their financing, because that’s how they’ll make money. If you’re pre-approved with another lender at a lower interest rate, are you willing to pay a higher rate if that’s what the owner bank charges? Some lenders require a termite clearance as a condition of the loan. Others want both a termite and a roof clearance. If you’re willing to pay for the inspections and the work required, your offer will be more acceptable. Do you want to invest that money up front? If the house has been for sale and didn’t sell, find out why. Did it have deferred maintenance? Were there many homes for sale in the neighborhood If so, were many of them foreclosures? How is the school district? Is it on a busy street? Talking with potential neighbors can be revealing. Unless you’re a sophisticated investor, I would caution you about buying REOs at an auction. Some auctions require a non-refundable deposit before you can participate. Will you have enough self-control to stop bidding if it goes past your pre-determined limit? Banks may require you to use their forms on which to present your offer. If you really want the property, make your best offer. If you’re only looking for a “deal,” make an offer as low as you and your agent consider reasonable. Dear Ellen: I’m sure banks do prefer buyers to ‘use their financing because that’s how they’ll make money;’ however, I thought a pre-qualifying letter with a clean offer would get a fair shake…silly, me. Thank you for taking the time to email. I always appreciate participation in the column. — Miki Dear Miki: Banks don’t list their properties under market to attract multiple offers. Banks hire asset managers who work on the banks behalf by enlisting the skills of a professional Realtor to determine the current “Fair Market Value” of their asset. The Bank and the Asset Manager depend on the Realtor to be knowledgeable, experienced and professional in determining the value. If the property is listed at a “Fair Market Value” for that particular market, it will be competitive with other homes of equal amenities, condition, demand, etc. One of the many items Realtors must provide their Asset Manager is an in depth BPO (Broker Price Opinion). It’s very detailed and time consuming to prepare, and it changes monthly so a new one is issued each month. If completed properly, it can zero in on “fair market value.” Normally, asset companies will price their asset at the lowest level of “fair market value.” Granted, there are some Realtors who “tweak” their BPOs to get an even lower list price to sell under “fair market value” or cause multiple offers. Is this good for the Buyer? Of course it is. Is it fair to the lending institution that had a fiduciary duty to their investors (you and me)? No! The Realtor has a fiduciary duty to the seller to market the seller’s property for the best possible price he can obtain, not the price that’s going to get the Realtor the quickest commission. The benefit of working with an REO property is that the lender isn’t emotionally tied to the property. The lender doesn’t have to sell at a specific price to move on with life. The lender usually has more flexibility based on analyzable cost factors. Realtors know up front what most lenders will allow and what they won’t. I’ve represented REO properties and have had great rapport with my asset managers. We worked as a team. When I present an offer to them, it’s usually less than 24 hours before I get a reply back. True, Asset Managers do have, for the most part, more assets to manage than they can handle. That’s why they rely heavily on their Realtor to provide them with their professional opinions backed by sound facts. If I received a second offer while my first offer was being reviewed, it was a simple process of notifying my Asset Manager that another offer came in, submitting the correct forms of that Asset Management Company, and submitting a new HUD 1 form (net sheet). There are a few safeguards for the Asset Manager when determining a sales price. They sometimes will ask another Realtor for a “second opinion” and possibly a third Realtor if the two are extremely off. If the first Realtor is way under market, he/she just might have lost a great source of listings. When the Realtor presents an offer to the Asset Manager, one of the questions on the offer form to the Asset Manager is “Are you acting as a duel agent”. Although it’s acceptable, it’s also a “red flag”. If a Realtor feels that the listing Realtor violated his rights in any way, there are steps that can be taken to determine what, if any, rules have been broken. The starting point is always with their Broker. All in all, REOs are some of the best buys in town and easy to work with. Margie Ward RE/MAX Gold, Folsom 600-9273 Margie.firstname.lastname@example.org Dear Margie: I want a referral fee off any client you gain from reading this column. Make sure you put it in a brown paper bag and leave it at the editor’s desk marked “Personal and Confidential.” He knows what to do… Dear Readers: Here it is, one more time with a twist. Along with the rare personalized autographed Miki Garcia Playboy Trading Card, I’ll be donating a one-of-a-kind personalized “Memoir Letter” (I’ll leave that to your imagination) to RE/MAX Gold’s fundraiser for the Folsom Zoo. Be there on May 2 at the Annual Folsom Yard Sale at Lembi Park. The agents are working hard for the animals that can’t care for themselves. If you want to donate items for sale, drop them off at the RE/MAX Gold office at 2340 E. Bidwell St. in Folsom or call to make arrangements for pick up at 984-8778. Ask Miki is a column of opinion and entertainment, and anything herein is not intended for real estate, financial, psychological, legal, or tax advice. You may contact real estate agent Miki Garcia at email@example.com.