Since what is owed to the bank is almost always more than what the property is worth, very few Trustees’ Sales result in a successful closing. If the Trustee’s Sale is unsuccessful the property reverts to the bank or loan servicer and is now considered REO, or “real estate owned” property.

The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will typically negotiate with the IRS and local municipalities for removal of tax/municipal liens and they normally pay off any homeowner’s association dues. As a purchaser of an REO property, the buyer will typically receive “clear title” and the opportunity to thoroughly inspect the property. These are the properties buyers will typically see on MLS.

A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you’re offering is comparable to similar homes in the neighborhood. Consider the costs of renovation. Last but not least, consider your loan type and down payment amount. Loans with high “loan to value” (small down payment) generally require that the home be in good condition.

 A well informed real estate agent, representing the buyer exclusively is invaluable in such a transaction. There are many pitfalls and complications that can be avoided with such representation.

Those of you considering buying a home in a competitive market know or may have heard how frustrating the process can be. In certain markets, a buyer can find himself competing against 3-18 other offers for almost any listing that he writes on with many of the offers being similar in terms of price. However there are steps you can take to position yourself well to win a bidding war. And the discipline and thoroughness to do so is well worth the effort given the weeks and months of extra labor involved for you and your buyer’s agent that would come if you just wrote standard offers on listings you found appealing and continually got beat out for the homes you like.

If you’re wondering how you can make your offer shine above all the rest and be the winning offer, here are a few tips to help you select the right price and terms.  Price is probably the biggest factor in trying to compete with a multiple offer situation.  But if there are many offers within the same range, there are definitely things you can do to make your overall offer the best in the mind of the seller.

Price is Most Important – Remember, your offer price is a NET price, which means your offer price less any credits.  So many times buyers don’t understand that.  As an example, if you offer $350,000 with $10,000 credit towards closing costs, your are offering $340,000 for the property, NOT $350,000.

A Complete Package- MAKE YOUR OFFER A COMPLETE PACKAGE – include your Purchase Agreement, and addendums that apply .   Also include your Loan Pre-Approval, Proof of Funds for the down payment, a copy of the deposit check, SRPD Waiver and any other documents specifically requested by the seller/listing agent.

Get the Property History – Ask your buyer’s agent to find out the bank’s purchase price on the Trustee’s Deed or Sheriff’s Deed. Generally, it is noted on the document itself, which you can get from the tax rolls or a title company. Compare that price to the price the bank is asking.   Look at the amount of loans that were once secured to the property. Somewhere between the original mortgage balance(s) and the foreclosure sale price is the amount the bank will accept, if the home is under-priced.

Determine Comparable Sales – In many cases, the list price has little bearing on the value of the home. The market value carries the most weight. If you are up against competing offers, other buyers will offer more than list price.

• Look at the last three months of comparable sales, a mini CMA, for that neighborhood to determine how much this REO is worth. Try to use only those homes that most closely match the REO regarding square footage, number of bedrooms, baths, amenities and condition.
• Look at the pending sales. Ask your agent to call the listing agents of those pending sales to try to find out the accepted offer price. Some will share that information and some will not.
• Look at the active listings. Those are most likely the listings other buyers will use to formulate a price because they are the only homes those buyers actually tour.

Analyze Listing Agent’s REO Solds- Most REO agents work for one or two banks. Some listing agents are exclusive listing agents for REOs, and they do not list any other type of property. Since REO agents deal in volume, they typically apply the same pricing principles to all their REO listings.

• Ask your buyer’s agent to look up the listing agent in MLS.
• Run a search using that listing agent’s name to find the last three to six months of that agent’s listings.
• Pull the history of those listings to determine the list-price to sales-price ratio. If most of those listings are selling for, say, 5% over list price, then you may need to offer 6% over list price, and vice versa.

Ask About Number of Offers – If there are no offers on the REO home, you can probably offer less than list price and get your offer accepted. However, if there are more than two offers, you will most likely need to offer above the asking price.   If there are 20 offers, bear in mind that some of those offers might be all cash. Banks like all cash offers. If you are obtaining financing, then you may need to increase the price on your offer to be considered.

Submit Preapproval Letter- It goes without saying that you do not want a prequalification letter. You want a preapproval letter. Get preapproved from your choice of lender in advance.   Moreover, get preapproved by the lender who owns the property. Do not expect to use this lender for your loan, but submit the preapproval letter from this lender, along with the letter from your own lender. Banks don’t trust other lender preapprovals but trust their own departments.

Don’t Ask for Repairs / Inspections – Sometimes banks will pay for repairs, but typically will not agree to do so at the offer stage. If there are problems found during a home inspection, renegotiate after your offer has been accepted. Shorten your inspection period to (10) days or less – really, it only takes a few days to book an inspection, and even then maybe a few days after that to assess the situation with the property.  The seller, especially if it is bank-owned, will really like a quick inspection period.  Plan on paying for all of your own inspections.

Offer to Split Fees – Some banks will not pay transfer fees, for example. If the buyer offers to split those fees, the bank will feel more amenable to accepting the offer. Same thing for escrow fees.   Many banks negotiate discount fees for title insurance. If the bank will pay for the owner’s policy, the ALTA policy might cost a bit more. But it’s still a good idea to let the bank choose title if you want your offer accepted.

Large Earnest Money Deposit - Put as much of your down payment down into your earnest money deposit when you write the offer—very aggressive but it makes a REAL good impression. The earnest money is part of your down payment anyway so there is not much difference in putting it down a month early. The seller knows you’re for real and have money based on your earnest money deposit more than your stated down payment on the contract.  If you break the contract you lose your earnest money deposit so a huge earnest money deposit says to the seller you’re for real and there’s no way you are going to lose your earnest money deposit by breaking the contract.

Short Escrow Period - Write as short an escrow period as possible, with respect to the amount your lender will need to close the loan.  Consult with your lender on the type of loan you are using and get their input as to how many days he/she feels they can comfortably close the loan.

Consider the Appraisal Consequences – If you offer over list price, bear in mind that the appraisal will need to substantiate that price. If you find yourself dealing with a low appraisal, you have options, so don’t despair. Remember, the bank will most likely run into this problem with the next buyer who obtains financing.

Escalation Clauses – Working with your buyer’s agent you can add a clause to your contract which says you are willing to pay an amount in excess of the other bidder’s highest offer.   Make a statement with your over bid increment.  Your bid increment should be in relationship to the sales price.  When you escalate  DO NOT JUST STOP AT EVEN CUT-OFF MARKS LIKE MOST AGENTS DO. Always escalate $1700-2700 above where you think the cut-off mark is going to be. You want to predict where your enemy is going to finish and position yourself ahead of them.

Agent relationships – Believe it or not it comes down to this in many instances of where things are so equal that your buyer agent’s previous experience with the listing agent comes into play.

Write your offer to win.

•  Buyers actually have to qualify for a home. They need good credit. The lender may actually require a down payment. Say it isn’t so! Risky lending practices created most of this mess. Don’t you think it should be this way? Perhaps we could have avoided all of this had things stayed as they were when I entered the industry in 1991. Those that ignore history are doomed to repeat it, get over it.
• Distressed properties will continue to dominate the Nevada market for the foreseeable future. We real estate pros must innovate, adapt and most importantly learn. This is a whole new world. It’s filled with hard work and accountability. Much more focus should be placed on loss and risk management. Our top people must embrace this and get over it.
• We will work harder for less money, get over it. We may need to work 40 – 50 hours per week or more. In the words of my teenage son, OMG!
• Banks, asset managers, third party REO (Real Estate Owned, the industry word for “forclosure”) service providers are overwhelmed. Much of this is caused by a lack of training from the real estate pros they rely upon for their field work. By the way, you typically can’t buy a bank-owned home conditioned upon the sale of another home. You probably won’t get your short-sale done in 45 days. Your listing is not worth 20% more than the nearly identical foreclosure listing down the street. The claw foot tub, great border paper and 16 pound nails are not worth $50,000. We really owe it to the public on this one.

I would like to make one statement directed towards some banks and loan servicers. Please stop using your collection department staff to manage loan modification. It’s kind of like asking your dentist to remove your appendix. Loan originators must be patient and intuitive. Skills not typically associated with your “repo-man”. Oh! And please stop losing my short sale file. You never seem to misplace my house payment!

Thanks for listening, I’m going to go sell another REO now.