By Kay Wilson-Bolton
April 1, 2007
When the word got out that foreclosure properties were around the corner, investors flocked to the phones to find a REALTOR® who could help them find a “good deal.”
Known as REOs, or “real estate owned”, this information might help set the record straight on how the sale of foreclosure properties works.
Banks and loan companies have distinct departments or hire asset managers to handle the sale of REOs, who in turn hire brokers to list them. There are only a handful of REO brokers. They have experience in this niche market, or they have long-standing relationships with people in those companies.
REO work is consistent, but it is hard. The tasks are many, the bookkeeping is intense, and the compensation is generally low.
Hopeful buyers of REOs try to find someone on the inside who can inform them of properties before they are placed into the Multiple Listing Service in order to avoid competition. In reality, asset managers will not consider offers until the property has been in the MLS for at least 48 hours.
If an offer comes in lower than asking price, it is rejected because it is too low.
If an offer comes in at asking price, the manager assumes that the property was priced too low.
When the property is first assigned to a broker, the first determination is to discover if it is occupied. If it is, the bank wants to know who lives there, how many people and their ages. They will often offer a cash incentive to move quickly.
Many times, the owner has used the property as a rental for months, pocketed the money and not made house payments. The tenants either accept the cash incentive and move, or they suffer through the eviction process.
If the property is vacant, bids have to be obtained for gardening, trash out, repairs, cleaning and re-keying. Utilities have to be turned on and deposits paid. The broker advances all money and reimbursement comes in about 60 days. The opinion of value is prepared and submitted with photos and bids for evaluation.
It is not uncommon for a property to be re-assigned to a new broker even after the work has begun. This can occur if the property was included in an auction or bulk sale of foreclosed properties. The new group usually has an established relationship with a different broker, and the work has to begin again without compensation to the first broker.
Almost every listing agreement gives the bank the right to cancel the listing without prior notice, no matter how much work has been done.
Most companies do not want their properties advertised as “bank owned” or associated with the word foreclosure out of concern that it attracts a particular buyer.
Every bank has its own addendum and buyers must sign it. They contain numerous disclaimers and legalese, including the right to accept an offer subject to senior management approval, which gives them the right to not accept an offer after all.
Believe that banks act like real owners in wanting market value for their properties. Because most banks lose money on foreclosures, they want to minimize their loss. REO brokers are constantly rated on their efficiency in mitigating the conditions of the property and the costs of repair to get the house on the market as soon as possible.
Brokers have to provide six prices; list prices “as is” and “repaired”, the accompanying potential asking prices, along with projected sale prices.
If the property is to be repaired, another series of bids is required, and in some cases, three are required. Appliances have to be purchased from certain vendors for discount pricing.
In the meantime, the property is listed at the “repaired” price, and left in an “unrepaired” condition until all the pieces of the puzzle are in place.
The gardener gets paid for initial clean up and receives a monthly maintenance fee, the trash out hauler gets paid for his/her very hard work, and the cleaning crew and locksmith get paid when their work is done. The broker waits for the buyer and for the bills to be reimbursed.
The jury is out on the extent of the foreclosure market ahead but for every misfortune, opportunities for others are created.
So, if you are looking for a good deal, keep in mind that you can find plenty of them by asking your REALTOR® to show you everything in your price range.
In doing so, you can count on receiving all the disclosures required for the property from real people who have either lived there or purchased it for investment. There is a great protection in having someone provide disclosures; banks are not required to do so.
Foreclosed properties may be “good deals” but only if you can get one.
Kay Wilson-Bolton is the owner of CENTURY 21 Buena Vista and CENTURY 21 Ability. She brings a regional perspective to local issues. She can be reached at 805.340.5025. Her web address is www.readysetkay.com