It isn’t you, it’s them

Want to stop getting “dumped” in multiple offer situations? Here’s what you can do to get that next real estate owned property.

If you’ve ever heard the words “it’s not you, it’s me,” it probably wasn’t a particularly fond memory. Both Men’s Health and Cosmo magazines would probably agree that it’s the most clichéd way to soften the blow of a failed relationship. Putting that subject aside, it’s actually a good analogy for why your offer on that REO didn’t get accepted. You were probably well qualified, highly motivated and maybe even willing to pay the most money — the reason why someone else got the property probably had more to do with a rather strange lender requirement than you being the best buyer. So, here are a few steps you can take to make sure that you don’t get dumped in an REO multiple-offer situation again.

Cash is king, not purchase price

If you were selling a house, would you wait an extra 10 days for an extra $10,000 dollars? Sure you would, that’s an extra $125 per working hour! But then again, you aren’t Fannie Mae, and you don’t own an estimated $100 billion or more in risky loans. That being said, an all-cash offer with a 20-day escrow at $250,000 is much more attractive to a large bank than an offer at $260,000 with 10 percent down and a standard 30-day escrow.

With competing buyers (in multiple offer situations) banks want the surest deal, not necessarily the most money. In fact, banks don’t even even calculate their profit and loss in the same manner as you might. They write off their losses in advance, estimating the loss in equity on a property before putting it on the market. Sound odd? Write off enough losses and shed enough toxic assets (i.e. defaulted mortgages) and you become a superb candidate for bailout funds … or so the rumors in the “blogosphere” go!

Lesson to be learned, streamline your financing and make it a quick deal for the bank. If it’s your first home, ask for a family down-payment loan or lower your purchase price to make your down payment as large as possible. If it’s an investment, pull out equity on your primary residence to forego secondary financing or mortgage insurance — two words that send chills down any bank’s spine. If you simply don’t have a large down payment, get all of your loan paperwork in order and write as short a loan approval contingency as possible and cut it to 12 or 10 days from the standard 17. Just make sure that your lender can perform. Remember, the sellers of REO properties are the sellers of mortgages; they know how volatile the loan approval process is. Make your loan as attractive as possible and your offering price will look more attractive in return.

As-is sales

REO properties are a roll of the dice, period. Many of the homes have had disgruntled owners or tenants (as you can imagine), little or no information on the permit status of improvements or repairs, and some have sat vacant for months. Like any property, a lot can come up on inspections — banks know this well, and make every property an “as-is” sale. As-is sales still come with inspection rights and rights of rescission, but if anything scares off a bank, it’s a buyer who demands their standard 17-day inspection period. This issue goes to the heart of the 10-day question. If you write a 10-day inspection period and another buyer asks for 15, all other things being equal, you will get the property. Lesson to be learned, line up your inspectors ahead of time before your offer is submitted and ask for a shorter inspection contingency. You can always cancel an inspection if your offer doesn’t get accepted, but scrambling for one last minute or demanding too long an inspection period could cost you the deal.

REO stands for “real estate owned” not “Realtor optional”

Question: “Can I just make an offer directly to the bank before it hits the market?” Answer: No. The first reason for this is that no bank will ever look at an offer before it is assigned to a listing agent and has decided a price. Secondly, no bank will look at an offer without an agent (buyer acting as principal).

Put yourself in the shoes of a Chase Manhattan. You own a few thousand properties that you’d like to sell, only problem being that you have no idea what they’re actually worth. They’re being sold in 50 different states, from $5,000 or less in Detroit to more than $1 million in our back yard in Sonoma County. Sure, that all-cash offer for a $300,000 a property in East Petaluma sounds great, but what if the home’s actually worth $350,000 or $400,000? The only thing to do is to make a standard of practice in selling all of these thousands of homes, a practice that begins with a Realtor and ends with one — at least that’s what the vast majority of banks have decided. In every bank that I have dealt with in the past two years: a) the property must be listed on the Multiple Listing Service before taking offers and b) all buyers must submit an offer through a real estate agent. Regardless of what the latest talk-radio advertisement may claim, you will not steal properties for pennies on the dollar and flip them to your early retirement (this isn’t 2005). However, you will see prices that in some areas haven’t been as low since the late ’90s.

So, if you’ve missed out on an REO property in the past, don’t worry because it really wasn’t your fault, it was probably theirs! Now that you know a little more about what qualities banks are wanting in a buyer, get your ducks in a row and get back in the game. Get pre-approved, line up inspections and determine how much to offer. Looking for a place to get started? Of course, look no further than your local Realtor.

(Armand Ramirez is a Realtor associate with Century 21 Bundesen of Petaluma. He can be reached by visiting www.aument-ramirez.com.)