The following article was written by fellow Exclusive Buyer’s Broker Debbie Mallon-Spellman for a recent National Association of Exclusive Buyer Agents’ [NAEBA] publication. We share it here for its excellent overview and realistic evaluation of the Bank Owned aspects of our Current Market.
Written: August 2008
It seems like every other listing we show these days is a bank-owned (REO) property. Part of that is due to the glut of them on the market, and part is due to the fact that buyer clients are actively looking for REO’s, believing them to be the best and most negotiable deals of all.
Well, that’s not necessarily so, is it? Even without the emotion of the typical seller in the equation, the REO’s present their own set of challenges. First, the demand for them is high. Instead of a highly negotiable situation, buyer clients can find themselves in multiple offer scenarios, forced to make quick decisions and pay top dollar as if they were in a seller’s market.
Second, unlike the “third party companies” of yesteryear, who would “clean up and whitewash” their listing inventory in order to make them more saleable, the REO’s are usually in the same state their foreclosed victims left them in…which can be pretty terrible. Often it is so terrible that it is prohibitive to many of our clients’ loan programs, such as FHA and/or first time homebuyer programs. The really sad part is that those clients get caught in a true “catch 22”. Even if they are willing to do the work, the REO seller won’t let them on the properties to do it before closing; and on the other hand, their loan programs won’t loan without the work being done before closing. Both sides are rigid, and the buyer client winds up caught in the middle with no way to work it out.
Response time is also a real problem. The REO sellers often work on “corporate time”, with what can be an inordinately long response time to offers and any other communications. They are totally oblivious to our buyer clients’ wants, needs, obligations, etc. It matters not to them that specific notice must be given for vacating rentals, that loan rates might need to be locked in, that there is competition for grant money, which can run out and destroy a buyer’s loan program and subsequent qualification…and the list goes on.
For that matter, will the buyer’s lender still be in existence come loan time?? Or will their loan program be revamped with stricter limits, which may reduce their qualifications? With the downfall and subsequent purchase of Countrywide by Bank of America, the total demise of Indy Mac, and the fear of the failure of others, regulations are changing almost constantly, and lender instability has become the norm.
IF you think you finally have an offer accepted and IF you have confidence that your buyer’s financing is in place, there is still the dreaded “addendum” to face, which is required in all REO sales with which I’ve come into contact. It seems like corporate attorneys have huddled together to come up with every possible scenario which might impact the REO seller negatively. They then put it all into this non-negotiable, terribly seller-slanted “addendum” which the buyer must sign if they want to purchase the property. They can be as long as 15 pages, and some even charge the buyers a stiff per diem penalty if they don’t close on time… even if it’s the fault of the REO seller!