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East Bay Real Estate Focus

Providing Definitive Information for the East Bay Area

By Carl Medford | Agent in Fremont, CA

How to Write An REO Offer – 20 Practical Tips

Representing buyers through a few REO transactions can provide an extensive education that they never told you about in your Realtor training classes! I lost count a long time ago of the numbers of REO offers our team has written. It’s in the hundreds. And we've landed lots of them. Along the way, we’ve learned some tips for succeeding in this CRAZY market place.

 

1.    Don’t expect the REO listing agent to communicate with you. That means answering their phone, emails, carrier pigeons or visits to their office. They don’t want to talk to you or help you in any way. The sooner you figure this out, the easier it will be for you. Don’t like it? Get over it.



 

2.    You will need to plan on writing your offer blind. Good luck figuring out if there are other offers, how many there are, what prices they may be at and so on. REO listing agents want you to write your highest and best offer right out of the gate.

 

3.    Competent REO listing agents will provide Instructions for Writing an Offer. These differ with every bank and can be VERY frustrating. Exact instructions HAVE TO be followed, or your offer can be flat out rejected. Fill out EVERY associated document and have your buyers initial EVERY page, even if there’s no specific place to do so.

 

4.    Write in REAL projected close of escrow dates. Give yourself at least 45 days in the current market. If you can close sooner, great. If you don’t close on time, your buyer will end up paying per-diem charges of up to $150.00 a day for being late to the closing party, regardless of who is causing the delay. Bank wants to shorten up to 21 days? Just say no.

 

5.    Banks want to see 1% for the good faith deposit. Educate your buyers – a $500.00 check won’t cut it.

 

6.    Ask for standard 17 days contingency time periods – they will probably be changed in the banks Addendum (Counter Proposal), but at least ask.

 

7.    DO NOT ASK FOR ANY SECTION 1 REPAIRS!! Not only will they say no, but if you have an FHA loan, you will TOTALLY mess up your transaction. Leave the Section 1 fields blank.

 

8.    DO NOT STATE ANYWHERE IN THE CONTRACT THAT YOU WILL BE ORDERING INSPECTIONS. You automatically have the right to do so and can do so at any time. However, in you have an FHA loan, anything in writing that says there may be Inspection Reports could scuttle your deal (see the point above). Pay for all inspections at the time of the inspections and DO NOT pay them out of escrow. Do not send them to the title company or the lender. I am NOT saying to hide them - they are a part of the discloures for the transaction.
 

9.    Do not ask to use your own Title Company. It won’t happen. Don’t like it? Don’t write an offer. Think it might be a RESPA violation? Get over it. Ask for the bank to cover title and escrow fees. They just might do it. Then again, they might not. And DO NOT write the name of their recommended title company anywhere in the contract – they may use it to stick you with the fees (they’ll say YOU specified their title company). Just leave the company name fields blank.

 

10.   Ask for a home warranty. They’ll probably counter it out, but sometimes they leave it in! Always ask – they can only say no. Your buyer will appreciate the effort.

 

11.   Ask them to cover any and all applicable HOA fees. They might do it. Then again …

 

12.   Ask them to cover County and City transfer taxes. And, as explained in the points above, they just might do it. And maybe not. Doesn’t hurt to ask. If they won’t, their Addendum will automatically counter it out. Some do. Some don’t. Ask.

 

13.   Don’t ask for any personal property in your offer. Banks cannot convey personal property. This includes appliances. You can state, “All items as per the MLS.” Anything that’s in the property when it closes is a bonus!



14.   Completely fill out the Liquidated Damages and Dispute Resolution sections. Make sure all parties sign and initial EVERY place required. They may sign them. They may counter them out in their Addendum. You do due diligence on your part, then they will do whatever they are going to do …

 

15.   Write “PROPERTY TO BE PURCHASED AS-IS” into the contract. Usually on page 6, Section 25.

 

16.   You can ask for closing cost credits from the seller. Specify the amount required and make it very clear. Keep in mind the bank is interested in net pricing, so set your offering price accordingly.

 

17.   Make sure that all Documentation required by the listing agent is included.

  • Offer docs
  • Copy of the deposit check
  • Pre-Approval letter
  • Verification of Funds
  • FICO Scores, etc.
  • Addendums
  • Transaction Cover Sheets
  • Disclosures  

EVERYTHING they ask for. Take time to make sure they are properly filled out, signed and initialed as required. Your offer will most likely be rejected if everything is not filled out perfectly and something they ask for is not included.

 

18.   Email the offer to the REO listing agent. They want offers in email format because they need to upload them to the asset manager’s websites. Make it easy for them. Put all the signed docs together, scan and email them to the REO listing agent. USE THE ADDRESS THEY TELL YOU TO USE. If you don’t have a multi-page scanner to make this easy for you, it’s time to get one. You’ll also need a program to convert the docs into .pdf format. Scan everything at no more than 300 dpi in BLACK AND WHITE. You have to be able to email the docs – large files will jamb the listing agent’s box and may not get there at all.  

 

19.   ASK FOR CONFIRMATION OF RECEIPT! Include the words, PLEASE CONFIRM RECEIPT OF THIS OFFER in your email with the offer docs. If you are lucky, they will!! If not, bug them until they respond. Don’t EVER take for granted they have it.



 

20.   Prepare to wait. For up to a week. And DON’T CALL!! You may end up with a very rude person telling you that they will notify you when they get a response to your offer. And then, don’t expect them to do so. Your only notification may be the listing going pending on the MLS. Which is a clue that your offer was rejected. Did I mention that many REO agents don’t want to communicate with you and can be very rude? 
 

Seems like a lot of hassle?

 

May be, but it’s the main game in town right now, and if you want to be a player, you’d better figure out the rules and get on board.

Otherwise, you just end up on the sidelines while everyone else scores.

 

Comments

By Vicky Chrisner,  Thu Apr 9 2009, 04:47
My recommendations are very different from yours. Most of them can be found in my blog http://therealestatewhisperer.blogspot.com/2008/08/reos-everything-you-need-to-know.html

I couldn't disagree more with 8... let them know you are doing inspections. It protects you.

Also, on 9, I no longer encourage this - learning early if there are exceptions to the title insurance policy is critical.

On other things, I may agree or disagree, but I don't feel as strongly.
By Looky_lieu,  Mon Feb 28 2011, 11:15
How about writing my own offer as a NON-licensee? Does the bank care if the offer is coming without a Buyer's agent involved? What about the Dual Agency incentive for the REO listing agent? They might not be so rude and unethical if their paycheck was going to double, right?
By Carl Medford,  Mon Feb 28 2011, 15:03
@ Looky_lieu:

As non-licensed person, even if you wrote the offer yourself, you could not receive a commission and would need to be represented by an agent. So, in essence, as you pointed out, since you would be “unrepresented,” the listing agent would become a dual agent. Since that would be the case, it would be better to let them write the offer for you. Problem is this: some banks and asset managers don’t want their listing agents double-ending deals. And trust me, if they do choose to ‘represent’ you as a dual agent, they are going to really represent the bank’s interests, NOT yours.

There are other issues here as well. REO agents frequently have offer criteria posted in the confidential section of the MLS or uploaded to associated documents – buyers have no access to this information. So, if you aren’t privy to the information (including, many times, the email address to send offers to – they don’t want faxes), and the REO agent isn’t answering their phones, more likely than not your “offer” will be lacking key elements and forms AND an email address to send it to, resulting in it getting kicked back by the bank … if it even makes it that far.

If that’s the scenario, then you’d be better off finding another Realtor to write an offer for you.

Either way, it kind of defeats the purpose of “going in alone.” As for the possibility of an REO listing agent answering your call because it might mean a double-ender, don’t hold your breath. Many of them simply don’t want to be bothered by buyers. Strange but true.
By Allan Erps,  Mon Feb 28 2011, 15:21
Great blog, lots to digest! Thank you!
By Looky_lieu,  Wed Mar 2 2011, 16:03
@ Carl Medford:

Oh Carl, always thinking about the commission! I didn't mention commission in my earlier post :-). In my opinion, an agent never becomes a "Dual Agent" by default. I'm pretty sure a judge would say the same. Keep in mind that a licensee is bound by law to discuss and disclose in writing the circumstance of a dual agency prior to even hinting at offer structuring or selling terms. Thanks for the input, lets consider Hawaii for a moment on the topic of not being represented by an agent...........Within the first page of the Hawaii Purchase Contract (formerly the "DROA", short for deposit receipt offer and acceptance) the HAR (Hawaii Association of Realtors) form addresses Agency Relationship. Since the HAR claims the form is to be available for use by the "entire real estate industry", an unlicensed individual may use this section regarding agency disclosure to "opt out" by checking: "Buyer is a Customer and is NOT represented by an agent", or "Seller is a Customer and NOT represented by an agent". Of course this option is not smart for most people, but it is an option. What I'm curious about (now that you mention commission) is whether or not an REO listing agent would be able to collect both listing and Selling Agent Commissions without the use of a Buyer using a Buyers agent. Even though the Seller's contract with the Bank calls for certain commission amount as a whole to be split via Co-Op Brokers Seperate Agreement later, I wonder. I wouldn't put it past certain listing agents to change the commission offering within the MLS private remarks at the last minute in their favor. Even if that were the case, I'm sure the bank would pick up on it and that would be that agents last REO listing with that bank!

Since my original post question was intended to cut "Red Tape" relating to REO offers, and we know we can represent ourselves if we like (which didn't take an HAR form to inform us of that), my question still stands: Does the bank care if the offer is coming without a Buyer's agent involved?

Going it alone with the banks has not yet been proved to be a defeated purpose, at least not yet to me. Of course one does need to know the instructions the bank is giving and where to upload the offer...........but getting access to those private remarks within the MLS is not hard to get, and they are readily available to me. If the bank ends up saving half or part of the commission offering (which I'm not sure happens in the case of a "Buyer not Represented" instance), then that does help the Buyer who's going it alone. It helps a lot.

Also, I wonder what the banks reaction to a one page offer would be on a non-standard form agreement? Something like, "As-Is", 5 day inspection period, 10 day close, proof of cash funds, all cash purchase, they pick escrow...etc. It all boils down to escrow instructions which take precedence over the purchase contract if I'm not mistaken anyway, so WHY NOT? I hate red tape, and I know the banks hate it as well.

..........swish
By John Juarez,  Thu Mar 3 2011, 10:18
Looky_lieu, I read your comments with interest. I find it interesting that you have knowledge and possession of HAR contract forms and access to the confidential comments on the multiple listing service but you write in a manner intended to lead one to believe that you are not a real estate licensee.

In any event…

I am a California Realtor and cannot comment on HAR forms or Hawaii real estate law or customs. In California, a Realtor who does work that requires a real estate license for an individual is that person’s de facto agent whether doing so for compensation or not. Dual agency is supposed to be disclosed and agreed to but it can still apply if the disclosures are not made. In other words, if I, as a listing agent, am approached by a buyer who claims to be acting on his own behalf without an agent and I write an offer or counter offer for that buyer and present it to my seller, explain my seller’s counter offer to the buyer, negotiate with my seller on behalf of the buyer, instruct the buyer on the correct way to prepare contract documents, or do anything that is considered licensed activity, I will be that buyer’s agent and an undisclosed dual agent. Shame on me if I allow that to happen.

You make light of the issue of commission but why would a member of the general public want to engage in a real estate transaction without professional help except to save money. The whole point of “for sale by owner” is for the owner to save the commission that would be paid to a listing agent. A buyer who attempts to buy without agent representation does so for only one reason, in my opinion, and that is because the buyer thinks that the commission that would be paid to a cooperating broker by the seller’s agent can be deducted from the sale price. Can you suggest another reason that a buyer would want to enter into a transaction as big and complex as buying real estate without the help of a professional other than the belief that doing so will save money?

By the way, I am sure you know that the contract between the seller/bank of an REO property and the listing agent stands apart and separate from any offer to buy the property. Unless otherwise specified in the listing agreement, the seller/bank selling the REO has contracted with the REO listing agent to sell the property and pay the listing agent a certain fee. If the offer comes to the agent directly from the buyer or if the offer comes through the buyer’s agent, the fee is whatever is specified in the listing agreement. A buyer who expects the price to be reduced by the amount being offered to a cooperating broker is trying to get the REO seller/bank to change their contract with the listing agent. I think an attempt to pit the listing agent against the seller, REO seller or not, is flawed strategy on the part of a buyer.

I am unclear as to whether you are saying that your strategy would be to present your offer directly to the REO listing agent or to the REO bank/seller. If directly to the bank – you can’t. You must go through their agent. You do know that there is a contractual relationship and you can’t just go around the agent. As a practical matter, the REO sellers are not set up to handle direct offers to purchase on an individual basis.

This whole discussion is about properties being sold by REO sellers, listed with listing agents and put on the mls. Anyone can buy directly from the lenders at foreclosure auctions and none of my comments apply to that type of transaction.

You mention cutting red tape, but REO sales will always be bound up with more red tape than a normal sale. A large REO seller – BofA, Chase, Wells, etc. – operates in many states. They have procedures designed to cut down on their own red tape but the unintended consequence is that it creates more red tape for those of us who represent buyers of those REOs. Note Carl’s mention of the various addenda that the REO sellers require to be completed and signed by REO buyers and their agents. The sellers do this so that can operate the same everywhere but it means that we get different forms from every REO seller after we submit our standard purchase contract.

How do I think a REO seller would respond to the simple offer sheet that you proposed? They would tell you to get an agent to prepare an acceptable contract. After you submitted a contact that they find acceptable they would send you the same addenda and forms that they send out now. If you did not agree to the terms of the paperwork presented to you by the REO seller you would not buy the property.

I suspect you already know that the REO seller/banks do not pay a commission to agents who are buying properties for their own account. I guess they don’t like impact on their bottom line if they sell you a property and then give some of the money back to you.
By Carl Medford,  Thu Mar 3 2011, 11:04
@ Looky_lieu

You state: “Oh Carl, always thinking about the commission!”
A: I mention commission – not from my own interests – but as a result of encountering this specific question MANY times. In 99% of the cases, the buyer is trying to cut out the buyer’s agent for the purpose of “getting a piece of the action – ie. the buyer’s agent’s commission or a purported ‘lower’ price.”

You state: “Thanks for the input, lets consider Hawaii for a moment on the topic of not being represented by an agent...........Within the first page of the Hawaii Purchase Contract (formerly the "DROA", short for deposit receipt offer and acceptance) the HAR (Hawaii Association of Realtors) form addresses Agency Relationship.”
A: Your comments are well and good in Hawaii – I’m in California and it works differently here. There is no box on our agency disclosure form or purchase agreement allowing a buyer to ‘opt-out’ of an agency relationship. Here is the bottom line: in order to submit an offer to the bank for an REO listed on the MLS, you will encounter an agent. If you go direct to the listing agent, as soon as they talk to you and provide you with any information or help, implied agency will result and they will become your agent ipso facto, even without a written contract. That means dual agency. That means that they will get both sides of the commission. If they choose to give you a part of it, that’s their prerogative. As I explained previously, some REO listing agents will cooperate in this way. MANY will not. MANY will not even answer your cals or emails. SO if you are willing to buy a home while only accessing a very limited part of the actual REO inventory on the market – be my guest.

You state: “Since my original post question was intended to cut "Red Tape" relating to REO offers, and we know we can represent ourselves if we like (which didn't take an HAR form to inform us of that), my question still stands: Does the bank care if the offer is coming without a Buyer's agent involved?”
A: You CANNOT represent yourself directly to a bank or asset manager – and believe me, MANY have tried. You have to go through the listing agent UNLESS you wish to buy a property at auction on the courthouse steps. That’s the only place you can go direct. Even at an after-market auction you are still going through a listing agent.

You state: “Going it alone with the banks has not yet been proved to be a defeated purpose, at least not yet to me.”
A: Knock yourself out!

You state: “Also, I wonder what the banks reaction to a one page offer would be on a non-standard form agreement?”
A: They want their offers submitted on standard C.A.R. purchase agreements and then they respond back with their own addendums. They won’t accept a letter of intent, which is what you are suggesting. Even if their addendum supersedes the purchase agreement, they want the purchase agreement anyway.

You state: “so WHY NOT?”
A: Ask the banks directly – if you can even get them to talk to you. They set the rules, not us. We simply follow them – like it or not. It’s why Realtors have been lobbying for years to keep banks out of the real estate business. It’s their way or the highway. Period.

You state: “I hate red tape, and I know the banks hate it as well.”
A: We all hate red tape – especially since we do this for a living. If there was a way around it, we’d be there. LONG ago. As for the banks hating red tape? LOL! You cannot even imagine the massive amounts of red tape they produce and dispense … and if you think they hate it … you’d be wrong. I’d suggest red tape is a functional part of their DNA and they couldn’t function without a boatload full of it. And as for anything a bank does making an iota of sense … you can count that out as well.
By Andy,  Thu Mar 3 2011, 15:32
Also you have to prepare to deal with a swindler or lair listing agent.
By Clueless,  Sun Jun 17 2012, 15:24
Carl,
Quick question: when you say "don't mention" inspections at all, do you mean that it those lines should be removed from the offer comletely or just the applicable checkboxes left empty? Thank you
By Carl Medford,  Sun Jun 17 2012, 20:35
Clueless:

Since I wrote this post originally, things have tightened up even more in the lending industry. This is even more critical NOW than it was back then.

When we write offers on REOs, we leave the section of the contract dealing with the termite report BLANK. In the space where we can write in what other types of inspections we might be ordering (property, roof, etc.), we check the buyer box and write in “Any inspections as deemed necessary.”

That’s all. Let me give you some background:

When you write an offer on an REO and your offer is accepted, you automatically get the right to inspect the property and, in fact, you have an inspection contingency time period granted by the bank (normally 10 or so days). By writing the contract as I’ve stated in paragraph 2 above, you don’t remove your right to inspect – you simply don’t give away the fact that you are doing any specific inspections ESPECIALLY termite. In reality, when you fill out the inspection information on the contract – it’s not to gain the right to inspect, but to delineate who will actually pay for the inspections and reports. You already have the right to inspect to your heart’s content and your wallet’s capabilities. In the case of an REO – the buyer pays for all inspections. You don’t have to write it on the contract – everyone knows the buyer pays for any reports they order because the bank will pay for … none.

In reality, any reports we obtain through inspections (and we always do inspections) are automatically passed on to the REO listing agent. The very first commenter to this post misunderstood what I was saying. We fully disclose to the listing side, but DO NOT give any copies of any reports to the buyer’s lender. The reason is simple: once the buyer’s lender gets hold of an inspection report – especially a termite report – they will insist things get repaired before they will lend any money. They will insist on a Section 1 clearance. In the case of an REO, the selling bank WILL NOT do the repairs being required by the buyer’s lender (kind of ironic actually – one bank won’t do what another banks insists be done). And … they won’t let a buyer do any repairs prior to close of escrow either. Which means you are stuck and the deal is dead because the lending bank will not fund until repairs have been made. It’s an ugly Catch 22 resulting in a lose-lose for the buyer.

WHEN YOU WRITE INSPECTIONS IN THE CONTRACT, YOU SIGNAL TO THE LENDER THAT THERE IS GOING TO BE A REPORT. They will then want to see it. If you don’t write it in, they don’t ask. And you most certainly DO NOT volunteer to give them any reports. And you tell your buyers not to give them reports either. They only have a right to see what is actually specified in the contract.

This is not illegal nor is it deceptive. It is common practice.

You simply tell them the house is being purchased “AS-IS,” no repairs of any kind are going to be made by the seller … and that’s the end of it.
By Clueless,  Sat Jun 23 2012, 21:00
Thank you! This was very helpful and clarifies it quite a bit. Your entire post was helpful, actually. I had to educate my realtor based on your article. Too bad the property is in SoCal, I would have loved for you to be my agent.
By Carl Medford,  Sun Jun 24 2012, 14:05
Make sure you check out the following post as well:
http://www.trulia.com/blog/carl_medford/2009/04/how_to_buy_an_reo_top_17

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