Foreclosure in 43620>Question Details

Aaron Meinke, Home Buyer in 43412

FHA loan offer accepted over my Cash offer.

Asked by Aaron Meinke, 43412 Fri Feb 19, 2010

Okay, so I just put a cash offer in on a bank owned house, they called me and said another offer came in at the same time and to come back with my highest and best offer so I went up 5 thousand. I got a call today and the realtor said that they had accepted the other offer and that it was 5 thousand over my offer - okay I get that. But here's what I don't understand, the other party is getting an FHA loan and they already put in an offer a week ago on this same house and FHA denined them financing because of the condition of the paint and a couple other factors. Why would the bank take a risk on having their offer fall through again over 5 grand? I thought cash always won? And why would these people try to make another offer on this same house that FHA had already declined to give them a loan for a week prior? And what are the chances of them getting financing on this same house that they've already been denined financing on? I'm confused.

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Answers

38
Oh, JIm, Jim, Jim. Don't you understand that the answers in this forum are timely - maybe Aaron has received an answer or moved on but other buyers may be in the same or similar situation and our answers provide them with assistance.

In this situation there may have been other circumstances that Aaron was not privy to. The additional $5000 may have been the incentive for the seller to make the necessary repairs so that the property would appraise with an FHA loan. Maybe the lender interceded between the seller and the FHA underwriter and provided additional comps or the appraiser missed something that has since been identified and ow the property qualifies. I am very glad that Aaron has purchased a home and moved on - but maybe someone else is still struggling with these types of quetions. And, don't forget - these types of questions are not localized they are nationwide and should be addressed as such.
7 votes Thank Flag Link Sun Aug 1, 2010
It is very frustrating, but I have run into this situation a few times recently. The banks are really trying to sell these homes to owner occupants if at all possible. They have even changed rulings on many properties so that the investors can't even purchase the homes for the first ten to fifteen days. I recently saw a listing that said no offers for the first thirty days so that the property gets exposure. You would think that a bank would be happy to move the properties, but they keep changing their rules. It's just another sign of our problematic lending at this point. Keep trying and you'll still be able to purchase, it may be harder but every once in a while you'll get one. You do have to remember though that all offers become cash at the closing table.
1 vote Thank Flag Link Thu Aug 12, 2010
Cash offers are not necessarily the best offers especially if they are way below the asking price, which is often the case, but this is too close and I see why you are confused although I have my thoughts. This is what I want to know.

1. How are you privy to all the confidential details of the other offer?
2. Is your agent the listing agent or the cooperating agent?
3. What proof do you have that your offer and counter offers were submitted to bank?
4. "they called me", who's they?
1 vote Thank Flag Link Wed Aug 11, 2010
While there is not enough information for me to answer your question with certainty, from my own experience, I would suggest that the other agent may have submitted the offer subject to a 203(k) loan which permits buyers to finance the cost of repairs [without having to complete the repairs before closing], meeting both the specific needs of the bank (requiring "As-Is" purchases), while allowing the buyer to complete the repairs after closing using additional financing above and beyond the purchase price.
1 vote Thank Flag Link Tue Aug 10, 2010
Some people choose to answer to be able to assist that person in their time of need. Most questions asked can be answered by anyone anywhere. Others can not. If it is a question specific about a neighborhood, school, community, crime rate or such, then an agent from anther state will have no clue how to answer, and will not.

However a question such as this that calls for knowledge about buying bank owned homes and what the asset manager is thinking sometimes can be answered by anyone who has this experience.

Some people choose to answer knowing they are helping someone and not just trying to get that persons business. Potential buyers and sellers are on Trulia, they read answers to questions that they didnt ask, they can clearly see a true and honest answer over an answer that says "list with me or buy through me and this wouldnt happen." By answering questions not in your area, they can be looked at as 'independant" as the agent has nothing to gain but the satisfaction they are helping other people.

Now there is people who answer every single question and you will often see answers "what does your Realtor say" or "what does your lawyer say?" These drive me crazy and deserve a thumbs down.

But you shouldnt knock any agents from any other area, city or state for trying to help someone. If they are providing honest and useful answers, then they are providing a great service to this site and those who use it. As for a question being old, although that buyer or seller asked in in February, maybe someone else is having the same problem or anyone who is reading it, will retain this knowledge for if it ever does happen to them.

Please see my blog "What has Trulia done for me Lately" in order to see how Trulia can act as yoru greatest marketing tool and how to use it right.
1 vote Thank Flag Link Tue Aug 3, 2010
Just to put this one to bed.

Yes, Aaron's original question is from February.

According to the public record, he bought a house in June.

No need for all the out of state realtors to keep giving him advice.

He's done. Finished. Moved in.

Go look for other way out dated questions in other regions you don't serve.
1 vote Thank Flag Link Sat Jul 31, 2010
There are always unanswered questions in real estate. Perhaps the other offer was a FHA 203K which included rehab costs..it is always about terms and conditions of the contract and I agree with Joseph ...NEXT!! Good luck in finding your new home.
1 vote Thank Flag Link Thu Jul 29, 2010
Aaron:

Thank you for asking the question about CASH? Cash buyers like YOU don't get it. Yes, cash is king, but only to the right seller. I sold over 30 homes last year and 90% were FHA and when I was sitting with the sellers reviewing offers they would constantly say: "I don't care where the money comes from as long as they meet my number!"

Now, my advice to you is to keep chasing other properties and with enough offers you will find sellers that care about your cash position. On this property, if the buyer is savvy which it appears they are. I bet after they got denied with their FHA loan, they called the bank and said what do we need to do to get approved? They probably went with a rehab loan, and to make things even more appealing to the bank I bet they got their loan from the bank that is selling the property. Not only does the bank get that junker off their books, but they get a great borrower on their books. That is a double dip in the banking world and CASH buyers can't compete.

I will tell you this much. The seller that a cash buyer is most appealing too is a home owner not a bank who owns their home out right. They are older and don't want to deal with showing their home and the aggravation that involved. If I were in your shoes I would buy a mailing list for $200 bucks for all the people in your community that own their homes out right and mail them letters. I know you will have more success with this audience then with banks. Best
1 vote Thank Flag Link Mon Feb 22, 2010
Hi Aaron:

It sounds like you are looking for consistency on the part of the banks. It may seem logical that the banks would all behave the same way in a given situation or even that the same bank would act the same way in each similar situation. And why not? It is just about numbers, right? Unfortunately, this is not always the case. Different people at the same bank may do things differently, emotions can get in the way and sometimes (dare I say it) there are incompetent people in positions of power. Unfortunately, whenever you deal with a large entity (or several large yet similar entities) you will run into inconsistencies. And the inconsistencies can be very significant!

This is probably the best answer to your question, though it probably is very frustrating for you when the ground rules seem to change in a Behind the Looking Glass sort of fashion!

Best,
Ron
1 vote Thank Flag Link Fri Feb 19, 2010
Honestly, the banks and asset managers really have no clue. In your case they probably just looked at price and had no thoughts about anything else. I really good agent on the listing side would have at the very least (and maybe he or she did do this) assert their opinion during the time of offer presentation. Even then, there sometimes is no rhyme or reason. At that point, just chalk it up in the "it's just not meant to be" column and move on to the next 100 houses on the block for sale!
0 votes Thank Flag Link Sun Aug 15, 2010
The decision maker is NEVER a person who stands to gain or lose actual money. On paper they selected the best offer - if the risk you say exists occurs, i.e., loan can't fund: they will not lose, they will still control the asset. (Of course if the house burns down there is a risk, but barring acts of god they will still have the house and presumably the market will remain.)

So risk vs. reward - $5,000 more in a month OR your cash offer. You may think that you will not be interested in a month. The fact is that this is a consistent poker match and from our vantage point as agents the banks make the wrong choice half the time.

However, its all other people's money so from their vantage point they can't really lose.
0 votes Thank Flag Link Thu Aug 12, 2010
Hi Aaron

Welcome to the Banks World. There are no rules what Bank will do.

Sometime Bank will accept an offer from buyer with FHA loan that will pay $5,000 more over cash buyer.
Most of the time cash buyer will get bank to accept there offer that are less then the offer of the buyer with a loan.

What is this year new in the Loan World is that: FHA buyer can also get 203K rehab loan up to $25,000 for improvements that are needed.

It is Great time to buy (cash or loan)... It is Buyers market.... Good luck on the next one! TV
0 votes Thank Flag Link Tue Aug 10, 2010
FHA also offers a repair or Upgrade loan that would allow the purchaser to retify the problem that originally killed the deal so they could have changed the loan program thus they offered a better deal to the bank than +$5000 than your offer.
0 votes Thank Flag Link Tue Aug 10, 2010
Uncharted waters create confusion!

Banks have never been faced with the challenges they presently face relative to real estate. Accordingly, their behavior has left many scratching their heads.

There is no explanation for what you described.
Web Reference: http://www.golftobeach.com
0 votes Thank Flag Link Tue Aug 10, 2010
Keep you offer on back up first position.
0 votes Thank Flag Link Tue Aug 10, 2010
Way to go Caroline! I was reading other answers to be sure I didn't repeat any advice already given.

It seems that this question has lost the focus of discussion. The point of these forums, like you said, are for the average Joe needing information. Though, we may be putting ourselves out of business in the long run by posting all the answers to questions in a way that it is sooo easily accessible to everyone. But that is how things are moving these days: so participate, or lose your business. I personally like answering these questions because it keeps me sharp. Some of these questions really make you think:)

Here is the deal on these asset managers. Well, for BOA anyway.

BOA will hire asset managers who have no experience in real estate at all, literally off the street type people. Now, I am saying this b/c I was just at a seminar hosted by BOA, and that is what they said. Obviously they did not say it they way I am, but that is what it boils down to. So with that in mind, you can conclude there was no "thought" put into the transaction. The only thing that held any weight in the transaction was the bottom line. I would advise next time you write a "highest and best" put "$1000 over the best bid up to $X" You may not lose the house bidding in that way.
0 votes Thank Flag Link Mon Aug 9, 2010
Caroline is correct. Although sometimes, it drags on way longer than it needs to, I've had people email me and call me letting me know that an answer I posted (probably later than it was needed at the time) helped them through something. We all try not to post State specific or legal advice but sometimes it does help. Also, sometimes it looks like 10 people have posted the exact same thing one after another and that irritates others but what i've found is that I will be writing something and by the time I post it, 10 other people have posted around the same time! my last FHA 203k offer was accepted over a high cash offer. The listing agent called me and told me that the cash offer came in 10 minutes after deadline and his client refuses to deal with late offers..you never know.
0 votes Thank Flag Link Sat Aug 7, 2010
Aaron,

I see this question is from February. Just curious, do you know if the FHA buyers got their loan and closed on this property?

One idea, especially in a shaky situation such as this, is that you could go into a back up position. If their loan falls apart the seller moves onto you.
0 votes Thank Flag Link Sat Jul 31, 2010
It is their choice, personally in this market for $5K I would take the cash offer all day long. However, some people don't care if it is cash or someone writes them a check, it is $5K more at the end of the day. Course their loan could fall through, but that is a risk they are willing to take. Good news for you, they are probably the minority out there as most would rather take the stronger and $5K lower offer, and it is a buyers market. Keep looking and best of luck.
0 votes Thank Flag Link Thu Jul 29, 2010
Hello Aaron,

Keep in mind, FHA didn't decline the property. It was probably an underwriter's opinion, and the bank obviously doesn't agree with this opinion. The bank must feel that this property is in acceptable condition for FHA financing, or may be willing to correct some items this second time around. Paint is usually considered cosmetic and unless it is in really bad shape, it shouldn't make the property ineligble for FHA financing. If the other items are more structure related, then the property will probably be back on the market, and the bank is making an unecessary gamble.

Good luck!
0 votes Thank Flag Link Thu Jul 29, 2010
Aaron-
You are right normally speaking cash is King and for a few % a bank, be it an REO or a short sale contingency, will almost always take the sure bet. So unfortunately there is likely something you don't know about the the transaction. It might make sense to call the listing agents and ask them for any info they can legally divulge to you about why your offer was not accepted. Perhaps your proof of funds wasn't clear enough to make you a sure bet? Perhaps there were agent concessions to help the buyers or perhaps the bank and the listing agent thought it prudent to put an owner occupant in the property? I have noticed a trend that is slowing down the flipping of bank owned properties. I have seen a number of banks placing deed restrictions on short sale and REO properties that do restrict the sale of the property for anywheres from 30 to 90 days
0 votes Thank Flag Link Thu Jul 29, 2010
Aaron, There may be something unsaid here. Yes, the circumstance seems unreal and yes, cash is King now and forever. Something about this transaction made the other buyers more attractive to the Bank but you'll never know why.

I'm surprised this broker knew the exact amount over yours. One might think the Bank has no obligation to disclose the exact amount of an offer in a best and final situation. There isn't enough speculation or bovine scatology that will make it easier to swallow.

There is one word that has always worked for me if something fell through...NEXT!

Best of luck as you move forward.
0 votes Thank Flag Link Wed Jul 28, 2010
Sometimes,it doesn't seem like the banks make any sense. There is a possibility the bank has agreed to make the repairs to the house or the buyer has agreed to make the repairs so FHA financing will work. The bank looks at their bottom line - if the cost to paint and other repairs total less than $5,000 - the financed offer will net the seller more than your cash offer. Many lenders(such as Fannie Mae) prefer to sell to owner occupied rather than investors.
0 votes Thank Flag Link Wed Jul 28, 2010
Perhaps the owner agreed to correct the items needing repair, or the Buyer may have actually agreed to do it themselves.
0 votes Thank Flag Link Wed Jul 28, 2010
Painting may not have been an issue. It could have been chipped paint and likely was. Scrap the chips and FHA passes it. Lots of "experts" in every field, but often understanding and real knowledge is hard to come by. One fo the greatest myths in RE is "i'll give you cash, and expect you sell it to me for less." Happens every day.
0 votes Thank Flag Link Wed Jul 28, 2010
You never know what a bank will accept or not and they are all different. As mentioned here I would have your Realtor keep an eye on this property, you still may get it, loans are verry tricky these days and sometimes at the last minute they fall throughl Good Luck.
0 votes Thank Flag Link Wed Jul 28, 2010
Aaron maybe they went with an FHA 203k rehab loan. My first question when reading this was "Who is giving you the details of a competing offer, even though yours was turned down?" If this contract were to fall through it may put the seller, in this case the bank, at a disadvantage. Sounds like someone is giving out too much information.

In my experience with foreclosures a cash offer with at least a 10% earnest money deposit puts you in a very good position but there is no hard and fast rule. There could be any number of reasons the bank chose the other offer. Best of luck to you on your next offer!
0 votes Thank Flag Link Tue Jul 27, 2010
I've had both cash and financing offers accepted. How are you getting all of these details about someone else's loan. You will never know all of the details. You cannot really say why they selected another person over you. Could be their offer was put in first, could be they will occupy the property as homeowners, could be the FHA lender that one person used turned them now but this fha lender with the person qualifications will make this happen. Could be that this buyer gets turned down also. I will say to ask your Realtor to stay in touch with them to see how the deal is going.
0 votes Thank Flag Link Sat Jul 24, 2010
You know, when I first joined trulia I answered (correctly, I might add) a question on buying homes in the foreclosure process.

Being that I had just joined, I hadn't checked closely on the origin of the question to see what area it was from.

I was subsequently chastised by some agents from that area and even received an email from a moderator suggesting that I stick to my own geographic area.

Being that some of us are using trulia as a way to meet potential customers and clients, I can see the wisdom of that advice and have to wonder what potential service can a Realtor from, say, Buzzard's Gulch, Tx possibly offer to a customer in Toledo, Ohio?

I'm not being as corse or direct as some of those who chastised me (my what a pleasant welcome that was!), but I can see where the world would be a much happier place if we all worked our own side of the street.

Thank you.
0 votes Thank Flag Link Wed Feb 24, 2010
Aaron if the property is distressed cash and a quick closing date are favorable to the seller. If the property is in good shape FHA is fine. If the property is distressed and there are multiple offers cash and a quick close date followed by FHA 203K or a conventional rehab loan are look upon as a good offer. The advanatge with cash in these situations is a quick close date. With a cash offer you need to submit proof of funds. I have found that lenders do not look at someone that has to do a cash out refi as a full cash offer.
By the way if in your offer you lapped over a month like closing in March it may not matter to the asset mananger what the differance in actual close dates were they just want to get the property off their books by the end of the month.
Web Reference: http://www.Find1Home.com
0 votes Thank Flag Link Mon Feb 22, 2010
The FHA appraisal had to outlined the work that had to be completed for the purchaser to go through with the transaction. It depends on work orders and the cost associated with work. The work orders may not cover everything that is required in your mind. I have seen FHA missing a lot of things that you would think would be required. Most likely the denial you indicated by FHA was in fact a denial of the seller. The seller must of reconsidered when the price was raised and thus already knew what they were dealing with. A 203 k fha loan could also be considered by purchaser to make the offer better.

Typically you are right that cash is usually better than other deals except when the net to the bank will be more and the risk of closing is the same.


Keith Manson

First Weber Group

Certified Distressed Property Expert

Metro Milwaukee


http://milwaukeebailut.cm
0 votes Thank Flag Link Sat Feb 20, 2010
I agree with the other answers and there are too many unknowns to speculate at this stage of the game. We do not know if the other FHA offer included rehab such as a FHA203K and we do not know the other terms and conditions. All of the bank owned offers that I have written., terms and conditons are a factor and not knowing all the conditions makes it very hard to give a definite answer. Perhaps the best place to start is with your buyer's agent.
0 votes Thank Flag Link Fri Feb 19, 2010
And I put a bid in on another bank owned home a couple weeks ago 6 thousand above asking price but with an FHA loan and was told by my realtor that there was another offer that was cash and that even if it were lower than mine they would still take the cash. Then I make a cash offer with this same mindset on this last house and it's like all of a sudden the rules have flipped - what gives? When I was in that situation everyone was like "oh yeah the cash will always win" and now when I'm in this situation everyone is saying "well the highest offer always wins, it doesn't matter where the money is coming from".
0 votes Thank Flag Link Fri Feb 19, 2010
Aaron,

I would just keep my eye on this property if I were you. There are certainly plenty of times that deals fall through. You can have the listing agent call you or your agent if the property becomes available again. Also, I wouldn't try to figure out the method to the bank's decision, I've been plenty confused by them lately as well!

Good luck!
Web Reference: http://www.ChadBoyers.com
0 votes Thank Flag Link Fri Feb 19, 2010
Aaron in this case cash is not king. The highest bid wins with REOs. Remember the bank is in the hole already and they are looking for enough money to climb out of the hole as far as possible. The bank will write off what they lose and the people they got the house from will receive a tax bill for the money that the bank had to write off. Let's say the bank forgave 50,000.00 dollars of the owed amount. In a thirty percent tax bracket that would give the old owners a 15,000.00 tax bill to pay. No home and a big tax bill. I call that kicking them when they are down.
0 votes Thank Flag Link Fri Feb 19, 2010
This is a huge historical home (4300 sq ft) built in 1900 - painting it would be no easy or inexpensive task, and I'm certain due to the fact that it is a historical home that paint wouldn't be the only thing FHA would have a problem with.
0 votes Thank Flag Link Fri Feb 19, 2010
HI Aaron:

Cash is good because, with cash, the deal can usually go to closing quicker. But, money is money and the bank does not really care whether it comes from a loan to the buyer or from the buyer's bank account. If the improvements were handled quickly and inexpensively, and if the bank knew that the FHA buyer had a very good chance of getting the loan, then it probably would have taken the extra money.

Best,
Ron
0 votes Thank Flag Link Fri Feb 19, 2010
Hi Aaron,

Since the FHA requires certain property requirements, the offer that they made with the bank again probably included a request to fix the issues that stopped the home from FHA eligibility.

Cash doesn't always win, the bank is already losing money for this REO so they want to get all the money that they can. And if all they asked to repair were very minor, like repainting, then $5,000 would be the best offer in their eyes.

The FHA buyers were probably informed by their agent that they could still get the house for adding in the repairs as part of the offer to make it eligible for FHA. They probably really wanted this house because they went up $10,000 above their original offer.

This offer was probably accepted because there were very few repairs and they didn't want the house to be on the market any longer. The banks and their listing agents have resources for making these types of repairs. Foreclosure Cleanout businesses are on the rise as well. Banks would just prefer not to repair anything but because of the extra $5,000, they decided it was the best offer.

Good Luck!
Jasmine Adriano
0 votes Thank Flag Link Fri Feb 19, 2010
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