Home Buying in Gilroy>Question Details

Cliff, Home Buyer in Gilroy, CA

Pending Show Home

Asked by Cliff, Gilroy, CA Sat Sep 27, 2008

Hello,

I found my dream home about 3 weeks ago but the home is under contract but taking back up offers (REO). I was informed that this home was on the market for 7 days before it was sold (This home was listed way below market value). It was supposed to close escrow 9/2/08 but the buyer was denied for a loan and it seems he is applying for another. My question is, how long before the bank that owns the property be able to accept back up offers since the party under contract is having trouble getting a loan? This home is pricey, about 1.3 million. Is there very few programs available for this type of home? I have submitted a back up offer yet I only got pre approved for 50% of the loan and I will provide the other 50% as down payment, does my down payment make me stand out more if other back up offers are higher than mine?

Thank you for your time,
Cliff

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Answers

5
Hi Cliff,
Wayne gave you a spot on assessment of what an Agent should do, and why banks can be irrational.
My only point to add is why haven't you checked out other lenders I ALWAYS recommend my buyers check out (3) lenders and let them KNOW you are doing that, this way they work to give you the best deal they can.

Sincerely,
Allyson
0 votes Thank Flag Link Tue Sep 30, 2008
Hi Cliff. Please excuse the delay in answering.

The agent is required to present every offer to the seller up until close of escrow, even if there is an accepted offer already. The Seller is not required to consider the offer, but must be informed.

In your posting you were not exact as to when you made the offer, but you indicated in your answer that it was only submitted to the Seller yesterday. It should normally be submitted to the Seller within a reasonable time frame from when you made the offer (i.e., if you submit an offer Friday afternoon to an institutional seller it would be reasonable to expect them to be made aware of the offer at least by some time on Monday). Normally the Realtor representing you would follow up with the listing agent in an effort to encourage submission to the Seller as quickly as possible.

In you offer, you will have indicated a time frame for which the offer was valid - has that expired? They may still reply to that offer after the time frame but you would normally want it replied to before expiration.

With respect to the listing agent being 'difficult to work with' ... that is one of the reasons you have someone representing you who is used to dealing with a variety of other agents. Sometimes a listing agent has many listings (I know one who has 93 REO listings) and so becomes a little mechanical in their management of their inventory. They sometimes get many offers, some ridiculously below asking, and are obliged to submit every one. Recently I inquired about an REO listing where the listing agent was submitting 17 offers for a variety of properties in one day.

With respect to banks being 'irrational' - I've seen one department of a bank accept an offer while another department proceeded with foreclosure, and the buyer eventually buying the property after foreclosure for $100,000 less than what they had been willing to pay. I've seen banks refuse to negotiate because no one wants to take the responsibility. And I've seen them overwhelmed by paper work - losing paperwork - and just reacting to the latest phone call rather than being proactive. They have difficulty ascertaining what is a fair offer or not and rely heavily on process rather than judgement to make decisions. They will sometims refuse to sign documents even though they are prepared to make a deal. They're having tough times.

Work with your Realtor to overcome the obstacles - realize these obstacles are one of many reasons that REO listings are normally 'below market' - and don't put all your eggs in this basket: Keep looking and don't hesitate to put in an offer on another property if it seems desirable.

With respect to loans, without knowing the property and your circumstances it is difficult to be precise, but even in today's market there are a variety of loan programs available. 80% loan to value are common in mid-range priced properties, and FHA loans can go up to 97%.

Good luck ... Wayne
0 votes Thank Flag Link Mon Sep 29, 2008
Hi Wayne and Allyson,
Thank you for your replies. I have to put 50% down payment (Cash, CD’s and bank funds) because my bank decided to cover 50% of the purchase price. I have been a member of this bank for 32 years and they are not that large of a bank. They primarily cater to the Asian community of the bay area and in my experience, the bank never gives you 100% of the asking loan. That is why I believe they would only cover 50%, they are not a big bank but they do come through because I have had previous home loans with this bank. My offer is not that low, above asking price yet it was submitted just yesterday. Are there very few programs out there for a home like this? I ask because if so I wonder if that gives me an advantage. Also, the listing agent is a real hard person to work with. Is he absolutely required to submit every back up offer to the bank?
And, what does it mean that banks do not act rationally in this market?
Thank you again, Allyson and Wayne.
Cliff
0 votes Thank Flag Link Sat Sep 27, 2008
To specifically answer yhour question: A listing that is status 'pending show' normally has a signed contract for which the contingencies have not been removed (and is not contingent on the sale of another home). Normally there is a deadline to remove contingencies, and the seller can cancel the contract (sometimes 24 hr notice is required) after that. An additional complication is that it is an REO. The bank may have put a clause in the contract that they can continue to consider other offers right up until close of escrow. In that case, they can consider your offer at any time.

A 50% down payment may make you stand out depending on the reason for the high down payment and your source of funds.

REO's are often priced below market because banks will not consider inspections, repairs, and will normally have never even visited the property they own. They just want to get rid of it. If they first offer was unable to perform, I'm surprised they would not have immediately gone to a back up offer unless there was a significant difference in price or terms

BTW ... Banks do not act rationally in this market ... do not expect that
0 votes Thank Flag Link Sat Sep 27, 2008
Hi Cliff,
My name is Allyson, I do specialize in bank owned (foreclosed) and short sales properties. I'm not a lending expert but I know of no programs that would cover that amount, most lending programs are to assist low end first time home buyers. To answer the 2nd part of your question YES banks really like a big down payment. My only concern is you could only get a loan for 1/2 of the amount? is there something wrong with the property? the area? The big down payment will definitely help you against other offers ( as long as you aren't to low, if you are to low this could be why they haven't given the other buyer a "notice to perform" and cancelled the other contract and gone with yours) as the banks want a smooth and ON time escrow and the down payment shows them that you are a serious buyer and you should have no problem getting a loan.

If you any addtional questions please feel free to email or call.

Sincerely,
Allyson Alessandrini
(408) 705-6578
allyson@homesbyallyson.com
0 votes Thank Flag Link Sat Sep 27, 2008
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