What is the thinking or rule behind giving buyers who plan to reside a 2 week lead over investors in bidding in some cases, even on "cash?

Asked by Bret, Sam Hughes, Tucson, AZ Tue Jul 26, 2011

only" bids? My realtor says sellers have more confidence in resident-buyers. But sellers get the entire price up front whether in "cash" or from my loan source. And in at least one case the seller is asking for "cash" from all bidders. I am attempting to purchase two or three homes to set up as rentals. Thanks for your help in understanding! Bret

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Jack Gillis, Agent, Dallas, TX
Tue Jul 26, 2011
BEST ANSWER
The Government insurers and lenders all want to encourage owner occupied dwellings for the sake of the neighborhood and, therefore, all will give the buyers that intend to live there first bid. In some cases, even after the exclusivity period has expired, some asset managers will take a lower offer from someone that intends to live there over a higher bid from an investor. The purpose of these agencies is to finance homes for people that intend to occupy the home and not an investor.

Jack Gillis, M.B.A., J.D.
Jack Gillis Realty Advisors
Nathan Grace Real Estate, Broker
5619 Dyer Street | Suite 100
Dallas, TX 75206
Cell: 214.718.4910
Email: Jack@JackGillisRealty.com
1 vote
Donna Moulton, Agent, Tucson, AZ
Tue Jul 26, 2011
As far as I know, this practice only pertains to foreclosures owned by government entities. The government has decided (at least in this case) to encourage home ownership by giving the owner-occupant a competitive advantage over investors, who would win the bidding war every time with their ability to waive inspections and avoid the mortgage hassles.

It is in the government's interest to promote homeownership, which supports neighborhood stability, and maintain property values. Home owners tend to take better care of a property than landlords, which benefits the surrounding homeowners.

Few home owners are happy to see a neighboring house sold to an investor, especially if the investor rents the property. You can say this is stereotyping, but home owners generally perceive renters to be bad for property values.

By the way, I am an landlord. I do not always know when weeds have sprouted up at my rentals. With a few wonderful exceptions, my tenants ignore the weeds, and the neighbors call me to complain. This is one of the many reasons that rentals are perceived as being a negative influence on property values. I don't allow my tenants to have loud parties or dogs that bark and annoy the neighbors. My tenants are not allowed to park on the sidewalk, which looks trashy. Many landlords don't care how the neighbors feel, as long as the rent comes in.

For private sellers, I think whether the house will be occupied by owners or renters is of little concern, except in the cases where the seller has an emotional attachment to the house, and feels an obligation to his neighbors not to degrade the neighborhood.
1 vote
Spirit Messi…, Agent, Tucson, AZ
Tue Jul 26, 2011
To encourage and help promote owner occupied first, vs investors buying up REOs (foreclosures), some of which then turn around and rent or flip. I work with many first time home buyers and they need and appreicate that time.
1 vote
Sandra Paulow, Agent, Pinetop, AZ
Tue Jul 26, 2011
Fannie, Freddie & HUD feel that owner occupants will help stabilize neighborhoods. They feel that owner occupants will contribute more to communities than investors. This was prompted by the actions of many investors during the boom days who bought up property after property with the intent of renting them for a year and a day & flipping them at a great profit. Arizona was particularly hard hit with this kind of activity and much of it was illegal. Straw buyers were used to artifically drive up the prices and it was a huge contributor to the excessive price increases during that time. Now investor is looked at as a dirty four letter word by these agencies.
1 vote
Ric Mills, Agent, Oro Valley, AZ
Tue Jul 26, 2011
The Home Affordable Act passed by Congress mandated the rule and the Federal agencies Freddie,Fannie, and HUD added their own rules to make it lean towards the "owner occupant". HUD actualy can go as much as 30 days with this preference. They want to encourage owner occupants and that is why they have the rules. Investors still get a lot of these properties as they can offer great terms-cash in most cases. The investors I work with do very well on these properties. That said, the low ball offer, rarely suceeds in these deals as there is just too much competition and the sellers already have a price opinion on the properties. They rarely will go under it.
1 vote
Ric Mills, Agent, Oro Valley, AZ
Tue Jun 4, 2013
The government controlled investors want to give Owner occupants the first choice on homes to try and get more owner occupied homes. They feel that it will help the overall housing economy by having more people that will live in the home. It is their rule and you can't over ride it. Sorry, that is the game they want to play. Good luck.
0 votes
Michael Shin…, Agent, Tucson, AZ
Tue Jun 4, 2013
Bret,

This often occurs with Bank Owned REO properties due to their regulations. Every seller is different so it is a good idea to work with a knowledgeable Realtor that can help you navigate the market

Michael Shiner
http://www.tucsonrealestateliving.com
0 votes
Mary Ann Car…, Agent, Tucson, AZ
Tue Jul 26, 2011
Hi Bret -

I've seen this in HUD, and perhaps some sellers are following suit, but I council my sellers never to look a gift horse in the mouth - so to speak. When someone, either investor or resident, likes the property I say take all comers. I can understand their strategy, but it's just not mine or the way we do business. There are specific regulations that Fannie and Freddie have to go by as to whether a property can be financed with their loan product, if the property can't, one other option is cash and I'm seeing many sellers utilizing that option. Hope this helps. If not, check out the link below or contact us by email.
Web Reference:  http://MaryAnnandCisco.com
0 votes
Mary Ann Car…, Agent, Tucson, AZ
Tue Jul 26, 2011
Hi Bret -

I've seen this in HUD, and perhaps some sellers are following suit, but I council my sellers never to look a gift horse in the mouth - so to speak. When someone, either investor or resident, likes the property I say take all comers. I can understand their strategy, but it's just not mine or the way we do business. There are specific regulations that Fannie and Freddie have to go by as to whether a property can be financed with their loan product, if the property can't, one other option is cash and I'm seeing many sellers utilizing that option. Hope this helps. If not, check out the link below or contact us by email.
Web Reference:  http://MaryAnnandCisco.com
0 votes
Robert Kroon, Agent, Phoenix, AZ
Tue Jul 26, 2011
Rita is correct. We list for Fannie and Freddie. We are directed by both to allow a certain period of time for owner occupants to make offers. The thinking, as we are told, is to encourage / support owner occupants.

Robert Kroon
0 votes
Michael Krot…, Agent,
Tue Jul 26, 2011
I think the point of offering up properties to owners who will occupy the property themselves is part of a community building/preservation effort. Typically you see those sort of rules on Fannie Mae (First Look Initiative) or Freddie Mac foreclosure and I've seen other banks follow their lead.

The merits of such programs are debatable though.
0 votes
Rita Gibbs,…, Agent, Tucson, AZ
Tue Jul 26, 2011
Fannie Mae and Freddie Mac in particular are trying to encourage owner occupants to buy their properties.
Other banks don't care.
0 votes
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