Question Details

Rita Fong, Real Estate Pro in Marion, AR

How to convince your investor client to understand buying 'AS-IS' property?

Asked by Rita Fong, Marion, AR Fri Dec 12, 2008

I am representing my buyer who is an investor, buying a VA foreclosure property. All the utilities were already turned off, it is selling 'AS-IS'. He wants to know what is working or not, and the listing agent does not have any disclosure about the property. I explained to him that he still has the rights to do inspection on the property, and I wrote the contract accepted upon satisfactory inspection report, but he wants the bank to pay for the inspection, so I put that down. He asked for 1 yr termite contract, 1 yr home warranty, I explained to him he can ask for whatever he wants, but reality is the bank is not going to do it. But he is my client, he thinks it is not going to hurt to ask, I agreed, and I did write it as the way he wanted. Of course, they counter on the price and will not do all the other things my client asked for. He is still standing firm on his own terms, he won't even counter the price with the bank. Any agent has similar experience and made it worked?

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I don't think your investor client was being too unreasonable. Believe it or not, some banks (in some markets) actually have paid for closing costs, a portion of the inspection fee, and other items in order to sell a property. I'm not saying that this will happen all--or even most--of the time; however, it will never happen if one doesn't ask. Yet, more often than not, banks are more willing to receive a lower price than to lift a finger to do anything extra for a REO.

Instead of asking your client to rescind his requests, ask him to transform them. Ask him to price each one of his requested items, and discount his offer price accordingly. The bank will continue to reduce the price of that property until it sells. Banks typically won't budge much on their listing price if a property has been on the market for less than 30 days. However, most banks get increasingly more flexible--especially when a property has been on the market for 120-180 days. If that property hasn't been on the market for at least 90-120 days, then you should warn your buyer that this process is going to take awhile.

FYI, in the future whenever you work with investors, I'd recommend that you have your client to write up a LOI first. This way you can present it, and you don't have to waste a lot of time writing multiple drafts of the contract. As soon as your client and the seller come to terms, then either you or the listing agent can write up the real contract with all of the terms agreed upon.

Don't steer your client towards short-sales (aka pre-forclosures) or foreclosures. Those take more time (and usually cost more) to process than REOs, and--unlike REOs--(pre-)foreclosures still retain their liens.
0 votes Thank Flag Link Tue Dec 16, 2008
Sometimes you just have to say goodby. If this investor is wasting your time with unreasonable demands, why waste your time. It is the same as throwing money away. If he can not bargain in good faith, it is time to tell him you can not work with him. Count how many hours you have spent w/ the guy already and what you would make if he signed today. Then tripple the time and see where you are. Dave Atherton
1 vote Thank Flag Link Tue Dec 16, 2008
One common misconception is that "banks are anxious to unload" REOs. I took a course recently on loss mitigation, and learned that this isn't necessarily true. A property on their books is an asset, and if they sell it at a great loss, their assets diminish. So they don't want to put money into it if they can avoid it, and they want the best price they can get.

You might want to steer your client toward a short sale. He could then view the property and at least visually determine what is working, and because it saves the bank the expense of foreclosure, he might get a better deal. The downside is that it takes forever to get an answer.

Everything else you have told your client is true. Remind him that the reason a foreclosure is a better deal is because of the risk. You get what you pay for.

Good luck!
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1 vote Thank Flag Link Tue Dec 16, 2008

First, good luck working with this "investor". I have represented both banks and buyers of bank properites. The bank will do nothing but sell the house "as is--where is". You did your job of informing your buyer, and writing what he wants in an offer, but----You need to tell him that if he wants to negotiate, he needs to buy a home form an private owner, not a bank. (I hope he didn't take one of those classes that tells a buyer/inverstot how to buy with little or no money down and make millions in a few short month.) I would suggest you find another client who is more reasonable. Good Luck

Jean Pritchard, Principal Broker
John L Scott Real Estate PTL
Portland, OR 97030
1 vote Thank Flag Link Fri Dec 12, 2008
Hi to everybody who responded to my question,

Thanks for your opinions. The negotiation is not over yet, will see what happens!? It is just nice to hear from other Realtor's opinions and stories, it is great to receive responses.

0 votes Thank Flag Link Tue Dec 16, 2008
Rita, I recently had a similar situation where an offer was made at about 30 percent below the asking price which had just been reduced 30k. The property was in a bankruptcy situation. I told my buyer to "Not fall in love with your offer. You are just looking for a price." The bank came back with a token drop of about 8k in a verbal response, but, clearly stated they did not consider it a serious offer. But, the agent suggested a price that was really pretty rational. My buyer was very angry that he had wasted his time and complained because his offer was not treated as a serious offer. In this case, he said he was bagging the search. Unfortunately, he will continue to drift down w/ the market always 20 percent below reality. Maybe some day he will find something. I doubt it. Dave
0 votes Thank Flag Link Tue Dec 16, 2008
You don't need to convince him of anything. If the deal doesn't work for him, he should walk. Good Luck
0 votes Thank Flag Link Tue Dec 16, 2008
I would simply explain that the offer was written as-is, that his concerns were already compensated for in the low sales price, and suggest he purchase a home warranty on his own for less than $500.

Good luck.
0 votes Thank Flag Link Tue Dec 16, 2008
Hi, Julie,
Thanks for your advice. I did tell him it is a buyer's part to pay for the inspection, because it is the buyer who wants to know what is wrong with the property. I explained to him it is a foreclosure, and the less the buyer asks them to do, the higher chance they are going to get the property. That's why I told him we will put contract accepted upon satisfactory inspection report, so he can get out of it in case the inspection comes back terrible, like major repair on plumbing, electrical wise. His point of view is he thinks economy is bad and the bank wants to get rid of it and they will give in. I am just wondering after all I explained to him, am I missing out something I could do it differently. I know he is not being realistic, but I want to hear from other real estate pro and see if there is something they know and I don't. Thanks.
0 votes Thank Flag Link Fri Dec 12, 2008
It sounds like he started the process not being realistic or well-informed on the process. Whenever I run into something along these lines with a client I ask myself "how have I contributed" and "what could I have done differently to avoid this." Working with buyers doing foreclosure or pre-foreclosure or short-sale requires a lot more consultation up front than other transactions. I agree, does not hurt to ask and you have done that and they said no. I am sure the less detail the bank has to get involved with (ie. paying third parties for misc things like inspection and HW) only complicates things for them. Their goal is to get that property off their books and they'll have a formula they run your offer through. Maybe he can get the house at his price. Keep in mind that the person who pays for the inspection is the customer of the inspector so why would anyone besides the buyer pay for the inspection? Also, the bank has probably stated that the house comes with no warranties ... you could buy one for him.
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0 votes Thank Flag Link Fri Dec 12, 2008
I think you did the best thing and wrote up what he wanted and warned him in advance they would say no. Sounds like he is not going to get the house if he wants all of that from the bank. Bank deals are list price and nothing else in most cases I have found. Happy holidays.

Randall Sandin
0 votes Thank Flag Link Fri Dec 12, 2008
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