Real Estate NewsThe REO Problem
There"s a problem with the REO inventory in the United States today. The problem is that the banks make horrendous sellers. I can"t tell you how many REO properties I have personally tried to buy, and transactions that I"ve tried to facilitate on behalf of buyers, and every one seems to be a struggle. For those of you late to the game, REO is short for "real estate owned", which is the title given to post foreclosure homes that are now owned by the bank. Here"s some free advice for the banks -- remember that while you"re a big messy corporate institution, your buyer is an actual live human being.
The REO sale process is a cold one to be sure. Vacant homes, lock boxes, dirty interiors, overgrown exteriors, and mostly out of town listing agents. There"s a burgeoning trend in the real estate business these days, a trend that is making every broker an "REO Specialist."
Go ahead, do a quick Google search of "REO real estate" and you"ll see what I mean. Short sale this, REO that, it"s enough to make your head spin. Regardless of all the attempts by traditional brokers to sneak off with their piece of the REO pie, the business is primarily handled by specialized REO brokers. By specialized I mean they use their own forms, set their own timelines, impose their own fees, and generally behave poorly with little regard for the buyer. They"re selling beat up, run down real estate, and yet they act like the buyer is lucky to have found such a gem. They forget that they need the buyer more than the buyer needs them.
These brokers deal with banks for a living, and in dealing with the corporate chaos that is a large bank REO department, they tend to forget that the buyer isn"t also a bank. In fact, more times than not, the buyer might be a first time home buyer, or first time investor. A person who needs a little extra attention and coddling. If you"re that buyer, you better find a good buyers agent who does not work at the REO listing office, or risk being trampled by the heartless procedural stampede that is an REO real estate transaction.
Just this week I closed on an REO property for a customer of mine who was a first time homebuyer. The property came on the market at an attractive price, and the buyer bid. Here"s something that"ll happen often, so get ready for it -- the bank issued a multiple counter offer. They don"t issue this on state approved forms, they issue it in a letter stating that the buyer must make his "highest and best" offer. Do they actually have multiple bids? Who knows, but my experience tells me that they nearly always issue one of these "highest and best" letters, instead of countering in a traditional fashion. My buyer "won" the bidding war, even though he may have been bidding only against himself. We asked for a quick closing, and my buyer set about getting his loan. Then the bank and their broker, unhappy with the apparent ease of the transaction, sent us a fax demanding what amounted to a loan commitment from the buyers lender, even though the original contract didn"t call for such a letter. They sent the fax at 2:30 pm on a Friday. They demanded the letter be in their hands by 5 pm that same day, or they would declare the contract null and void. See what I mean when I tell you that banks make horrible sellers?
If you"re a broker, go ahead and steer clear of the REO craze. Find buyers for them, yes, but don"t list them. Chances are, if you have a heart and a knack for customer service, this isn"t an arena that you"ll succeed in. The REO inventory does represent a value for buyers and investors, but approach the situation cautiously. When purchasing REO property you generally will not be provided with an ALTA policy, a survey, or well and septic inspections. These properties can still represent tremendous value in most markets, but you need to find a broker that is familiar with the procedural abnormalities that are prevalent in REO transactions.
David Curry has been a Realtor in the resort town of Lake Geneva, Wisconsin for the past 12 years. He writes a real estate blog at genevalakefrontrealty.com/blog.