Banks and REOs The Guide to Monetizing Foreclosures
By: Seomul Evans
Submitted: 2009-09-12 18:56:57 | Word Count: 636
There s some money to be earned buying and selling real property, especially REOs, or real estate owned. These are real properties foreclosed by banks and unredeemed by the former owners within the allotted redemption period. Therefore they are now assets owned the bank and may be sold to interested buyers, the former owners included, at usually prices relatively lower than those in the regular real estate business. So the profit potential can be substantial for the intrepid broker.
However, dealing with banks on the matter of REOs can be very frustrating: banks are often terribly painful where REOs are concerned. When a REO property goes for sale, it is usually sold through bidding. The list of REOs is published or posted and a minimum bid is indicated for each piece of property as well as the end date of the bidding. The interested buyer then submits his bid for that property, not knowing if there are competing other bids or none at all.
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That s easy as pie and buying an REO should thus not be a hassle at any stage. But it is, in almost every aspect. Consider my recent example:
A REO came on the market, my first time homebuyer bid. The bank sent him a series of counteroffer letters stating in effect he should make his best and highest bid. The buyer might have been bidding only against himself, because if there were other bids they were not disclosed by the bank to my buyer, but he nevertheless submitted his ‘highest and best’ bid and won . We requested for an early sales closing and my buyer proceeded to arrange for his loan to purchase the REO property.
But here s the rub. Before we could congratulate ourselves, the REO broker and the bank, sensing the sale was just too easy, faxed virtually demanding for a guaranteed commitment from the lender, something not mentioned anywhere in the previous sales conditions. The fax was sent at 2:30 p.m., the commitment must be submitted 5:00 p.m. same day or else the sale will be nullified, and it is Friday! Practically impossible to acquire such a commitment that was not a prerequisite, in two and a half hours, so you can see a way how the bank can be a pain on REOs.
Aside from its inconsiderate manner, a buyer must deal with the bank s haughtiness. For their low prices, REOs are usually unkempt, unattractive pieces of real estate. The grounds are overgrown with weeds, the house in a state of disrepair, the interior seedy looking, having been neglected for some time, perhaps a year or so, the normal redemption period for real estate foreclosures. Yet banks act as if the REOs are prime properties everyone is scrambling and fighting to own, and they can look down their noses on you when they see fit to.
Most REO sales are handled by specialized brokers, called specialists . These brokers constitute what seems to be a closed society with its own forms, fee systems, timeframes, and most probably insider tracks or connections. Since these specialists deal with impersonal banks, they often overlook the fact that buyers are not institutions, but persons who can feel insults, sense a mood, and get emotionally hurt. Essentially, they refuse to see that they derive their income from buyers and clients who buy the REO property, rather than from the property being sold.
So if you are a broker with a feeling for your buyers, steer clear of REOs if you want to stay on good terms with your bread and butter clients. Do not refuse REO buyers, but don t make REO buying your main line of selling. If you are a buyer, find a broker inured to the ways of REO sales. Otherwise, both of you will just feel frustrated.
