Buying Short Sales and Foreclosures… From the Perspective of the Bank.
By Victor Aguilar, REALTOR (former REO Asset Manager)
Let me first start off by explaining my past experience in the industry. I have been in real estate for almost 12 years now. Six of those years were in the height of the foreclosure boom. As an Asset Manager for a big mortgage bank, I prepared properties for sale, set up listing marketing plans, negotiated, and closed on over 2000 individual transactions. There is much I learned during those interesting years!
Although all asset manager operated their portfolios in different ways, there are certain truths that are the same regardless of the asset manager, investor of the note, or the mortgage-servicing bank involved. I would like to share some of what I have learned from first hand experience, talking to realtors, and other asset managers from different mortgage-servicing institutions. I cannot share what is considered proprietary but I can share some of the insight from the seller side of things.
#1. Quick liquidation: Banks are not in the business of holding assets. They are in the business of making loans. It is simply just not lucrative to hold property. Therefore, selling homes quickly is a top priority. During my time as an asset manager, my ability to sell homes quickly was a measuring stick used to rate my performance. So, when submitting an offer, a quick close on your offer is important. If you are a realtor, make sure that your client has firm financing in place. I strongly recommend providing the listing agent any information that will help drive the point of a quick close.
#2. Fair Market Value: This is crucial. However, there are several factors that go into this. Of course, coming to a consensus is where the difficulty lies. The true indicator of fair market value is what other homes in similar condition have sold for. Show the bank why your offer is at fair market value …Even if it is in a conversation with the listing agent. That listing agent may voice some of your concerns to the asset manager. Sometimes, the bank may have not been aware of recent sales that have driven values lower or may not be aware of the extent of the previous owners negligence. Pointing out these factors may also help arrive to a new fair market value.
#3. Cash is King: When it comes to Short Sales and Foreclosures… CASH IS KING. The reason being is that often times financed deals fall through. When an offer falls through, banks lose money. This loss is due to possible fees imposed by different municipalities (such as overgrown grass and other code violations), continuous maintenance on the upkeep of property, and other situations that can arise as a homeowner. Also, having to place a property back on the market is oftentimes a deterrent for future buyers. This also leads in a lower return to the bank. If it is a financed deal, then the buyer wants to show why their offer is strong and almost (fingers crossed) fail proof. You want to show why your lending institution would not reject your particular financed deal. Although, this is still not better than cash, it does help your offer.
#4. Hire a Realtor: If you are not already a realtor, hire one. In my time as an asset manager, the bank never gave a discount on any of their properties in lieu of not having a realtor. In fact, our preference as the bank was that a realtor represented the bank (seller) and the buyers. It helped ensure a smoother transaction. The few times we dealt with a buyer that did not use realtor representation made a transaction take longer. The bank is paying for your realtor representation already. Why not make your offer stronger by using a realtor???
Hopefully this insight will help you in the process of buying from the bank. Short Sales and Foreclosures will always be around. It may not get to the point we were a few years back, but they will always be around. Weather you are a realtor, investor, or someone that is bidding on a bank owned property, I am happy to have a conversation with you about it. Again, I cannot share proprietary information but I can definitely lead you in the right direction.