The New REO - Give me your highest and best!

Discussion in 'Real Estate' started by Joe Mammy, Sep 17, 2009.

  1. Joe Mammy

    Joe Mammy Beach Lover

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    "Give me your highest and best!" What is that, you ask? The answer is the most common phrase in today's REO market in the greater Destin area. Those of you who have been reading my previous market pulses know that REO stands for "real estate owned by the bank" and is the term for foreclosed property listed on the active market by the lender.

    REO's have been the hottest sector in the local real estate market and have been dictating overall market value. Most come on the market at very attractive prices and create instant sizzle. Agents scramble to notify their clients and then rush to submit an offer- usually within the initial 5 day active period. The bank will collect offers during the 5 days and then all who have submitted an offer will be asked for "their highest and best". In essence, what we then have is a silent auction.

    The bank will look at not only the offered sales price but will weigh any contingencies such as financing terms, length of contract to closing, requested seller's concessions and negotiable closing costs. I have been on the winning side of these auctions where my client came with a full price offer and I have been on the losing side when I have had clients offer ABOVE list price.

    Let's take a look at 2009 sales for combined residential (single family, condos and townhomes) in the greater Destin area. Total sales we find 769 closed transactions. Of those 769 how many were REOs or short sales and how long were they on the market:

    REO sales: 131 or 17% with an average 71 days on the market

    Short sales: 122 or 16% with an average of 239 days on the market

    What screams at me is the almost 8 months to close a short sale! They are purposely listed at below market prices to invite offers. And then the waiting game begins. Most buyers do not have the patience to wait for the bank to make a decision. And the answer might end up being a counteroffer instead of acceptance. The REOs while also listed at offer beckoning prices do close much sooner. But that only tells half the story. We need to compare the current active listings as of today (9/17/09):

    Total actives for combined residential (single family, condos and townhomes) - 2769 of which only 28 are REOs and 381 are shorties!

    Only 28 active REOs. Yet we have 381 active short sales. What will happen to those short sales that do not go under contract? You guessed it, they will be foreclosed upon and then become REOs. Typically, an REO will come on the market and if it is not sizzle priced the bank will reduce steadily every 30 days until they reach the sizzle point when multiple offers roll in. Then the call comes from the bank's listing agent, "We are in a multiple offer situation. Please give me your highest and best offer by 5:00".

    Let the silent auction begin! :D

    I could not post tables here but I have them on my site.
     
  2. Smiling JOe

    Smiling JOe SoWal Expert

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    Ed Zachery!
     
  3. livinginsowal

    livinginsowal Beach Crab

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    Great write up. I just went through this in Destin. Full price off with no contingencies. The bank got 4 offers in 3 days and we lost. I personally see the short sales as a violation MLS rules seeing as how their is no guarantee that the bank will accept that prce.... even if it is a cash offer with no contingencies.
     
  4. Smiling JOe

    Smiling JOe SoWal Expert

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    I've read all of the rules in the MLS and don't see one which it violates. W hich MLS rule in particular do you think it violates, livinginsowal? If it is a rule violation, report them to the MLS Committee, along with the rule in violation.

    The seller agrees to sell the property at "price x," not the bank. The bank simply decides whether or not they will release the lien on the property, since it is their money which is at risk. So, the contract is contingent upon the lender. I know it is all semantics, but in Florida, the lender doesn't own the property, the deed holder owns the property. (I'm not talking about REOs where the lender DOES own the property.) If the seller lists the property at "price X" and a buyer comes in an offers "price x" and the seller doesn't accept the offer, THEN, you might have a valid case and the seller may have to either be forced to perform or pay damages, and may also be subject to paying commssion, even without a sale. However, you won't see that happening in short sales, if properly listed.
     
  5. fisher

    fisher Beach Fanatic

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    What is an "As Is" listing? Is it similar to a short or a foreclosure?

    I've seen numerous as is listings and I believe most of them were unfinished homes. However, I just saw three or four AS IS listings in Alys that seemed to be completed and even furnished homes.

    Just curious.
     
  6. TooFarTampa

    TooFarTampa SoWal Insider

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    As is= From my experience, it means the seller is not responsible for any repairs. In this case the buyer may require a contingency where the sale is subject to a satisfactory inspection, but the typical 1.5 percent of the sale amount for repairs does not apply.

    Translated, I think most sellers are saying they are over it and dont want to deal with anything else. ie Take it off my hands, please. :dunno:
     
  7. Joe Mammy

    Joe Mammy Beach Lover

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    All shorties and REO's are sold "as is". The buyer can add the "as is with right to inspect" addendum to an offer. Which means he can inspect after going under contract and if the inspection reveals repairs in excess of $250 (default amount if left blank) then he can move on and be reimbursed for any earnest money deposits.

    I have had banks still make concessions after an inspection even though it was an as is. It can't hurt to ask while providing the detailed inspection report.
     
  8. Bobby J

    Bobby J Beach Fanatic

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    We actually prefer the "as Is" contract to the standard Far bar form when putting an offer on a foreclosure or short sale. Heck, I like to use the "as is" whenever working with a buyer. It really protects the buyer better then the standard form.
     
  9. tidewater

    tidewater Beach Comber

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    Another option

    If you think you really want an REO property and you belive other offers are close but don't know exactly - so might loose out - offer the bank to pay the amount equal to the highest bid plus $1,000. We used this with a aproperty and the bank took it.
     
  10. destintide

    destintide Beach Comber

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    has anyone tried a reverse auction approach?

    Particularly in the case of homogeneous properties...for example.....multiple vacant lots within the same subdivision which are held in OREO by different banks.
     
  11. Lynnie

    Lynnie SoWal Insider

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    How does this work?
     
  12. Joe Mammy

    Joe Mammy Beach Lover

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    How did you word this offer in your contract? In all of the REO offers I have dealt with (about 15) the listing agent submits the offers by filling out forms online that are submitted to the bank's asset mgr for the property. That makes every part of the offer extremely black and white and the bank is only weighing a bottom line.

    And how do you know what the highest offer was that you are bidding $1K over?
     
  13. Smiling JOe

    Smiling JOe SoWal Expert

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    yep, and the bank's asset manager doesn't want to know who is paying for what in closing costs. You have to give them a dollar amount of how much the bank will be paying. I mostly run from those. What is a Realtor for, if they cannot present offers and explain things? Since in those cases, the buyer's agent is doing all of the work, they should be getting most of the brokerage fee. (but hey, what do i know?)

    Highest bid plus $1,000 written as so in an offer can get a buyer screwed out of the wazoo if the bank happens to have someone handy who can offer an amount equal or greater than the amount of the payoff of the former noteholder. eg- market value of house today is $300,000. The former owner who was foreclosed upon by the bank, owed $500,000 on the note. Offers come in around $290,000, along with one which states, highest offer plus $1,000. Banker goes to a friend and says, "give me an offer (remind you, not a contract), of $600,000 for this property. Guess who the winner of the contract is. YOU! or, in reality, the bank because you just got hosed for $300,000 more than the house is worth.
     
  14. destintide

    destintide Beach Comber

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    not entirely sure...but i think

    First, an individual would identify several properties which you have an interest in & the corresponding banks which own the properties. The prospective buyer then would then ask the banks to provide an offer to sell the property and provide a specified time period which the auction would be open. Upon the earlier of the receipt of all bids or closing of the auction period the lowest bid wins the auction and buyer purchases property at the winning lowest bid.

    I can certainly imagine a number of difficulties, issues, &/or problems in this process but, in theory, a reverse auction would provide the buyer the lowest purchase price possible.
     
  15. destintide

    destintide Beach Comber

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    this would be a big no-no!! i like to think folks are more ethical than that....but

    Could an appraisal contingency mitigate this concern? If not, then the question would become how can you define an arms-length or "legitimate" offer.

    Truthfully, I've never seen much of a need of a highest bid + offer as, at least in my experience & in this type market, it is a rare occasion when you have multiple offers coming in simultaneously.
     
  16. Miss Critter

    Miss Critter Beach Fanatic

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    How about +$1,000 not to exceed ___ with certifiable proof of next highest offer? Would that work?

    I've heard of reverse auctions in the traditional sense, with an auctioneer leading the bidding. As price decreases, first bid gets it. Prior to first bid, there are no offers. First bid is therefore highest offer. I can't see it working with written offers, simply because the offers are, well, offers. In writing. A seller would have to be pretty non-Mensa to agree to that. Plus, can you imagine the lawsuits from the higher bidders?
     
  17. Joe Mammy

    Joe Mammy Beach Lover

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    Not anymore. Just this past week an REO condo came on the market at Blue Surf in Miramar Beach for $150K. I sent it out to my buyers and instantly had 3 interested parties - I had to hold my own mini-auction and then submitted an offer of $170K. The seller accepted another offer. I won't know what it is until it closes in a few weeks.

    There were two other agents in my office that submitted offers too. One told me the listing agent received 11 offers!

    These REOs are purposefully listed at very attractive prices to bring in multiple offers and then you are asked for "highest and best".
     
  18. Smiling JOe

    Smiling JOe SoWal Expert

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    The last house I sold had five offers. My buyer got the contract at above list price. I understand that at least two offers were at list price.

    A house I am showing tomorrow has multiple offers on the table. It is very common if the price is attractive. Look at the statistics -- cash buyers are typically very knowledgeable about the current market, and have typically been studying the market for a while. Cash buyers in South Walton, on average, pay only only about 2% less than list price, compared to buyers who finance, paying about 10% less than list price. Why? My theory is that the cash buyers are buying only the best values, and are having to compete with other buyers.

    The only reason why I bring up the highest offer plus $1000 is because someone is likely to take your advise and get screwed. Be careful when giving advise like that. This is the internet and someone is likely to believe everything they read.
     

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