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Dear Steve,
Late in 2007 we made an offer on a real estate owned (REO) property owned by a small bank. Our offer was substantiated
by then-recent comparables, but was rejected outright. We tried to open another dialogue with the bank through their
listing agent, but were told they had "zero interest" in negotiating with us. The house has been on the market for two
years now! The bank, by the way, gets a two-star rating on the Bankrate
Safe and Sound list. I wonder: What gives?
-- Kim L.
Dear Kim,
Good question. Your frustrations are not uncommon. Banks were never set up to be long-term holders of residential real
estate, much less play the role of real estate negotiator or speculator. As you've found, some can be downright curmudgeonly
to deal with.
Bank asset managers often have little or no real estate background and can be overwrought by high foreclosure
volume or have their hands tied by market uncertainties and unrealistic parent-company expectations. Some smaller banks haven't
dealt with enough volume to know how to streamline their dispositions.
Typically, an REO property gets relegated to an asset manager's already bulging portfolio after no one at the
foreclosure auction or courthouse sale was willing to pay the institution's minimum. Even though banks today are selling off
REO properties for, say 75 cents to 90 cents on the dollar, the bank in your case may have thought your initial offer was
absurdly lowball and quickly dismissed it -- and you -- perhaps without justification.
Most bank asset managers will first get a broker's price opinion, or BPO, on a property and, in the case of
this property, may have been inflated and never modified to reflect the falling market. Or, there may have been one or more
liens on the house, which can drive up the price when those liens must be satisfied as part of the sale.
I would find an REO buyer's agent who is experienced in dealing with bank-foreclosed sales and who better knows
the nuances of each bank's REO policies. Otherwise, you'll still be dealing directly with that same REO listing agent.
You and your agent may well benefit from resubmitting and redating the initial bid. You did submit comparables,
but did you also furnish repair estimates or photos to justify your offer, assuming it was somewhat lower than those comparable
sales?
If you're not dead-set on getting
that house, but still seek an REO bargain, you
might just have to move on to a more flexible
bank. If you have a steely resolve and can afford
to be even more patient in this instance, the
bank's board and (or) shareholders are bound to
start complaining soon about all the REO expenses
eating into their already thin profit margins,
which could loosen things up for more sales.
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