Bruce's Tips On Writing An REO Offer

 Writing an offer on a Foreclosed Property (REO, Bank Owned)

This is a guide to writing an offer on a “Bank Owned” or Corporate property, (Otherwise known as an REO).  By understanding the process, you will reduce the stress on everyone involved and greatly increase your odds of completing a successful transaction.

Review these items with your buyer prior to submitting an offer. Also, review this with your staff, escrow coordinators, assistants, managers and loan officer.  Everything you need should be in this document.  If, after reading this, you have any further questions, please contact my staff or me.

The REO process is much different than a typical retail sale.  The seller calls the shots.  Some terms may be deleted from the usual contract, some terms may be added that are not familiar.    Please understand this.

The Listing Agent (REO Broker) is simply a conduit between the Buyer’s agent and the Seller.  The Listing Agent does not have any power or say as to what the terms are and has little or no negotiating power or influence.

Do not cause this sale to be extended.  Close of escrow date is extremely important to banks.  Typically a financial penalty is imposed upon buyer and buyer’s agent if escrow does not close on time.  It is imperative that you stay on top of all inspections, appraisals and the lender to get duties performed in a timely manner.

The Seller will not normally negotiate after they ratify your offer.  Negotiate all terms prior to ratification to minimize problems during escrow.

Sellers appreciate serious Buyers.  Please be absolutely sure the Buyer is ready and willing to go through with the purchase.  Flaky buyers reflect poorly on your reputation if the deal goes bad.

Avoid writing significantly low or questionable offers.  We understand every buyer’s desire to get a “Super Deal”.  Unless you can document why the Seller should take significantly less than the asking price, please don’t write the offer.  The Seller has at least two different Broker Price Opinions (BPOs) and probably several appraisals.

THEY ARE NOT INTERESTED IN LOOKING AT SERIOUSLY LOW BALL OFFERS OR BUYERS ATTEMPTING UNLAWFUL OR “SHADY” DEALS.

Pre-Approval.  Start the loan process prior to making an offer.  This avoids surprises and will save the Buyer from paying their per diem penalty or even losing the Earnest Money Deposit (EMD)

Corporations, LLCs, Trusts When submitting an offer from a corporation , LLC or Trust, you must include the Secretary of State documentation stating the ownership names.  The deposit check for the offer must be in the name of the Corporation, LLC or Trurst.

Recent Lender Approval Letter Lender letters must have been dated within the last 30 days, lender letters submitted with approval date longer than 30 days will be sent back as a request for an updated lender approval.

Proof of Funds.  Don’t wait for the Seller to require it.  Send Proof of Funds with your offer.  Do not risk your license.  Not having a deposit when you write one in the contract is fraud on your part as a licensee.

DO NOT CHANGE LENDERS, LOAN TERMS OR PROGRAMS WHILE IN ESCROW.

Submitting an Offer:  The bank will require that we submit all offers to them on a summary form, which is called the “Offer Worksheet”.  This is aimed at simplifying the process for the Asset Manager,  will more often than not have a large number of properties under management and often in multiple states with vastly different real estate contracts.  This worksheet will have the “basics” only.  (Price, Terms, Concessions, Closing dates, etc).

ALL OFFERS MUST BE SUBMITTED WITH A COPY OF THE EARNEST MONEY DEPOSIT, OFFER WORKSHEET AND LOAN APPROVAL LETTER.

Deposit check should be made payable to:  ____________Title Company.                                                                              This is just a copy for now.  Once ratified the title company will be assigned and the check can then be completed with the appropriate name.

Please be sure that buyer has deposit funds available NOW.  If an offer is accepted, the seller and DRE, expect deposit money to be deposited within a short period of time.

PLEASE DO NOT ENTER ANY NAME(S) FOR SELLERS ON ANY DOCUMENTS.  TAX RECORDS DO NOT ALWAYS REFLECT THE CURRENT SELLER OF RECORD.

We prefer that all offers are emailed to bruce@eCurbRealty .  If you are not familiar with this process you can fax offers to 916-226-5054.  Do not send offers that are not signed by all the buyers on the contract.

What form should I use?  You should submit your offer on a standard C.A.R form (RPA-CA) unless otherwise noted in the “broker’s remarks” section of the MLS.  Please check the broker’s section to see if you need to download and attach any specific addendums.                                                                                                                                           

How soon will the Seller respond?  We have no control over the bank’s decision-making process.  On most occasions they will respond in the first 48 hours.  However, more than likely they will respond in 3 to 5 days.  Please be patient and do not call the listing agent to check on progress.  The listing agent will notify you immediately when they get a response.  Some banks do not look at offers until the property has been on the market 5 to 10 days.                                                                                                                                                                 Please be considerate, we are all working towards the common goal of closing on the subject property.

DO NOT ATTEMPT TO CONTACT SELLER or ASSET MANAGER.                                                                                        THIS CAN JEOPARDIZE YOUR TRANSACTION.                                                                                                                         ALL CONTACT MUST BE MADE THROUGH LISTING AGENT.

Will I get a response over the weekend?  No, any offer submitted over the weekend will be presented the following business day.  Do not expect the Banks or us to be available on weekends.

How does the Bank counter?  Since all offers are submitted to the bank on the worksheet or submitted online, your counter offer may come back in the “worksheet” format (Simple details of what the bank is willing to accept) or via an unsigned Counter Offer.  It may possibly be verbally presented through the listing agent.  If there are multiple offers, the bank will typically verbally counter all with “highest and best”.  This means come back with all you got and the bank will choose at that point.  They will likely not counter after that.  PLEASE read the counter offer completely and be sure your buyer understands ALL terms.

It looks like the Seller didn’t sign the Counter Offer – You may receive a Seller’s Counter Offer with no signatures.  These forms are generated by the bank’s Asset Manager or the outsource company (and often come to the Listing agent as an email attachment).  Once an offer is accepted the entire “package” (which may include the Offer as well as Counters, Addendums, copy of check, et al.) is sent to the bank for signatures.

Are these verbal agreements?  Once you are informed that your offer is accepted, it is.  (Acceptance may be accompanied by the aforementioned worksheet).  REO departments and Asset Managers give the “ok” and then go to their managers for signatures. (It is unlikely to have an Asset Manager “unaccept” an accepted offer.  Yes, you could be the first, but it is highly unlikely.)                                                                                                                          We realize it is an unusual business practice to agree to offers orally, but the banks have their own way of doing business and we appreciate your understanding.

IF YOU ARE NOTIFIED THAT YOU HAVE AN ACCEPTED OFFER                                                                                     PLEASE FORWARD THE OFFER TO YOUR LENDER SO THEY MAY BEGIN THE LOAN PROCESS                                         AT THIS POINT THE CONTRACT AND ADDENDUMS MAY NOT BE SIGNED BY SELLER AND IT MAY TAKE A FEW MORE DAYS BEFORE RECEIPT OF A FULLY RATIFIED CONTRACT.                                                                                          IF YOUR LENDER HAS A PROBLEM WITH THAT, INFORM THEM THIS IS AN REO SALE.  THAT SHOULD SATIFY THEM IF THEY ARE FAMILIAR WITH THE PROCESS.                                                                                                                                   IF NOT HAVE THEM CALL ME       

Who chooses the Escrow and Title Company? – The reality is, when buying a bank owned home there are “gives and takes”.  One of the items your buyer will need to be flexible about is that the bank will, more than likely, choose the title and escrow companies.   (The Listing Agent has no say in the matter either – I have my favorite Escrow companies and Escrow officers too, so we are all in the same boat.)  This is due to the fact that they have significant amounts of title work done during the Foreclosure process.  ESCROW COMPANY CONTACT INFORMATION COMES WITH THE SIGNED DOCUMENTS FROM THE SELLER.  While you may be anxious to send in the buyer’s deposit to escrow, the Listing Agent MAY NOT HAVE this information prior to receiving the documents back from the bank.  You will be notified when we are informed whom to use.  Continued multiple and/or daily queries slow down the process for everyone involved.  Please be considerate, we are all working towards the common goal of closing on the subject property.

AB 957 has recently been enacted that precludes the Seller (Bank) from requiring the Buyer to use the Sellers choice of escrow & title.  If you intend to ask for Buyers choice in escrow & title, please know that most clients will no longer pay any costs of escrow or title if the Sellers choice is provider is not used.  What this means is the Buyer will be responsible for 100% of escrow and title fees and could include any additional fees charged by the Buyers choice provider.  Most clients will continue to pay "customary" closing costs if the Sellers choice of escrow & title are used.  This does not mean the Seller is requiring the Buyer to use their provider but the Buyer is simply responsible for 100% of fees charge if they do not use the Sellers provider. 

Time frames?:  Generally you will have 30 to 45 days from mutual acceptance to close the transaction.  Often the proposed closing date on the original offer is unrealistic due to the elongated negotiation and acceptance process with the REO departments.  The Asset Manager knows that you can’t close in a week and a half (unless your offer is cash).  They are not here to work against you.  Asset managers know the appraisals, inspections and the loan process take time.  They will assume that you have taken the time prior to making the offer to become pre-approved for the loan and that there will be no trivial delays beyond the 30 to 45 days closing period.  Read the Bank Addendum carefully – there is often a per diem late fee assessed for tardy closings.  The bank will not suffer delays due to the Purchaser’s Lender not performing in a timely manner.  Begin your inspections upon being alerted that your offer is accepted.

Can the Buyer do Inspections?   Just like any other sale, your buyer has the right to fully inspect the property within the frame of the purchase agreement.  Seller will not order or pay for any inspections.

How do we set up inspections?  It is Highly Recommended  that you give us 3 BUSINESS DAYS NOTICE PRIOR to scheduling your inspection.  Some utilities (such as electricity) will likely be on prior to your making the offer, others will not (such as gas or propane).  The Listing Agent will not be responsible for re-inspections and/or associated fees.  It is not a bad idea to visit the property a day PRIOR to the inspection to check is systems are on and working.

Can the Buyer cancel is they find something wrong?  The buyer has the right to cancel the contract and receive their deposit back if they so within their contractual time.

Will the Seller pay for repairs?  Please notify your client this home is being sold “AS-IS”.  If the bank has rehabilitated the home, their scope of work has already been determined and can not be changed.  As a rule, ONLY issues which are LENDER REQUIRED will be addressed.  REO Asset Managers  are VERY familiar with what constitutes a Lender Required repair and will not approve “cosmetic” “dated” or “wear and tear” related issues.  Non-Lender Required issues can be accomplished by raising the price and having the Seller “credit back” for the repair.  Generally, these repairs will not be authorized to be completed prior to closing. (Total Buyers Credits should not exceed 6% of the sales price and in most cases, No Commission will be paid on the amount credited typically)

Will the Seller pay for and get Pest (termite) inspection?    Probably not.  If this is a requirement of your buyer’s lender then you should expect to order and pay for that inspection.  If the lender has paid for one, it is for disclosure purposes only.

What if there are Section 1 items on the Pest report?  Your buyer’s lender may have a stipulation that Section 1 items must be corrected prior to close of escrow.  Please be aware that your buyer will, more than likely, be responsible for correcting those, not the bank.  We suggest you get your termite inspection done well within your contingency period to determine your obligations.

Does the Seller offer Financing?  Not usually.  If they do, it will be noted in the MLS.

Contingency Periods?:  Your buyer must adhere strictly to the contingency periods or they risk having their contract cancelled and losing their deposit.  This is a business transaction and banks don’t like excuses or delays.  Most banks institute a “per diem” charge for delaying closings.  Please pay attention to these time frames and provide contingency removals to listing agent in a timely fashion.

Will the Seller accept Contingent Sales?  It is highly unlikely that any bank would accept an offer contingent upon the sale of another home.  If the bank accepts your offer then finds out that the buyer really does need to sell a home in order to purchase (and you haven’t disclosed that) the sale will immediately cancelled.

Disclosures?:  REO disclosure is different than retail.  You will get a NHDS, smoke, lead, water heater and a TDS with only agent remarks and HOA docs if applicable.  Seller will not sign anything that is not legally required of them.  You will likely get these disclosures without the seller signature at first, and typically not until ratification.  Although all required disclosures will be provided to buyer with listing agent signature, Seller signatures may never come.

Can I add or delete Buyer once in contract?:  All changes must be made in writing and ASAP.  There are many levels and channels to go through to an REO sale.  Everything takes time.  This still does not guarantee that the seller will agree to any changes.  If your buyer is married and plans to buy as married be sure to write the contract with both husband and wife prior to submission.

CAL FHA, FHA, Special Programs:   If your using a program like Cal FHA that requires the seller to sign a statement or certification, send the copy with the offer.  Any delays to the escrow time period because your lender did not get the certification to us in time will be your buyer responsibility.  Be sure to ask your lender about any special forms needing Sellers signature prior to writing the offer.  You will get a faxed copy within a few days and the original will be forwarded to the title company, be sure to follow up with title.

Credits to Buyers:  Banks work on the “net” price when it comes to offers.  They evaluate every offer on what it nets the bank.  Commissions will not be paid on any credits made back to the buyer typically, expect this.  Banks will typically only consider credits up to 3% of the sales price, lenders typically cap this amount to 2%, verify with your lender.  If you are requesting any higher credit for buyers, you need to send a truth in lending statement reflecting the higher amount and you may be required to provide an underwriter letter stating the higher credit is allowed under the program.

Declining Markets / Appraisals:  If your client is 100% financing, in order to be considered you must provide an underwriter approval stating your client is credit approved by an underwriter and the program allows 100% and is not subject to the “declining market”  requirement imposed by Fannie Mae in early 2008.  Offers without this documentation will not be considered by most of our clients due to the high fall out numbers currently happening.  This factor is less material to the current market as 100% financing is not normally available, please provide documentation that the program is currently available if you are submitting a 100% financing offer.

Double Lender Applications:  With the instability in the market as well as the continued erosion in honesty and ability of some loan brokers to close loans, we do require double loan applications on most of our properties.  What this means is if you do not have an underwriter approval with condition to send along with your offer, you will need to include a letter from one of our direct lenders stated below.  This will be mentioned in the Agents Only section of the MLS but it is a good option to obtain one ahead of time regardless.    This is an attempt to protect our clients’ interests and not an attempt to steal your client.  In most cases if you send a underwriters approval showing buyer is credit approved, we will waive the double app requirement.  Here are the direct lender contacts:

Wells Fargo   :         Eric Christensen   Office 916.214.9300  Email:  eric.christensen@wellsfargo.com

Bank of America :  Contact our office for current contact

Prospect       :           Contact our office for current contact

Offer Submission Recap:

o    Executed CAR Purchase Agreement (No Assignees, No Letters of Intent)  Signed By All Parties

o    Pre Approval Letter With Credit Scores of Borrowers, Direct Lender Letter if Stated In Agent Only Section of MLS.

o    Copy of Earnest Money Deposit (Not having the earnest money when writing an offer is fraud)                                  (Typically on 100% financing, the banks will require a 1% earnest money deposit)

o    Offer Worksheet

o    Fax All Legible Copies to 916-226-5054 or email to bruce@ecurbrealty.com

Communication:   Everything you need to know is answered here.  If by chance you have additional questions or concerns, please start with my assistant Anthony Garcia at 916-226-2700.  Otherwise, email for me is the best form of communication and my email is bruce@eCurbRealty.com .  Once we get into contract my transaction coordinator is eCurb Transaction Services and they will handle all paperwork, the number is 916.226-2700 and the email is transactioncoordinator@eCurbRealty.com  .   

Misc. Items:

1.        I will not return calls pertaining to “what’s the lowest my client will take”.  This is not something my clients share with me and not something I would disclose without my clients permission. 

2.        Please do not expect a call back from me before you show a property, the level of calls I receive are high and I return them in the priority of the content.  Calls pertaining to information already in the MLS will not be returned.

3.        We do not provide the combinations to our lockboxes to anyone besides our vendors.  They are not placed on the properties for showings.  You should maintain your MLS key active in order to show properties.

4.        Pay attention to your lender letters.  If they are poorly written this may affect your clients ability to compete against other offers.

5.        Understand my co agents do not always know what I am negotiating at the time of your call.  If they tell you we do not have offers and this is important to you, send me an email. I encourage everyone to send their offers in at the highest and best level unless I have informed you we have an accepted offer.

6.        PLEASE make sure your contact information is on your fax cover sheet or somewhere easy for me to find.  Make sure your information is updated and correct.  I send most communication by email so please check that prior to calling me for a status.

7.        Once you receive a counter, respond promptly.  If another offer comes in you may lose your position and we may accept another offer.

8.        I WILL NOT discuss other offers with you.  Submit your highest and best offer and let the offer compete on its merit.  My loyalties lie with my client so please have faith in your abilities to write an offer and submit a complete, clean offer and choose a good lender.

9.        I will not return calls asking me “how to get into REO”.  My business is selling real estate, not teaching agents things that are readily available through SAR training or leading Sacramento real estate companies that are experienced in REO.  Please understand this ahead of time.

Thank You For Your Interest!