As an Exclusive Buyer's Agent here in the Chicago market, I can tell you that multiple offers for REO properties with it's subsequent, Highest, Best and Final offers is becoming very common. I would like to use this forum to express my utter frustration and anger towards the system currently in place to handle these multiple offer scenarios.To make it simple; WHY DOES THIS NEED TO BE A 'CLOSED BID' process???? To make it easier and more fair in my personal and professional opinion I advocate an OPEN BID platform whereby the end buyer/investor can see the other bids and adjust their HBF accordingly. The closed bid has a great flaw in that the buyer/investor who really wants the property is 'shooting in the dark' without knowing what the 'other guy' is thinking. I appreciate that Banks and Asset Managers believe this will yield the 'highest' offer but I think they can arrive at that number by opening it up.The downside to this as I speak with my clients presented with these multiple offers is they get discouraged and frustrated with the 'buying a foreclosure' process and we as Real Estate and Banking professionals LOSE credibility and trust due to the perception that we are GREEDY and playing games. Why not have a transparent OPEN BID (ie. Auction) scenario which will most probably arrive at the dollar amount the seller wants and give the buyer their 'best shot' so at least they see where they need to be versus 'winging it'.Oh how it would SUCK if my client today loses a HBF offer on a beautiful SFR because they were off by $1,000 on their offer!!!!!
All good comments folks. Cindy, of course we all know that the final offer is only one of many other factors. We also all know that this is not intended to be an auction. Just an open transpararent forum among buyers who are bidding on the same property. I don't really believe buyers these days will pay way over FMV. I think the vast majority of buyers know their respective markets and will offer accordingly. To Jon, I reject the notion that buyers will get 'buyers remorse'. If they do and certainly there will be a percentage who do, then so be it. Thats all part of the business!
I forgot to mention that the client has a FICO score of 820 and stable job history of 15 years. The paystubs, bank statements and social security number were provided to the loan agent in order to get the pre-qual. These docs were also presented along with the offer. Although I had doubt that the appraise value might not be up to $340K, however, my client would have pay the difference to meet lender's requirements.
First of all, REO's are not auction properties (yet). The AM looks at more than the list price, they look at type of financing, creditworthiness, closing date, concessions, etc not just the amount offered. I.E., What if there were "open" bidding and the property was listed at $250,000 which is the FMV, but you have several buyers making offers and they each know what the highest bid is, so another buyer offers $275k, he is the highest. Goes under contract and 5 days before closing the appraisal comes in at $250k, Uh oh! - The AM's know that there is a strong possibility that if they take the highest offer and it is over list price, that the property will not appraise for that higher offer. I have had multiple offers on most of my properties and the AM's DID NOT always take the highest. The AM's will also ask the listing agent, in some cases, which they feel is the best offer.
I guess this would be a great platform to vent some frustration since I can relate to this subject of close bid and ethical/unethical value from my recent miss opportunity… I recently submitted an offer for my investor client that was $42K above the list price of $299K. Our offer had 30% down with conventional loan that is pre-qualified by a loan agent that was specifically requested on the REO listing. Five days later I received an email stating the bank had accepted another offer and that our offer was officially rejected. Two months later I found out from the MLS that this property had closed at $305K with conventional mortgage. The difference is $37K that the bank would have recovered for the foreclosure expenses on this particular asset. Now, does it make any sense as to why the asset manager would turned down our offer? Talk about frustration! Could there be some ethical violation here due to closed door bidding process?
I wrote to the listing agent asking if there could be some reasonable explanation as to why our offer was rejected so that I can properly explain to my client. The agent responded that it was all the bank’s decision and that there are other higher offers that were rejected as well. I wish I could find out who the asset manager is and write to him or her.
Before my client come up with the offer amount, I presented the CMA to them and I advised them that the estimated market value for this property is in the range of $300K – $320K, however, if factoring in the current REO market condition, this property could probably be sold as high as $340K. The client had missed out on many other opportunities before due to under bidding and this time willing to take my advice to heart. They wanted to beat what the other guys are thinking, therefore, wanted to come in at $341K. However, it’s ironic that it only sold at $305K which put me in a quite awkward position since I don’t have the answer as to why our offer was turned down.
I'm from the OC, Southern CA area where REO properties are are super hot. These properties are sold within 1 to 2 days and some are even sold before it goes on the market. I have personally seen many REO listings where the sold price could go as high as $120K above the list price; however, the average is about $30K above list price. Many first time home buyers have the wrong expectations approaching the OC market and are in for a big surprise when they start submitting offer.
I'm not sure how close bidding would benefit the bank when they would turn down an offer that would gain them an additional $37K?
Wellllllll. One reason is that this can be an incredibly cutthroat business. Present company in REOpro excepted, of course. Seriously though, think about it - where does the process stop? Do we make it an auction? One of the things that you seem focused on is price too. Frequently, price can be the most negotiable aspect. I have seen low bids win because it's a cash deal - quick close. At the end of the day, the asset managers want what is going to produce the best outcome for their client with the least amount of time expended on nit-picky items. The last low bid I had win was based upon the fact that they asked for no due diligence and signed the addendum in advance. The asset manager knew for a fact that this puppy was going to close. It makes a big difference. Good luck on the next round.
My concern with an open H & B is that the buyers would get into a heated exchange and impulse purchase the property to "beat out" the other bidders. While this seems like a good idea up front, I think there would be far more buyers backing out when they are out of " the heat of battle" and get cold feet. It is fun to win, but in a week, they will begin to wonder if they overpaid due to the emotional factors that would not have been nearly as significant with a closed bid process. There might originally be higher offers, but fallout, I believe, would be much, much higher and it would take longer to get a property contracted and closed.
I like the idea of a buyer carefully considering how much a property is worth "to them" and what they are willing to pay regardless of what other buyers may be doing. Just my 2 cents woth.
I appreciate your comments Bill. I don't take this the wrong way at all. The reality is that we are now in a market where the mentality is, "How low can I purchase this property for". Why would an investor want to offer for example $250,000 if the market is at $235,000? Same goes for a home buyer. No one wants to leave money on the table as you all know. My argument is that at the end of the day the Seller will still get their 'strike price' with an open bid process.
Henry - please don’t take this the wrong way (or personally) but it doesn’t sound like you are working with investors, more like speculators who are trying to get the best deal possible at the cost of our clients; the Bank.
One would hope an investor is making an offer based on their investment goals, ROI analysis and or Cash Flow projection. If done (offer placed) based on “THEIR” requirements then HAB is exactly that - the most the investor is willing to pay and still get the ROI they require. BTW - it’s ”my” personal opinion that the agent needs to be involved in obtaining, providing and calculating these analyses.
Of course for a primary buyer things are different and you really do need to discuss the “utility” (i.e. location, schools, neighborhood, etc) involved with the purchase. However, and I’m sure you do this all the time, explaining to a primary buyer that the cost of a HAB offer at $2,500 over asking (assuming the property will appraise) will only cost them $15 bucks a month ($180 bucks a year) is really an easy sell (heck - offer to pay 18 months of the difference for them ($270))
Listen - the reason the banks do what they do is because it benefits them and that’s the way it should be. We need to advise our investor clients for what’s best for them (on either side) and if a property meets an investors criteria (CAP, ROI, CF or whatever) up and to a number, that is what the HAB offer should be and no more. Now for a primary to miss an opportunity for “$1,000” ($6 bucks a month), I’m just not sure we’ve done our job (at least as good as the agent who got the AOS accepted)
Stop with this ethical nonsense! There is NOTHING unethical about knowing what competing offers for a property is. Where and what is the ethical violation? What am I missing here? If the end buyer understands the rules of engagement whereby a lower 'all cash' offer or lower offer with better terms and conditions is accepted then that is fair game. We as Real Estate Agents have a responsibility to the PUBLIC at large and not only your client the Bank!!! Closed bids is a one way street and does not in any way help the buyer/investor.
I think you are right....about sharing the amount. At an auction they "hear" the amounts being offered and in the heat of the moment will get the offers higher as a rule. We have had it so ingrained into us not to divulge offered amounts that it has rolled over to the REO properties, which for the most part are far different that "owner" offered sales. I guess the best way to find out if it is ethical in the area you work in to check with your Association's legal or DRE. Any other thoughts?
Comments
I wrote to the listing agent asking if there could be some reasonable explanation as to why our offer was rejected so that I can properly explain to my client. The agent responded that it was all the bank’s decision and that there are other higher offers that were rejected as well. I wish I could find out who the asset manager is and write to him or her.
Before my client come up with the offer amount, I presented the CMA to them and I advised them that the estimated market value for this property is in the range of $300K – $320K, however, if factoring in the current REO market condition, this property could probably be sold as high as $340K. The client had missed out on many other opportunities before due to under bidding and this time willing to take my advice to heart. They wanted to beat what the other guys are thinking, therefore, wanted to come in at $341K. However, it’s ironic that it only sold at $305K which put me in a quite awkward position since I don’t have the answer as to why our offer was turned down.
I'm from the OC, Southern CA area where REO properties are are super hot. These properties are sold within 1 to 2 days and some are even sold before it goes on the market. I have personally seen many REO listings where the sold price could go as high as $120K above the list price; however, the average is about $30K above list price. Many first time home buyers have the wrong expectations approaching the OC market and are in for a big surprise when they start submitting offer.
I'm not sure how close bidding would benefit the bank when they would turn down an offer that would gain them an additional $37K?
I like the idea of a buyer carefully considering how much a property is worth "to them" and what they are willing to pay regardless of what other buyers may be doing. Just my 2 cents woth.
One would hope an investor is making an offer based on their investment goals, ROI analysis and or Cash Flow projection. If done (offer placed) based on “THEIR” requirements then HAB is exactly that - the most the investor is willing to pay and still get the ROI they require. BTW - it’s ”my” personal opinion that the agent needs to be involved in obtaining, providing and calculating these analyses.
Of course for a primary buyer things are different and you really do need to discuss the “utility” (i.e. location, schools, neighborhood, etc) involved with the purchase. However, and I’m sure you do this all the time, explaining to a primary buyer that the cost of a HAB offer at $2,500 over asking (assuming the property will appraise) will only cost them $15 bucks a month ($180 bucks a year) is really an easy sell (heck - offer to pay 18 months of the difference for them ($270))
Listen - the reason the banks do what they do is because it benefits them and that’s the way it should be. We need to advise our investor clients for what’s best for them (on either side) and if a property meets an investors criteria (CAP, ROI, CF or whatever) up and to a number, that is what the HAB offer should be and no more. Now for a primary to miss an opportunity for “$1,000” ($6 bucks a month), I’m just not sure we’ve done our job (at least as good as the agent who got the AOS accepted)
JMOFWIW
-
1
-
2
-
3
of 3 Next