Clark Farley

If the previous installment of 'Are Asset Managers Predictable...' was heading out into the land of unreliable assertions, this entry will jump with both feet into that environment.

We can see that the behavior of most Asset Managers is predictable because the asset managers' latitude in the decision making process is quite proscribed. There are guidelines for interpreting guidelines. I often describe the way asset management companies conduct the business of selling real estate as "Imagine the DMV (State Department of Motor Vehicles) goes into the real estate business".

All of the individual initiative and case by case flexibilty and none of the accountability that is demonstrated in the functioning of most governmental agencies. But I digress...

The inclusion of contingencies in Offers on bank-owned properties is quite acceptable provided it is understood that the properties as being sold in an 'as is' condition. (In fact, there will most likely be a page or section of the counter offer/addendum from the bank to that effect.) That being said, you can include an inspection and mortgage contingency in an Offer. And the Seller will (usually) respect that contingency. And it goes a long way to protecting your Buyers interests.

As to the results of (a) Buyers' Inspection, most banks/asset companies will not put up major resistance if you want to cancel the contract due to issues found in a Buyers Inspection. As with any contract, be sure that your buyers get the appropriate advice from their attorney/legal counsel before this situation arises.

More and more we are seeing the banks/asset companies directing the Listing Agent to do repairs to properties, not just prior to marketing, but in the course of negotiations. In one recent experience a roof was replaced as a result of Buyer Inspection(*) and another more remarkable case, a whole septic system ($14,000. plus)! But then again, most of us know that you need to do something at times to get a property sold at a good price.

(*) Funny story about the roof; the Buyer could see the condition of the roof (poor) when they first saw the house, but after getting a contract subject to inspections, the Buyers came back after Inspections with 'Needs a new roof' and an estimate from a roofer for some amount about twice as high as it should be. The bank's response was 'sure we'll do the roof prior to closing'. Two new estimates were obtained and roof went on and the property closed. It has been suggested that the idea of the high estimate was to drive the Selling Price down and not bother with the roof, but that would not have been right, so that can't be what the Buyer was thinking.

With REOs becoming more and more common in terms of the deals being made, the first question often is: "How does it work with these Bank properties?" This being the question from the Buyer's Agent, of course. Usually the question is being generated by concerns on the part of the Buyers (through their agent), I will normally describe the process as being essentially the same as any other Offer/Sale in that the Local MLS P&S/Offer form is used, deposit and pre-qual letter. Special emphasis on the pre-qual letter as the Asset Manager will not consider an Offer without it. Other than that, there is no real difference between REO properties and other properties, at least in the initial phase of a Offer/Negotiation.

Once an Offer is made, then things get interesting. Surprisingly or not, many agents are confusing foreclosed properties with short sale properties, at least to the extent of anticipated turnaround time on the Offer. While it seems common with short sales for the bank to take days, weeks (even months!) to accept an Offer, with an REO property a counter to an Offer should be returned in days. Not noticeably different than any other property. With most asset companies a counter is forthcoming within 2 days.

Where REO transactions are different from private sale transactions is found after the Offer is accepted, but that is for another blog (to gather points and readers).

To the question of predictability of Asset Managers; they are not Owner Occupying Sellers! The urgency for Asset Managers is directly related to DOM/return for investor/Title Holder and the end of the month stats.

Often there is a 'formula' for the response to Offers based on DOM. The less the days on market, the less the response. (This is not unlike the response of an Owner/Seller who says, "We have one Offer in the first week, lets wait and we will have 2 Offers in the second week!") By and large the Asset Managers will not show a lot of initiative/creativity in responding to an Offer until the property has been on the market for a significant length of time, 60 days or more.

A part of the process of selling REOs (for the Listing Agent) is that every 30 days a Monthly Status Report is required by the Asset Manager. If there is going to be a price reduction, it will come on day 32 or 33 (or 62/63) days into the listing.

So if you have a Buyer who is considering putting in an Offer and the property is on the market for 29 days, you might consider waiting to see if a reduction shows up in a couple of days.

(Next blog: What about Contingencies?)

The increasing numbers of foreclosed properties coming on the market is having an effect that extends beyond simply competing with 'normal' resale properties. We can all see the direct effect as the prices these properties are getting are undercutting the market value of non-distressed properties.

The most insidious and damaging effect is on the marginal properties on the market; the 'short sale' the last ditch effort to get out from under an In-bearable mortgage. Most short sellers will be over optimistic when pricing, do not get sold, chase price and still do not sell. Add to this the increasing number of foreclosed properties and you get short sales becoming foreclosures. By some accounts up to 45% of the short sale properties become foreclosed properties.

Which adds to the supply...

(Blackholes draw everything near into itself and by doing so grows stronger allowing it to draw matter that is farther and farther away, and grows.)