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REO transactions can unsettle even the most experienced agents. Yet avoiding these transactions would mean avoiding a lot of the action in today’s market. According to data from the National Association of REALTORS®, REO transactions accounted for 48% of Arizona sales in the second quarter of 2009. Instead of avoiding these deals, are there steps you can take to make them easier on yourself, your client and the other agent?
You bet. AAR talked to agents on both the listing and buying sides of these transactions to find out sources of frustration as well as simple ideas for improving relations and getting the deal to close. Some of these things might sound basic, but even the most experienced REALTORS® can find tips here to improve their REO game.
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Arizona Distressed Property Sales
TIME PERIOD
4th Quarter 2008
1st Quarter 2009
2nd Quarter 2009
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FORECLOSED
41.4%
55.0%
48.0%
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SHORT SALE
15.0%
19.7%
17.1%
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TOTAL DISTRESSED
56.4%
74.7%
65.1%
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Data courtesy of the National Association of REALTORS®
What a Buyer’s Agent Can Do
Understand the listing agent’s challenges. Before you speak with an REO listing agent, it’s important to understand their side of the transaction. For example, listing agents usually pay out of their own pockets to clean up properties, arrange repairs and get the utilities turned on. They must sign master listing agreements, which shift all liability to the listing brokers.
Listing agents work with asset managers that handle hundreds of properties in dozens of states. These overwhelmed asset managers are generally slow to respond to inquiries. “There’s really nothing I can do to sweet talk an asset manager to get a faster response,” says Joshua Hill of the Hill Group in Mesa, who has extensive experience on both sides of REO transactions. “The banks work at their own pace.”
Set your client’s expectations. Before pursuing foreclosure properties, talk with your buyer about some of the challenges. Sasha Lopez, a buyer’s agent with New Vista Realty Arizona in Scottsdale, addresses this early: “Right up front, we say it’s an adverse transaction.” Banks are unlikely to make buyer-requested repairs to the property. They want to choose the title and escrow companies. They require a lender addendum that strips many of the buyer’s traditional protections. Plus, if the house seems like a great deal, your client can generally expect a multiple offer situation.
Do your property homework. You probably ask that your clients be pre-qualified before you drive them around. To protect your time, it’s important to pre-qualify houses as well. “I ask my clients to send me 15 or 20 [listings]. That way I can call on them,” says Goodman. “Typically half or less are actually available.” While you’re at it, look for other available homes in the neighborhood that your buyers might have missed. Once your buyers find a house they like, find out what work has been done on the property.
Determine the listing agent’s preferred way to communicate. Buyers’ agents have encountered challenges when communicating with some REO listing agents: Voicemail boxes that are perpetually full. Cell phone messages that say “just call back.” Agents who only respond to email or text messages. “I’ve spoken with agents who have 250 [listings],” Hill marvels. “These are the agents that start making ridiculous rules, [such as] ‘I only respond to voicemails between 5-6pm.’”
It’s easy to get frustrated. Still, your goal is to serve your client, and that means getting a deal to closing. Determine the listing agent’s preferred method and use it. Then, meditate on the virtue of patience.
Submit a complete offer. When your buyer is ready to make an offer, carefully review any instructions on the listing. Good listing agents “are very clear about what is necessary in order to present an offer,” says Holly Eslinger, 2010 AAR president and broker owner of Exclusive Homes and Land in Scottsdale, which handles REO portfolios for seven different lenders. “When [buyers’ agents] don’t follow these guidelines, it just delays everything.”
Don’t submit an offer that is missing one of the required documents. And don’t ignore the details, no matter how unimportant they seem to you. For example, one of Hill’s bank clients requires some items to be submitted on legal rather than standard size paper. “[Buyers’ agents] think we’re making this up to make it more difficult for them and just submit it on standard size,” says Hill. “That offer absolutely will not be submitted. These banks make a lot of their own rules, and you really just have to play by them.”
Patrick Schutte with RE/MAX Mountain Properties in Prescott deals extensively with REO buyers and has several blogs, including Prescott-Area-Foreclosures.com/wordpress, which provide advice to consumers and agents alike. Schutte advises preparing an offer summary (with basics like price, terms, closing date and so forth) as a cover sheet. His goal is to simplify the process for the asset manager who has hundreds of properties in different states.
Once you’ve sent your offer, follow up to make sure they received it, advises Goodman. That’s often the only way you find out that something was missing, and the offer was not submitted.
Attract bees with honey—but be as persistent as a fly. From the first phone call, Steve Rook, a buyer’s agent with Mira Vista Properties in Tempe, makes it a practice to ask how he can help the transaction go as smoothly as possible. Goodman acknowledges it never hurts to “be really, really nice to listing agents to build up a rapport.” And, says Hill, stay on it. “You have to have outstanding follow-up on your showings and offers you’ve made.”
Be upfront about multiple offers. If your buyer is making offers on more than one home, the buyer has an obligation to disclose this to the seller. While many buyers are reluctant to do so for fear they won’t be taken seriously, it’s important to act in good faith with all parties.
Understand the lender addendum. “Many of the terms of the AAR contract are countered and removed by the lender addendum,” warns Eslinger. “The lender addendum clearly states that the seller will not provide documents such as the Seller Property Disclosure Statement (SPDS) and Comprehensive Loss on Underwriting Exchange (CLUE).” The lender addendum is non-negotiable. It is imperative that the buyers understand the terms they are agreeing to. “As buyer agents, it’s our responsibility to review and explain what’s in that lender addendum,” says Rook. If the buyer is still confused, urge them to consult a real estate attorney.
What an REO Listing Agent Can Do
Put yourself in the buyer agent’s shoes. No one wants to spend time driving clients to a property, then more time writing a contract, only to discover that the home isn’t really available. And no one wants to face concerned clients without a speck of information to provide them. Respect the time and relationships of the agent on the other side of the transaction. “We’re all in this boat together, and there has got to be a higher level of professionalism from all agents,” says Hill.
Include pictures on the MLS. A small investment of time on the MLS listing can net returns for you in the long run. “There’s really no excuse for not posting 6-10 pictures, even if the property is in bad condition,” says Hill. “The buyer still wants to know the home’s condition.”
Remember, banks may not follow up on the marketing in the short term, but if the property hasn’t sold in 30-45 days, they’ll start asking questions. When you develop a respectable MLS listing, you better serve your client and distinguish yourself from other listings in the market. As Schutte says, “One photo and it’s bad? That’s not right!”
Spell out offer requirements. While you’re in the MLS, take the time to detail what your client requires in an offer. It will save you time in the long run and demonstrate your professionalism to buyers’ agents. “You can tell a lot about an agent from the instructions,” says Hill. Occasionally, ask a buyer’s agent you’re working with if the instructions are clear. Adjust as needed.
You might even consider putting together a fax cover sheet that includes a detailed checklist, suggests Goodman. “The buyer’s agent could plug in their contact information and check off to confirm that each required item is included in the package.”
Keep the listing current. Buyers’ agents report that many REO listings are frustratingly out of date. When you have movement on a property, update the listing’s remarks. Something as simple as “awaiting signatures” (with a date included) keeps buyers’ agents in the loop and helps prevent availability questions from overwhelming your day. “As soon as the lender has given us the okay that they’ve accepted an offer, we immediately put that in ARMLS, so the agents know where they stand when they work with us,” says Eslinger.
Be responsive. Without a doubt, the most common complaint from buyers’ agents is that REO listing agents are unresponsive. Schutte understands that it’s often the asset manager that is the hold-up but says, “I wish [listing agents] would communicate with me better than the bank is communicating with them. Text me back—even if it’s ‘I don’t know’ or ‘Nothing yet.’”
If you know you can’t respond in a reasonable amount of time, say so on your voicemail message or on an auto-response email. Then, provide the other agent with a general timeline and instructions on the best way to reach you—email, text, etc. “The most important thing is that you have open communication,” Eslinger. “If the agents know what is expected, most can deal with it.”
And remember, says Eslinger, sometimes a phone call is still best. “I don’t believe that you can handle problems by email. I believe that you have to have a one-on-one communication with the other party.”
Assume You’ll See These Agents Again
“The one thing that we don’t want to be with each other is adversarial,” says Eslinger. “It takes both agents to keep everybody working to a successful closing.” If you and the other agent are able to work well together, it will be even easier the next time around.
In a people business like real estate, your reputation follows you. “When this cycle is over, we’ll be the same agents dealing with each other,” reminds Rook. “Think about the future.” Running your business with professionalism and courtesy in a tough market pays great dividends when things improve. It’s not only ethical, it’s smart.
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