REO Brokers: Your New Best Friends!
One of the major sources for acquiring bank-owned properties is REO (Real Estate Owned) Brokers. These real estate agents are commissioned by the bank to sell the bank’s foreclosed properties. They work with one or more asset manager(s) to rid the bank of its toxic assets. Developing relationships with these people is essential to your acquisition process.
The easiest way to find REO Brokers is to do a search in your city’s multiple listing service for bank-owned properties. Most MLS programs will allow you to search using “Foreclosure” as a cri- terion. Find the foreclosure listing and the agent’s info will be on the listing. If, however, you are not a Realtor and don’t have access to the MLS, there are other ways to track these valuable assets down. Begin by checking out www.zillow.com and www.Realtor.com. Most Realtors will publish their listings to these websites to gain maximum expo- sure. In addition to checking out these sites, drive the areas in which you’re interested in buying. Look for properties that appear to be abandoned.
You’ll find yard signs with Realtor names and phone numbers. Many times the yard sign will also include the word “FORECLOSURE” so you know for sure the property is bank owned.
HOW TO GET IN WITH AN REO BROKER
Now that you’ve located a handful of REO Brokers, it’s time to make contact. While it’s true these guys are busy, it’s also true that they need to make a sale. Once they understand you’re the one to help make that sale happen, you will be viewed less as a pest and more like a legitimate buyer. Understand they deal with “buyers” who blow smoke all day long without ever having any in- tention of closing. You will need to prove your worth to warrant them spending any time on you.
In an ideal world, you’d like to be the first buyer they call when they’ve got a new listing. To do this, you’ll need to make it worth their time. Here are some tips:
- Offer double commissions. If you have a real estate license, forego taking any commission on the foreclosure you’re intending to purchase. You can say something like this when you send the offer: “You’ll notice that I’ve left the selling agent information blank on this offer. I’d like to offer you both sides of the commission.” Even if you don’t have your license, you can still make sure they get both sides of the commission by asking them to repre- sent you as the buyer.
- Do everything in your power to make things as easy on them as possible! This can be as simple as getting documents signed and back to them in a timely manner. Remember, your goal is to have them remember you fondly after this transaction.
- A thank you note or gift never hurt anyone. A simple thank you note is al- ways appreciated, and if you’d like to be remembered even more, why not send a gift? In the past I’ve sent REO Brokers out to dinner on my dime or gifted them with Apple’s newest toy (for instance, an iPod Shuffle).
GETTING YOUR OFFER ACCEPTED
First, you’ll need to write the offer. A quick Google search should provide what you’ll need for your state.
Hot Tip: As competition has increased for quality investment proper- ties, it becomes even more important to make offers the right way. Remember, you are now competing against a flood of international buyers and the big bad hedge funds.
Next, you’ll need to email/fax your offer to the REO Broker. Be sure to include the proof of funds along with the offer.
CREATE A SYSTEM FOR MAKING OFFERS
Create some criteria and use them to determine your thresholds for buying. For instance, decide that you will pay $50,000 TOTAL (initial investment + rehab costs) for a 3 bed/2 bath block property and refuse to budge from this stance. Keep your emotions out of it! You will not be living in this house. It is strictly a moneymaker as far as you’re concerned, so the floor plan should only matter from a “Will my prospective tenants like this?” perspective.
THE COUNTER OFFER
When the bank counters your offer (and they most likely will!), be prepared to defend your original offer if you’re already at your threshold. I would suggest sensationalizing the inspection to work them down on price. For instance, have your contractor/handyman create an estimate that includes every single possible repair. Be sure the estimate reflects retail (read: inflated) pricing as opposed to the investor pricing that he typically gives you. Depending on the asset manager handling the file, this may impact their willingness to work with you on price.
At times you may find that you have a lot of competition on a particular property. If you get outbid, it may be worth your time to contact the investor who got it and see if you can work out a quick deal. Many times the other investor may want to flip it over to you for a quick $2k. If the numbers still work for you, you can move forward. If not, move one. But don’t ever begrudge another in- vestor when they make a profit. That usually just shows misplaced aggression stemming from jealousy and feelings of inadequacy. (That’s my Psychology degree coming out. Analysis free of charge!)