REO Help and Advice for someone new starting out

1 Reply

REO question.

I am new to real estate and trying to learn as much as I can - BIGGER POCKETS community is great!

I have been going to the real estate foreclosure auctions, so when a property goes to auction either people bid on it and win (yay) or the upset price is too high and "it goes back to the bank" After that is where I am getting lost. From what I understand this is where it becomes an "REO/Bank owned property" and the Bank has agents it works with that is supposed to get a number of bids - with proof of funds, and submits them to the bank and they will resell it. (that is what I am understanding is supposed to happen....)

But lets say the auction for purpose of example was on January 1 - and it goes back to the bank, is  there any general rule to when or how long does it take to get listed or available through the bank now?  Do banks list the agents they use locally?

Any "REO" I found - and I have been calling tons of them I always get the same response, "ohh we are under contract already" I am kind of get a feeling something else is going on.... like the agents have their go-to buyers they have been working with for years and it goes to them,

I don't even believe its going to the real highest offer - 

Kind of lost on this - any help/advice greatly appreciated!

Issac,

Welcome to the wild, woolly, wacky world of REO.

One might figure that the bank would take it back, clean it up (or not) and list it for sale immediately to get their money out of it. Keep in mind every single agent out there has pocket listings and buyers. So one option, as you mentioned, is that the listing never gets beyond the agent's pocket buyers. Technically, from the banks perspective, the property was listed and sold quickly, so they are happy. They don't care how it gets done, they want a minimum of fuss and a maximum of profit.

FWIW, once the bank owns it, it can do whatever it wants. The bank has some figure in mind (reserve price), but that is different than the "value" of the property to the bank. Remember, the value of a property to an institution is not the same as the value to you and I. They might bid it to their reserve price, which is higher than the market value, and sell below the market slightly. They then go after the previous owner for the difference, while writing the "loss" off against ordinary income. So you need to think like the money guys. They also may figure that if they try to sell the NPN, the difference between the NPN sale and their REO sale is too big, and it's worth doing the REO sale.

So, what can you do about missing all the fun at the REO party?

1) You can take properties pre-foreclosure by paying the balances off. It's tracking, calling, and closing, but it can be done. 

2) Put together a fund (or have deep pockets) and go see smaller banks and buy REO wholesale, or buy pools of NPN and work them into REO/performing notes. By deep pockets, figure million(s) of dollars. You can get one-offs, but pricing isn't good.

3) Start or buy a do property preservation business and work for banks. You get into the properties before they are listed. It is best if it's a female owned small business, as they get preferential treatment, especially with government stuff. If you go that route, make sure you can bid on them when they come up for sale. 

4) Join the party, go work for a broker that does lots of REO work, or see if you can break in. Buy your own listings, or those in the agency.

None of this is easy, but if you think REO is the way to go, then it might be worthwhile.

Good Luck!

Jim

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