Why won't the banks "deal"?

Question

Last week I submitted an offer on a foreclosure listing. The bank bought back the house for $34,000 at sheriff's auction and listed it for $48,000. It's been on the market for 60 days. I made a cash offer for $35,000 and they countered at $47,000. I walked. 5 days later they lowered the listing price to $43,200. I'm resubmitting my $35,000 offer but I can't help but have a bad attitude about this process.  Most likely they will counter at $42,200 and I'll say no again. The house will sit for another 30 days, they'll lower it to $36,900 and I'll buy at $35,900.  Why does the process work like this? Is it even worth it to a ask this question?

Mark Ferguson · Answer

I am an reo agent and things have changed over the years.  Asset managers used to have the ability to make decisions and accept offers they thought were reasonable.  Now they almost all have strict guidelines they have to go by. The bank gets multiple bpos and an appraisal on almost all properties. They get a value from those and then are allowed to accepts offers within an retain percentages.  Usually then appraisal grts more weight than the  Bpos.  They have to wait a certain amount of time to lower the price or accepts low offers.  They also have to get investors approval from the owner of the loan and pmi.  The Reo agent has very little influence.

Jon Holdman · Answer

DO NOT fall in love with REOs.  Seems too late for this one, but just don't.  They will break you heart.  This is a numbers game.  Look at lots of properties, make lots of offers and you'll buy something.  Don't waste time on any particular property until you have a contract.

Well then, finding another deal shouldn't be too difficult.

Anson Young · Answer

Its not about them being 'unreasonable' its about the asset managers and every other person on the REO team having to follow strict guidelines that are dictated by company policy and procedure.  I say this as someone who worked on an agent REO team and also worked for an REO servicer AND bought dozens of REOs.  So I see it from 3 sides, and you cant hate the player, just play the game.  Yep, I said PLAY it.  Once you know how it works with price reductions, you just let that puppy sit for a few months, it will get down to your price.  You just have to stay on TOP of the listing agent, ask them if they did an MMR this month already, its like a mini BPO they do monthly that will trigger a price reduction.  Most banks will issue a price reduction right after the MMR is submitted (as long as the agent recommended a price reduction).  So its a little cog wheel in a system, and you just have to time it right is all.  You cant get caught up in emotions or rationalizations, the asset manager nor the agent will give 2 craps about your attached 'justification' for your price, they have their systems and they RARELY deviate from them.  In fact the asset manager AND the agent are graded on how on time their tasks are done and the % from list to sold price, etc.  Think of them as robots, and you might be closer to the truth...

Tracey Marzich · Answer

Thanks you guys. I want the house. I know how much I can rent it for and I need the revenue to start coming in. If I could get it for $41,000 it'd meet my model. It doesn't need any work which is why I'm willing to pay a bit more. The house is in a town that doesn't have many buyers.

Daniel Francis · Answer

Banks often don't act "rationally" until you understand how they work.  We listed a short sale for 160k, got an offer for 150k., bank didn't take offer, foreclosed and re-listed for $140k.  Go figure.

But, once you understand the process, it all makes more sense.  You see, banks typically aren't really the "lender".  There is some outside investor that owns the loan (often times, Fannie Mae or Freddie Mac) and the "bank" you are dealing with is actually the SERVICER of the loan.

So they have a servicing contract.... I don't know how much they get/month per file.... it might be more like a lump sum for 2 million files.  They are paid to collect payment, deal with loss mitigation and REO's.  When they are collecting payment, they are making money (although a small amount per file).  When they are working through loss mitigation or REO's, they are NOT making money, they are spending it.

Therefore, loss mitigation departments and REO departments are set-up to be the least expensive they can get away with under their servicing agreement... which is why short sales now take an average... yes average... of 7 months!

As part of their servicing agreement with the investor, they have underwriting guidelines.  The underwriting guidelines tell them who to loan money to, but also how to conduct a short sale, or an REO sale.

They will follow those underwriting guidelines to a T because they are contractually obligated to.  Besides, they don't care what your property sells for... they just want to fulfill their obligation under their servicing agreement, meet the underwriting guidelines and do so as cheaply as possible (minimum wage or automated systems help with that).

So I'm sure the underwriting guidelines for the house you are bidding on, stipulate a listing price equal to or close to the BPO (Broker Price Opinion), with subsequent regular drops, and that allow the lender to accept an offer that is within a certain percentage of whatever the current list price is.

You can't convince them to take something different.  They have no incentive to.. that would jeopardize their servicing agreement.

So, they ARE acting rationally.... even though they aren't :)

Jennifer Lee · Answer

when dealing with bank its best to back up your offer with why you offer so 'low'.

It also helps if you can talk to the listing agent, and get them to talk for you.

I recently won a bid for a Fannie mae for a client. She lost 2 bids prior to meeting me.  I am an SFR agent.

We ended above asking. But issues came up, I talk to listing and ask for credit. We were given a credit. And now we are at under their original asking Price.

Right now we have an even bigger issue....and we (us agents) are working to resolve it for both sellers and buyer to get this deal done without termination. Either having Fannie fix it, or she gets an even larger credit.

Why????

The bank has no idea, they never been into the unit. The agent usually have no idea, they may not even been to their listing. These REO agent gets feed a ton of listing. So they have runners to take pics for them and etc.  So its best if we use fact and numbers to back up your offer.  You can write a letter, talk to listor, or find good REO agent.

Bank in general don't like investors. They don't want anyone to make money off them. But they also know that some homes retail buyer won't touch and need to work with investors to get it off the books.

They just want to get it off the books at the "highest" price. We need to let them know the "best" price

J Scott · Answer

Asset managers (the people who make the price/sell decisions at the banks) rarely have any idea about the value of the properties they are trying to sell.  They have a BPO from the listing agent that probably isn't very accurate (foreclosures can be difficult to value) and very little other data to go on.  In fact, they probably prefer very little data, as that reduces their disclosure requirements.

So, when selling off an asset, they don't know if it's worth $50K or $25K.  The only way to figure it out is to drop the price in small increments until they get interest.  If it's listed at $50K and they get an offer for $35K, they don't know if that's the best they're going to do -- they most likely have a BPO from the listing agent for $50K and think the $35K is too low. So, they counter near $50K and if they don't get a contract, they'll often drop the price and start the process over.

I'm not saying that this methodology makes sense -- asset managers often make very bad decisions in my experience.  But, without much information to go on, you can start to understand why they have to play these games.

The other thing to consider is that they don't get emotionally attached to properties.  It sounds like you really want this deal; to the asset manager, it's just one of a hundred properties they are getting offers on that day, and the property to them is just a listing on a piece of paper...nothing more...