Expert: John Hendricks - 1/27/2009

Question
I have found a house that I'm really interested in.  I saw this house almost 2 months ago and put an offer in at the beginning of December.  At the time, list price was $325k.  My realtor told me that the selling agent had 27 other offers and that I'd have to offer above asking price if I wanted to be competitive.  So I put in an offer of $350k.  After I put in my offer, the selling agent told my realtor that the bank had picked someone to work with.  In the meantime, I kept checking up on the house and noticed the house went active again at the end of December.  So I asked my realtor to contact the selling agent to find out what was going on.  The selling agent told my realtor that the house was back on the market and so far he's gotten another 15 offers.  So my realtor re-submitted my offer, but I have not heard anything since then.  Then a couple days ago, I checked up on the same house listing again and noticed that the asking price had dropped to $309k.

So now I'm confused.  First of all, I offered above the asking price and it wasn't good enough for the selling agent.  Then he said the bank had a pending sale, but then the house went back onto the market.  So I resubmitted the same offer and I didn't hear anything back.  Now the selling agent has lowered the asking price.  I can understand that the selling agent is trying to look for the highest bidder, but why then would they drop the price on the house?  This also leads me to wonder if my realtor is doing all he can to help me out.

If you have any suggestions, insight, or ideas, I would greatly appreciate it.

Answer
Dear Sara;

Thank you for your question. Not knowing the entire details of your offer, and the situation why an apparent good offer was not addressed, a good explanation of the process may give you some insight as to how REO offers are negotiated and get accepted.

When I write an offer for a REO property for a client, there are certain elements of an offer that bank owned property negotiators prefer and I follow.

1.   If you have not been pre-approved for a loan, have your agent have you meet with a Mortgage Broker to start the process. You should not make an offer unless you are pre-approved. On the other hand, if you have been pre-approved, make sure a strong pre-approval letter from the Mortgage Broker is attached to the offer.
2.   REO negotiators like great terms.
•   10 day inspection periods or faster
•   10-14 day formal loan & appraisal periods or faster
•   A fast close of escrow usually 21 days or sooner
•   No dollar credits unless it is necessary or you need the credit to pay for closing costs.
•   Provide an ‘As Is” addendum to your offer. You still have the right to inspect and either agree or disagree with the findings. If you disagree, escrow is cancelled and your deposit should be returned. If you agree, you will sign a contingency release and the deal goes forward. You may want to further negotiate with the REO Company any repairs that you may need to have completed. Your Realtor will guide you through the process and will make sure your proposal does not jeopardize your position in buying the home.
•   Keep the offer as clean as possible so the negotiator does not have to consider more options than any of the other offers.
3.   Be prepared to respond quickly once you get the response from the REO Company.
4.   Don’t get caught up in the nightmare of offering more than the house is worth. This is one reason the market collapsed as it did this past year. Since you are a strong buyer, get the best possible deal that makes sense.
5.   Don’t be afraid to accept or ask for back-up position for the house. Many deals today fall apart for one reason or another, and if you are in backup position, you actually have a reservation at no cost to you. Once the primary deal falls apart, you slip into primary position, make your good faith deposit, and all you time periods from the day you are placed in primary position.

Since the home you are interested in went back on the market at a lower price, it would lead me to believe that one or more of the elements above were not completed to the REO negotiators satisfaction. Ask your Realtor to talk to the Listing Agent and directly ask why your offer was not considered, or why you current offer has not been addressed. Your Realtor should give you all the detailed information to make whatever adjustments you may need to get your offer accepted. Good Luck!

Warmest Regards;
John Hendricks