Buy pre-market REOs?

Question

This is a super newbie question, but I just don't know the answer for sure....

On bank-owned properties, is there anyway to negotiate a purchase "earlier in the pipeline"? That is, before they receive BPOs, fix-ups, and are listed on the MLS.

I frequently see properties of interest that have been seized by the bank, but not yet listed for sale. If you could negotiate a sale before the time and expense is taken by the bank to market the property, this could be a big win-win. I'm thinking specifically of Fannie and Freddie properties here.

Is there any way?

Will Barnard · Answer

I have purchased many REO's this way, but I will tell you that it ONLY comes from relationships with those inside the bank who have the ability to get a deal done that way. Your REO list brokers/agents will not be able to do this. Secondly, in most cases, these properties come with occupants still inside so evictions/cash for keys are usually necessary. The risk and costs go up, however, the spreads I get them for are deeper which makes up for it.

Matt Jankowski · Answer

Thanks for the answers, guys. Wlll, that does help. Basically, I was wanting to know if this type of thing is even conceivable, and you let me know that it is, but with considerable effort and skill. I wasn't expecting it to be easy. For those that do bulk REO deals, does this ever expand your access to their inventory?

Ed Beck · Answer

As an exclusive REO agent - I do that all the time, Will, and usually with investors that I have sold multiple REO's to. When I get a property vacant, either upon assignment, or through cash for keys or eviction, I can usually think of at least one buyer in my database that wants that property. I call them immediately and get them there as soon as possible. It might be a couple of days or a couple of months until I get a price, but the minute I do, I call them and tell them 'remember that property we looked at...they just listed it at...' and the offer is submitted...day 1. The hot ones will have multiple offers, and sometimes the bank won't counter for a few days so they can collect more offers. The other thing is Fannie Mae's first look program, which won't allow investor offers for 2 weeks. But, yeah, Will's right - build a relationship and you won't be forgotten when something in your wheelhouse comes up. As far as making a pre list purchase...I've never seen it.

Will Barnard · Answer

Matt, there is no simple answer to your question, however, for starters, I suggest you start calling on all the REo agents/brokers in yoru farm area and start interviewing them. What I did and still do is call on a porperty they have listed, explain to them who I am, crack a joke or two to loosen up the air and hopefully, get them to have an initial warm feeling about me, then I ask them how many other REO listings they currently have. If that numbers is 2 or 4 or 6, etc, they just don't have enough for me to work with so I cut the oonversation short, if that number is 15 or more, I continue to form the relationship. I ALWAYS tell them (because they usally ask if I am working with an agent) that I work with many REO agents, however, any deal they have listed, I ALWAYS let them double end the listing and keep both sides of the commission. Now in today's market, you may here something like, "I can't or wont do that due to conflict of interest" or some other explanation, so I elude to the fact that if they are the list broker, one of the other agents in their office can represent me, keeping them as the rep for teh seller and one of their agents in house as the rep for me. That remains a benefit to them as they likley get a portion of all their agent's commissions earned. Forming these relationships allows me to gain access to properties while still in the pre-marketing phase. I get access, access repairs, access exit value, and from those figures, calculate my offer price. I provide that info to the agent and tell them that if they can justify with real comps, a BPO at that price or lower, then I have them right up the offer and have it ready. If the bank comes back with an approval at that price, they typically have 24 hours to get it on the MLS. In that time, they will have already submitted my offer to the bank and through my relationship with them, will tell the asset manager that the buyer is someone they have worked with and has always performed, that this buyer is 100% guaranteed close. Since the offer is full price to the BPO, they have no reason to not accept it on the spot since it is always all-cash. Now this all sounds very easy here in words, but you will run into countless phone calls that go nowhere, and countless others who just don't understand how to perform such a system. If that is the case, move on, don't waste your time, keep working until you find the right contacts. In this world, it is all about what you can do for someone else. With that in mind, by offering it, you end up doing for yourself. As to building relationships direct with asset managers, it is not easy and a lot of luck in being in the right place at the right time is involved, so for starters, stick with my previous advice. Hope that helps. - Will Barnard

Matt Jankowski · Answer

Nobody here talking about not working for a living. Will, Thanks for your thoughtful response. I wanted to know about the potential to get a foothold at various earlier stages. Of course I know it is going to be a difficult, but nothing is impossible in this business with the right relationships. So, I guess the answer to "How much leverage and ethos is required to convince the bank to grant privileged access to their inventory?" is " a lot". But not impossible? What about bulk REO deals? Any way to use this as leverage to get at any of these properties? In my market, I see Freddie and Fannie increasingly doing minor cosmetic rehab before listing. In some cases, this is a profitable plan, but in others, it is just setting money on fire. Putting in some new fixtures and paint in a structure that is crumbling and will ultimately be bought by an investor who will tear out their modifications anyway is a waste if funds. Negotiating a true AS-IS purchase could net the bank more on the property by saving them the time and expense of repairs. I was thinking the best shot would be through the broker. Is there any circumstance under which a broker can make the deal happen, or once a bpo is ordered, is the property guaranteed to follow protocol and see the MLS? Maybe all these general questions aren't getting at the heart of the issue. Maybe the most helpful question would be, "Who do I need to get to know and how do I impress them enough to give me a window?" Thanks for the insight, you guys are awesome for addressing questions like this.

Will Barnard · Answer

It is true you have to work for a living in this business, paychecks just don't fall from the sky. It is also true that the larger institutions (B of A, Wells, Etc.) typically will not release any inventory prior to it being given to an agent, but it does happen in very samll numbers. For other smaller institutions, it still requires an investor to be able to form a relationship with the person capable of delivering such inventory prior to agent marketing. Then there is also the deals where the agent is assigned, but the deal can be purchased just before the MLS. Either way, you must build a relationship sith such people (asset managers, top REO brokers) and that is not easy, it takes time, and it takes a specific ability to know exactly what you are dong, what you are saying, and an ability to prove your abilities - usually by showing previous transactions, real bank statements (POF's), etc. I have purchased many REO properties in my day and a very large majority of them came to be prior to any MLS listing, some were still occupied by the previous home owner and others were already vacant.

Will Barnard · Answer

Countdown over I am here.

Anson Young · Answer

After personally handling 600 REOs for a big team here in denver for over 30 different bank clients, I have only experienced it once. It was a tiny REO company with small bank clients. We bought it about 2 months before it would have hit the market, which is very rare. You can search for Will's experience of getting to know bank presidents at local banks and having success that way. I dont doubt that at all, if you have decent deposits and history with the bank, they are likely very willing to help you out buying their REO inventory.

Account Closed · Answer

You can't work outside "the system" with big companies, you can a little bit on smaller ones (smaller banks). Usually they won't take an offer pre appraisal/bpo though. I haven't found a bank willing to act like a desperate crack addict wanting to sell their stuff for their next fix. Always watching out for it though :) Sadly, you actually have to work for a living in this business.

Jake Kucheck · Answer

Countdown until Will chimes in: 3... 2... 1...