I have written about the cycle and when and what to buy. I haven’t written enough about the nitty gritty “real world” stuff that no one tells you. So I am taking a break from academia, and explaining the, maybe a little controversial, steps to take to get to buying some incredible repo deals.
I’ve already repeatedly made my case why lender owned inventory (REOs, repos, foreclosures) is easily the best game in town. Preforeclosures, direct mail, signs, newspaper ads may still work, but you are going to get masses of motivated sellers ringing your phone off the hook- that owe more than what you are even willing to pay. Do you want to spend your time mucking through upside down properties, or do you want to get busy writing offers to the most motivated sellers in decades who have nothing but free and clear houses?…okay, ’nuff said, I’ll move on.
I still get asked if we buy directly from the banks. The answer is “No”. Basically, after the foreclosure sale, the property becomes the lender’s property, and the lender has to sell it just like most everyone else, with a Realtor.
OK, so here’s what you need:
1) the location of the foreclosures,
2) property specific info (how to see the interior, is it still on the market, what’s the sticker price)
3) comparable data, how long are they taking to sell, what are they selling for (ESPECIALLY if you are flipping). If you aren’t then it’s still good to know, but general area info becomes more important.
4) A good way to estimate repairs
5) Finally, if you aren’t licensed, you have to decide who will represent you when you make your offer, the bank’s Realtor, or you’re own. Unfortunately, you can’t just “make an offer” yourself.
1) Where are the repos? You can get a list from any agent. Not the best choice, here’s why: they will miss some, or many. They basically put “REO” and “bank owned” into the keyword search. However, they will usually forget one like, “corporate owned”, or it will be misspelled in the listing so it won’t find it, or even worse they will just put “foreclosure”, which will pull up all the short sales.
Use your own foreclosure list. It is invaluable. There are a few to check into (Retran, County Records Research, Redloc), but we use Foreclosure Radar and think it is the best we’ve ever seen if you are in California.
If you are outside of California, I recommend the foreclosure data that has been in business the longest because they take their data directly from the county- do not use FREE foreclosure lists, they are worthless…(you can play with this for a week free), go here:
<I will have it up by tomorrow>
Another reason for this is that you will burn an agent out if you have to keep calling them. Maybe it’s just me, I like to rely on agents as little as possible. Pick up a copy of Microsoft Streets and Trips. You export the foreclosures from Radar right into MS and it will map the fastest possible route to drive ALL of them. I love it. I will exact instructions how to do this on YouTube by February….in the meantime use a Thomas Guide or your GPS navi system.
2) Here is the bottom line, you need INFORMATION. Information that can only be found on the MLS. Unfortunately, you are not supposed to have direct access to the MLS if you are not licensed. If you are looking to pick up a couple good investments for your portfolio, you should be able to read the rest of this and be off to the races. If you are looking to make this your career, YOU NEED MLS. No one can tell you differently…this is 80% of the reason I went and got licensed.
Partner up with a friendly agent, broker, or appraiser so you can milk their time helping you access information in return for letting that licensed individual write offers for you. Also, if you know an agent, but they aren’t local, there is access called a reciprocal log on designed for agents that are out-of-area. It allows them to look at comps and do everything the normal MLS does except put properties into the system. Even better, just get an agent’s license! It’s not as involved as you think, an open book online exam, a few days studying, and then an exam. Requirements vary, but look into it…either way you are handicapped without it.
Okay, property specific info- this is where you have to make the call between using your own agent or the bank’s Realtor. I have always said to use your own agent in the past. I have changed my tune a little bit in recent months.
Now, be very clear, this broker legally represents the bank. His or her loyalties are to the bank, and they have a fiduciary responsibility to act on their behalf on every way possible that is not unethical or illegal.
…First, to understand what motivates the bank’s Realtor, you need to know how they get paid…
Typically, the seller will pay a 6% commission to their agent for selling their house (I think if your seller is a bank, you get less). The agent puts all the information in the MLS and puts a “For Sale” sign in the front yard. Ideally, a buyer will drive by, call the phone number, and the agent (Realtor, same thing) will show them the property and write an offer for them. The deal closes, and the agent gets 6%. This is known as “double ending it” because the agent got the deal from the seller AND found the buyer.
Now, if another agent drives by, or finds the property on the MLS and has an interested client who is a buyer, then they will show the property, and handle all negotiations and communication with the seller’s agent. This is called “bringing a buyer”.
And now the buyer’s agent and the seller’s agent split the commission 3% and 3%.
Why then, would you ever have the bank broker write your offer instead of your own rep when it costs you nothing?
Here’s why. After talking to the bank brokers every day for a year now, we’ve come to learn that they EXHAUSTED. The banks kick them around like dogs. The banks don’t listen to their recommendations, the brokers have to clean up the properties at their own expense and fight to get reimbursed. Break ins, vandalism, are all the broker’s responsibility.
Worst of all, they deal with flaky buyers all day that demand the moon and the stars and don’t perform.
They are really underappreciated. Sorry, but this is a nightmare job – but guess what, these warriors control the inventory, and they are desperate to move it.
They want to move inventory as bad as you want to get a deal. In this regard they can be considered a partner. And what we’ve found, since we buy a LOT, close FAST, and we make their lives EASY, they are starting to return the favor to us in spades.
We didn’t get off to a great start, but we’ve come to understand each other better…I think it is the beginning of a beautiful relationship.
Be warned, they are very intolerant of mistakes and buyers who don’t know what they are doing. If you call them and think you will get special treatment because your are prequalified with Washington Mutual, you won’t.
There is only one way to deal with them, and that is to sound like you know what you are doing, know what you want, and be a strong buyer. Here is exactly what you need to say if you are going to go direct to them. Write this down and use it when you are in front of a foreclosure (the bank’s brokers are always the ones on the sign):
“Hi. This is Ivan Investor and I am in front of you property on Elm. I AM NOT REPRESENTED BY AN AGENT. I am looking to buy 11 investment properties this year (doesn’t “11″ sound better than some random even number?) , I am a cash buyer (even if you don’t intend to pay full cash because hard money acts the same way, you are ALWAYS a cash buyer). I have proof of funds, a large deposit, and I can close quickly.”
This will turn a real grouch into a lamb very quickly. Follow up with, “I would like to know how to see this property”.
<Now, I would say you need at least $60k bare minimum available liquid cash. If you don’t, then you need a money partner. Sorry, those are the facts with repos. “No money down” DOES NOT WORK HERE. Banks do not “carry”. If you ask a question like that you will hear a dial tone. You can use hard money, but these lenders are tight right now, and they want to see that you have at least some cash of your own.>
Here is the downside of going straight to the broker. Do not expect customer service. Do not expect them to invite you to the office over coffee and talk about your wants and needs. Do not expect them to even meet you at the property. Give them a lot of leeway, they are buried…HOWEVER, you are still a customer and you are helping them, so there are bare minimum you have the right to demand if they want to sell the darned things. Don’t let them intimidate you.
You have a right to say, “please provide a comprehensive comp list for this area or subdivision”. Don’t be afraid to tell them up front, “I’m not going call you repeatedly, I just want a good CMA report so I can understand value before I pay CASH for your listings”. If they feel you are a good buyer, you are not wishy washy, they should do that for you, especially because they are “double ending” it.
OK, so you are at the property, here is what will most likely happen, the bank broker will give you the lockbox combination so you can help yourself into the house. Now, they are technically probably not supposed to do this, but the reality of the matter is they don’t even come close to having the resources to go physically let you in…two, the property is usually trashed so what are you going to do? Steal the dead cockroaches and punch a hole in the drywall that already looks like swiss cheese? This is just real world stuff.
(Btw, you won’t see those fancy supra lock-boxes with infrared latches on REOs, they are too expensive, and there are too many REOs.)
Now, the alternative to this is to use your own agent. The advantage is that they will be much more likely to sit down, get you as many comps as you like, sit down and talk about your wants and needs. You will get more mileage as far as pulling comps, looking for REOs you might have missed, do your laundry, etc…and don’t forget more MLS exposure.
The thing to watch out for is timid buyer’s agents who are embarrassed to lowball. If they seem squeamish dump them right away. In fact make that your first question, “do you have a problem lowballing?” The offers we write for your ourselves are ridiculous and embarrassing. If it doesn’t make your face feel warm, it’s not low enough. If you get an acceptance on your first offer, it’s too high.
IMPORTANT: It’s common sense, but don’t find an agent to show you properties, get you comps, or give you combinations and then go and call the bank broker and let them write the offer for you. It happens all the time to buyer’s agents and it’s a tragedy. It is not fair.
…For the best of both worlds, the way to handle it if you are getting help from your own agent, but that can’t be there with you every minute (or you don’t even want them tagging along, you just want comp/MLS help) is to go ahead and go hunting on your own.
Call the bank broker, repeat the exact same statement above, but leave out the part about not having an agent. Go ahead and say, “I have an agent, but I intend to buy a lot and they can’t be with me as much as I’d like”. The broker will still be thrilled you are a strong buyer, and should still give you the combos even though they get half of the commission; half of something is better than all of nothing…plus they REALLY want to move the stuff (they’d probably move some of it for free).
There is a lot more I have to say but this entry is becoming too long, so I’ll continue next time about making a good offer. We ask for repair credits…..it’s kind of fun to watch the bank broker’s head spin around like The Exorcist……………..Be Happy and Prosper.
Kurtis
http://www.FarBelowMarket.com
