Ask The Expert: Buying Pre-Market REO's, Out of State Escrows, Undervalued Appraisals

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Real Estate Agent with Coldwell Banker Previews International
Q. I am looking at REO's that are not yet listed in the MLS. There is one I would love to purchase but my agent doesn't seem to be able to get information from the bank.  Are there any companies that can help to get the particular REO that I would like?
A.  Yours is a question that I get asked often. The perception is that if a bank is holding a property, you should be able to go directly to them, with or without broker representation, to submit an offer, and they will be happy to receive it. That is simply not the way the R E O business works.
First of all, each lender follows their own internal guidelines about how to expose their property to the market. Banks have in place relationships with R E O agents who list and market their inventory for them. It's a common misconception by agents who don't work in R E O to think that they are being given a runaround, when in fact they just simply don't know how to work within the confines of the guidelines of the lender.
Your agent, and you, are wise to watch the R E O market. However, if you really want to get a jump on things, you need to be watching the NOD (Notice of Default) market, and buying Foreclosures on the courthouse steps. There is a real element of risk, as I discussed in previous blog posts.  (Things such as tenant after sale, unrecorded liens, etc).
If you want to buy an R E O, you will have to wait until it has been listed, exposed to the market for the lender's set period of time, and submit an offer following their guidelines. After all, the lender is accountable to the investor to get the highest price and best terms for the investor, and that includes exposing the property to the open market. 
Q. It is common for a seller to use an escrow and title company out of state for a local REO purchase? 
A.  I personally don't recomend using an out of state escrow company unless the REO purchase is out state as well. I feel more confortable with someone local that understands the ins and outs of the transaction. 
The better question is: are they licensed/ bonded/ insured, and who is the governing entity in the state and/or country in which they work. How would you file a complaint if you needed to? Are they truly "neutral", or are they just an arm of the bank from which you are purchasing? Are their fees competitive with other (local) escrow companies? Will the seller be paying comparable fees to the buyer, or is the seller's rate discounted at the expense of the buyer? (Yes, this DOES occur.)
The reason laws have been passed that prohibit sellers from forcing the use of their escrow company upon the purchaser is because there have been less-than-neutral transactions that have occurred. 
Please investigate FULLY before selecting an escrow company. 
Q. What happens when you have an accepted offer, escrow is open, and the appraisal is less than the value of the property? 
A. You essentially have three options.
1.  You can get your comps in order and get a second, or even third appraisal.  If you are the buyer, you can ask the seller to pay for the second appraisal.  Their motivation?  They want you to stay in the transaction.  If you are the seller, OFFER to pay for the appraisal.  It goes a long way to restoring the good will and buyer's shakey confidence.
2.  You can cancel the transaction, using the appraisal contingency, IF YOU ARE THE BUYER.  The seller does not have that right.
3. The two agents can meet on behalf of the parties, and structure a new financing arrangement.  That may include:  a reduction of purchase price, the owner carrying a small second to make up for the shortfall, or the buyer increasing their down payment to make up for the shortfall (or some combination of the three).  How successful you will be depends on the motivation of the parties, their financial situation, and how short the appraisal is.
Have a question for us?  Email your question to questions.thebremnergroup@gmail.com

Deborah Bremner
The Bremner Group at Coldwell Banker
REALTOR, 00588885, 
ABR, CDPE, eAgent, CSP, SFR, HRC, CRE
(O) 310-571-1364 DIRECT
(D) 818.564.6591
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