Finding and Closing Great REO Deals
by Alexis McGee –
We all know that if you want a great deal, you have to find a motivated seller. Right now the obvious place to find motivated sellers is from REO (real estate owned) who own foreclosed properties. However as you will soon find out, not all bank owned homes are great deals, and not all banks are motivated to sell for a discount.
If you are searching the MLS (multiple listing services) for discounted REO homes listed for sale, it is easy to get to get discouraged. Here is why…
1. Shortage of REO listed homes.
We do not have a shortage of foreclosures. There were 1 million homes lost to foreclosure in 2008 and we are on track to see the same for 2009. However, you will not see these homes on MLS. Lenders are very careful to not glut the market with foreclosures and are slowly listing their homes for sale. Currently less than 20% of all foreclosed homes are listed on MLS. Those REO homes not listed for sale are also known as “phantom REO.” You can easily find these properties in your area. As an example, search Fannie Mae or Freddie Macs REO homes for sale on their websites in your area. Then run a search of REOs at Foreclosures.com (look for Grantee Name: Fannie Mae or Freddie Mac). The difference is staggering. All those REO homes need to be sold. But first you must find the right REO contact person to help you buy them. Please read on…
2. Needs a lot of work.
When someone loses their house to foreclosure, they typically have years of deferred maintenance that must be dealt with. In some cases they will strip the house of anything they can get their hands on (such as appliances, fixtures, cabinets, doors, you name it), and in the worse cases they may even intentionally damage the home. Lenders typically will not fix any of these issues and will sell their homes “as is.” Since banks are not held to the same disclosure requirements as sellers who have lived in the home, proper inspections in advance are crucial.
3. Prices not low enough.
The National Association of Realtors has commented that the average bank owned home sells for 20% below market value. However, when you take a closer look you will find that your “discount” is actually just the cost of repairs needed to get the home to current market value. Rarely is a REO home listed at a big enough discount to actually compensate you for your time and energy of running the rehab (even if you are moving into the home). And if you want to buy, fix, and resell a property in 90 days and make a decent profit…well, I challenge you to find a REO home listed low enough to make the numbers work. Those great priced deals are simply not just sitting on the MLS.
4. Multiple offers, bidding wars.
Because there is a shortage of listed REO properties, when one hits the MLS that is well priced, in a good neighborhood, you will quickly find out you are NOT the only buyer interested. It is not unusual to have multiple offers hit and bidding wars of eager buyers all wanting the same house. This is great for the sellers, but terrible for buyers who are looking for deals.
If you want to find a great REO deal, you need to take a different direction. Following the pack will not get you the real deals. To find them, you have to do your own hunt and close deals you’re your competition is not seeing. Here are my suggestions:
1. Work the Phantom REO Inventory.
Forget about the MLS listed REO’s. There are not enough of them and they are getting over worked and selling for more than you should pay. You need to find the REOs not listed on MLS. That means running searches at Foreclosures.com for REOs in your area and keeping track of the high volume foreclosing lenders (such as Fannie Mae, Freddie Mac, and the biggest mortgage lenders in your area). Run searches on those bank sites and compare what they show listed for sale versus Foreclosures.com search results. Those houses not on the bank sites are not listed for sale. Those are the houses you want to run down and make offers on. More on this…
2. Recruit REO Agents to Your Team.
Now that you have your list of Phantom REO Inventory, it’s time to find your contact people. You should start at REO lender websites and see who they have listed as selling contact persons in your area (asset managers or REO listing agents). Call those contacts and ask them for help in running down a house that the bank owns, but has not listed on MLS yet. Ask them if they can get an offer in for you, and if not, who can? You will want to find the person who will call the lender about price and condition and submit your unsolicited offer now, before it hits the market.
3. Ask the Right Questions and Show Confidence.
Confidence is key when dealing with REO asset managers or listing agents. You must ask the right questions and sound like you know what you are talking about. They do not have the time or patience for newbie investors. They get too many calls to deal with inexperienced buyers and they do not want to train you. They want to know you can perform and that you will deliver exactly as you state. You need to exude confidence and professionalism. And most of all you must get them to answer your questions (versus you falling prey to answering all their questions) and do what you ask of them (such as details on past offers, and the bottom line number that the bank will take).
The above process is not easy. We all agree that once you close a deal, the confidence will come. But you must have confidence first, before you make the calls. As a new investor you will need to “fake it until you make it” when making calls to these key REO decision makers. This is a big reason why folks fly to my offices for three days, so they can work with me and my two investor protégés. You will see firsthand how we make these calls, what we say and how we say it, exactly.
We will also cover every rebuttal and every objection you will hear from the REO lenders and their agents, and then role play each of them with you, before we put you on the phone. Finally, we get you on the phone with real REO leads from your area, coaching you as you make your calls. You leave at the end of three days with the confidence needed to continue to make those calls when you return home.
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This is truly is a life changing three days for 18 investor clients. This program is only taught in my offices in Sacramento, CA (yes clients fly in from all over the U.S.) with each client having their own desk, computer and phone to work with and my direct tutelage the entire three days. I look forward to helping you “fake it ‘til you make it” too!
Your friend, Alexis
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