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Today, the Senate passed a bill many are calling the “Housing Rescue” Bill. The main purpose of this legislation is to attempt to help 400,000 homeowners avoid foreclosure while preventing the collapse of troubled mortgage companies Fannie Mae and Freddie Mac.

Within this legislation there are two components that have the potential to seriously affect your real estate business…and very soon.

The first is positive. The bill includes a tax refund for first-time home buyers worth up to 10% of a home's purchase price but no more than $7,500.

Although the refund would be reduced gradually for single filers with adjusted gross incomes above $75,000 and for joint filers with adjusted gross incomes over $150,000, this is a very nice incentive for those looking to buy a home for the very first time.

Now the bad news. This legislation bans non-profit down-payment assistance programs for FHA loans.

This means Nehemiah and AmeriDream will soon be unavailable. My understanding is this ban goes into effect on October 1, 2008.

To make matters more challenging, the minimum down payment required on an FHA loan will now increase from 3% to 3.5%.

Over 300,000 people have used Nehemiah in the last decade. Nearly one in every three FHA loans today uses some form of down payment assistance. These will soon disappear. This has the potential to dramatically affect first-time homebuyers and lower income borrowers.

If you have buyers who need 100% financing, and you plan on the seller gifting the 3% down payment through a down payment assistance program like Nehemiah, you will likely lose this option very soon.

There is no word yet on when the last day to apply for Nehemiah will be. I will let you know as soon as I do.

Regardless, you want to call these buyers ASAP (like tomorrow) and tell them their time is limited.

After October 1, 2008, they will be required to put 3.5% of their own money down or that from a family member, close friend or employer.

The last time FHA banned down payment assistance programs, Nehemiah and the others sued and won. There is very little optimism that will occur this time.

Best regards,

Manuel Olivas

Realtor

Direct: 702.279-1436

Get Your Offer Accepted! Insider Tips on Buying a Bank-Owned Property" 

About a month ago, I wrote about the frustrations some agents were feeling.  They couldn’t understand why it was taking so long to get their short sale offers accepted.  

I received many emails thanking me.  Many wrote the same thing, "Manuel, now if you could tell us how to get our offers on bank-owned foreclosure accepted, we would really be grateful!!

Here you go......

During the housing boom, thousands of people stayed on the sidelines as the Las Vegas and national housing market skyrocketed.  

With home prices doubling and even tripling in some areas, some of these people ended up getting priced out of the market.   Many feared they would never be able to afford a house every again.   They were wrong.   Their day has come.

Today, Las Vegas leads the nation in foreclosures.   Home values are down nearly 30% from its peak.  In some neighborhoods, prices are at their lowest levels in seven to eight years.   And banks are the sellers of most of our inventory. 

Those who stayed on the sidelines during the last boom, as well as many investors, are hungry to make deals.  Many more foreclosures are expected to flood the market in the coming months.  This is creating a new, smaller, buying boom. 

However, there is a tremendous difference between buying a home from an individual and buying a home from a bank.  Failing to recognize these differences will likely result in a substantial waste of your time and your client's time.    It is not uncommon today to spend tens, if not hundreds, of wasted hours with each other because your clients don’t understand the difference. 

I know agents who have now spent weeks and months with clients in a futile effort and no sale to show for it.  

Let's try and end some of this today.

Leslie Carver is an agent at Prudential Americana and one of the top REO agents in Las Vegas today. An REO agent is one that specializes in representing bank-owned properties.  There are not many REO agents in our market.   Certainly not as many as you would expect.  There are a lot of reasons why.  Experience in REO being the biggest, but that’s a topic for another time.

Leslie is a terrific, well-respected agent, who handles listings for many of the top banks in the country.   Leslie and I have had transactions together in the past and she has spoken to groups on this subject recently. 

According to Leslie, the number one thing you need to understand today about making an offer on a bank-owned listing is you will likely only get one chance at it.

"Buyers need to present their highest and best offer," says Leslie.  "In cases where we get multiple offers, it’s a one-shot deal.  The bank will take the best offer and probably not counter any of the others.  Put your best foot forward and don’t plan on a counter offer.   It's probably not coming."

Another challenge today is buyers making low-ball offers 20% or more below list price. 

On average, local experts say, bank-owned properties are selling within 10-15% of list price.    Anything lower than that, if the property hasn’t been listed longer than six months, is probably a waste of time.

The bank and their listing agent have done a lot of research before listing the property for sale.    In many cases, the bank has received at least two BPO's (broker price opinion) and at least one actual appraisal before determining the list price.  

I spoke with an asset manager who said, "We are not desperate like so many want to believe.  We price our properties based on a lot of research in the local market and we expect to sell them at market value."

They list it to sell and, in most cases, the listing agent and asset manager at the bank are tied down to this price.   The asset manager then has limited authority to go a bit lower if necessary. 

Anything substantially lower than this price usually exceeds the asset manager's limited authority so the offer has to go back to bank management for approval.   According to most experts, that’s not very likely.  Many asset managers simply reject it and don’t even bother passing it on.

If a house doesn’t sell over a certain period of time, the bank will usually lower it as much as $25,000 at a time. 

The best deals you can get are those that have been on the market the longest.  Although there are great deals sooner, banks are most negotiable once the property has been on the market 90 to 120 days. 

The chances of you "stealing one" by offering 25-40 percent below the bank's asking price is remote at best.    If you have a buyer who has you making tens of offers all below 20% of list, you truly have to consider your time vs. opportunity.   The time commitment is tremendous.  The opportunity is likely minimal.

According to Leslie, and others, buyers should forget the list price in determining their offer.    Your offer should be based on the true value of the home.  “Some people are afraid to make an offer over list,” says Leslie.  “However, in nearly every multiple offer situation today, the accepted offer is over list.”

Buyers should get with their agents, make their own determination of the property's value, and make their discounted offer based on that figure.

For example, let's say you see a bank-owned property you like, it's been on the market four weeks, and it's listed at $250,000.  

You get with your agent and you believe the home is really worth $285,000.  

You have to understand that the bank and their agent have done their research as well.  Likely much more research than you.  They have priced it at $250,000 to move it quickly.   

You want a 20% discount so you make your offer off the list price of $250,000 and not the $285,000.   You are probably wasting everyone's time by making an offer of $200,000.  An offer of $228,000, which is 20% off from the $285,000, has a chance.   Probably not a great chance but certainly worth a shot....if that’s your highest and best offer.   

"Your offer has to be reasonable," says Leslie.  "In many cases today, the banks are getting multiple offers.  Don’t let list price be the main factor.  We have already listed it low.  The low-balls won't even be considered."

Leslie says most REO agents today submit all offers to the bank immediately.  However, the banks tell the agents it can take up to five days for a response.  This can, and often does, result in multiple offers. 

Some banks will not even review an offer until it's been on the market at least five days.

And while you are making your offer or waiting for it to be accepted, email is the preferred method of communication with the very busy REO agent.    Because of how few REO agents there are in Las Vegas today, some of them have hundreds of listings.   As a result, most have developed automated systems to deal with the volume.

“The banks and their asset management teams are automated today.  We rarely speak on the phone with each other,” says Leslie.  “There are only a handful of REO agents in Las Vegas today and we are all automated too.  Everything is online.  Some buyer’s agents are having a tough time making the transition but email is the absolute best means of communication in the REO world today.”

The next biggest challenge today on making an offer on a bank-owned property is to know the offer rules of the property you are trying to buy.

Leslie says offers that come in where the listing information has been ignored are not likely to be accepted.   If you want your offer to be taken seriously, read the listing carefully, and follow the directions.

For example, if the listing says you need an "approval letter from ABC Bank," and you send one in from XYZ Bank, the offer will probably not even be considered.   

Keep in mind, the seller is a bank.  They understand the lending challenges today.  They don’t want to waste any time as time could mean further depreciation and costs.  Your offer needs to come in from a respected lender whose bank they recognize.  Quite often they want you to be approved by their own institution.   

If the listing asks for "proof of funds on all cash offers" and your offer doesn’t come with the proof attached, plan on rejection.

“The banks are so automated that if an offer comes in without a mandatory offer condition, the bank’s advanced system may reject it automatically without review from the asset manager,” Leslie says.

Know your property as well, Leslie advises.   The bank hasn’t been in the property.  However, when there is something wrong with it, they usually know about it through the listing agent.  

So let’s say you make an offer on the property, yet you don’t address the property challenges.  This makes your offer very weak and will likely result in it being rejected or not even considered.

For example, you are buying a home and you are doing an FHA loan.  FHA requires that the home be marketable, sound, secure, and safe. 

Some of the items FHA will require to be fixed are broken windows, rooms without flooring, faulty plumbing, broken entry and exit doors, missing A/C units, etc.

So, you love the home but it has a few broken windows and there is no flooring in the master bedroom. 

You meet with your lender and you decide an FHA loan is best for you.  You don’t tell the lender about the window and floor.   Then, you make an offer, yet you don’t address the windows and flooring in your offer.

The REO listing agent is usually a very experienced agent who works with banks.   They know their lending guidelines.   They know FHA today. They know these fixes will cost money and they have usually prepared the seller to make these changes for the buyer.  

Let's say, they have estimated the cost to fix these items at $2500.

They know you can't close your FHA loan without fixing these items, yet you make no mention of the windows and floor in your offer.

Another offer comes in right behind yours.  This buyer is also doing an FHA loan. 

He makes an offer at the same price as yours but his offer mentions the repairs.  The offer calls for the repairs to be done prior to close.  His lender has even written the repairs into the pre-approval letter.

This offer is actually much stronger than yours.   The seller knows you have done your research.  The seller also knows your lender understands what he is getting into.   The seller has the confidence in the buyer that he knows the property, has done his research, and has his lender on-board.  Confidence means contract.

You need to know what you are buying and what it will take to close your loan before you make your offer.   If not, the listing agent will likely see right through it and probably reject your offer without counter.

As opposed to individuals selling their homes, banks are exempt from real property disclosures because they have never lived in the home.  You will want to pay for and order your own inspection report, even before making your offer, and be prepared to walk if the damage is too extensive.

Be patient.  Banks may accumulate multiple offers before responding and will never answer an offer over the weekend.   Plan on five business days from the day you make your offer.  If you don’t hear anything by then, it’s probably been rejected.   Email the listing agent to confirm this.

Be careful.  Many people today write an FHA offer with a 30-day close.  A week or so later, they get the offer accepted with a $100 per day late fee, yet they are too afraid to counter the close date. 

You have now given your lender 21 days to close an FHA loan.   The bank knows you have very little chance of pulling that off today and are now going to get a little extra money out of you.

For a multitude of reasons, many of which I have written about in previous newsletters, 21 days on an FHA loan may not be enough time today.   

This can be a very costly decision.  When the bank accepts your financial terms, and imposes a late penalty, if you are doing an FHA loan, it's important to get the 30 days from the full execution of the sale contract, not the original date of the offer.  

I see many savvy agents writing this into their offers today “close of escrow to occur 30 days from the date of the seller’s and buyer’s signature.”  

Don’t be afraid to ask for longer than you specified in the original offer.   If the bank takes 10 days to accept your offer, don’t be afraid to ask for those days back.  The banks understand the time it takes to get a loan today and will very likely grant this to you. 

If you don’t negotiate it upfront, plan on paying it.   Once they have agreed to your offer, there will likely be very little negotiation on late fees, no matter what the reason.   Banks, and their agents, believe you should protect your client at the point of contract and they will grant whatever time you need in most cases so long as you ask for it upfront.  If you go over, they want the extra money.

I have pre-qualified buyers that have made 30+ offers and have had none accepted.   This is a monumental waste of your time and your buyers.  Your time is valuable and it costs you money.   

The opportunity to help buyers who sat on sidelines last time is tremendous.  However, their time is valuable too and many feel as if they have already waited years.  The longer it takes you to deliver them a home, the more frustrated they become, and the more likely they will find another agent who can. 

If you want your offers on bank-owned properties to be seriously considered, follow these three rules:

·         Make your highest and best offer based on market value, not list price.   

·         Make a complete offer by following the seller’s rules as written on the property’s MLS listing.  

·         Know your property, the repairs it will require, how they affect your financing, and address them with in the offer and in your pre-approval letter from your lender. 

And then be patient.  In no time, you will be a new homeowner.

The business has changed.  We should all learn the tricks and trades of the new world.   Knowing how to make real, time-saving offers on bank-owned properties needs to be lesson #1. 

Have a great and prosperous month!!!

Best regards,

Manuel Olivas

Nevada Real Estate Services Inc.

Direct 702-279-1436

robeertoolivas@hotmail.com

molivas@nres.info

www.manuelrolivas.com