New Buyer Landscape
Many years and round-the-clock paper mills are devoted to the protection of buyer rights in a real estate transaction. From endless seller disclosures to seeming novellas that shout out “Buyer beware!” it is a rare occasion when a professionally represented homebuyer can be snookered.
Then, along came the REO behemoth. This huge group of financial entities, which collectively contain as much real estate wherewithal as a tunnel full of termites, has quickly become the dominant force of our industry.
All across the land, thousands of meetings were held at boardroom tables full of once powerful bankers. Silver decanters of premium Starbucks and delicate chocolate croissants, baked by three star patisseries would fuel these executives, as they shared banter of the latest model of Lexus or next month’s vacation plan. Just as they began to wipe their mouths with crushed thread silk napkins—the Power Point show would begin. The latest high-end Mac computers would throw artsy letters on to the huge overhead screen, stating the universal question, which was also emblazoned on the hardcover, linen paper filled presentation folders that sat unopened before each committee member.
“WE OWN “EM NOW—SO HOW DO WE UNLOAD “EM?”
Of course the answer was obvious—and typical.
Bring on the lawyers.
Write up a set of contract addendums that will squelch or even kill the rights of the buyer. After all, we stand to lose a ton of money, so any buyer should feel lucky to have his offer so graciously accepted by the factory trained asset manager. In fact, they should send us a thank you card for crashing the market that allows them to purchase a $500,000 house (priced from 2005) for only $199,000 or so.
Well, as an entity who claimed the property through hostile means, the current owner (bank) has never occupied the property, has no knowledge of material facts and simply wants to unload it as quickly as possible.
On the other hand, the buyer, who may be investing his life savings on the only home he will own in his lifetime, could receive a screaming deal that won’t appear again in this generation. To make it happen, he must become the figurative whipping boy of the bank, asset manager and the listing agent.
“As is, where is, don’t let the door hit you on the way out.”
Count on a very brief inspection period without benefit of seller disclosures, horrific communication and, oh yeah—those per diem fees. Should some unforeseen act cause you to close the escrow a few days late (and you know how unusual that is), you’ll be socked with a daily fee of up to $150. Such a sweet deal—why didn’t our living, breathing sellers think of that in the bubble years?
Should there be an issue with the house later, such as a roof that the previous owners patched again and again, maybe an underground spring or the neighbors who hunt dove in your beautiful orchards…ha ha ha!
Well-written contract addendums, drafted by over-employed lawyers allow little recourse toward the seller. You must be sure your buyer understands this. Not just because he signed the paper that states a real estate broker is not an inspector—or for that matter is not an expert at anything that involves the transaction, oh no! In this case your fiduciary duty has just been kicked up a notch. Due diligence in an REO transaction should mean to assume the worst and eliminate potential issues one by one. That means inspect, inspect, inspect. Quickly too, as you are given little time to do so—about 10 days in most cases.
If you are so lucky, you may deal with a listing agent who juggles dozens, if not hundreds of REO properties and must fulfill meticulous tasks and receive constant haranguing from various asset managers. This creates access to said agent akin to an interview with Tiger Woods. An assistant, who will put your issue at the bottom of an ever-growing stack, may handle your call…blah, blah, blah.
Much has been whispered (or shouted) about a few agents, who, prior to this REO market were shady at best. (Yes, I said shady) Some were wise enough (or lucky) to have made early contact with asset managers and now handle a great deal of inventory. I suppose the good news is, many of the larger groups, like Wells Fargo, Bank of America, Freddie and Fannie have “report cards” and stricter standards of practice. This has turned a few of the aforementioned agents around, but I compare it to the food server who runs at a snail’s pace, neglects to refill the water glasses and forgets my request for extra dressing. Just at checkout time, h/she suddenly brightens up, tells me how cute the kids are and tells us to all have a glorious evening. “Thanks so much for coming in.”
Too late. I will tip according to the service received during mealtime—and may not return, despite the eleventh hour charm show.
Of course, there are glowing exceptions. My local market is home to many stellar REO agents. Some work for my brokerage and others reside elsewhere. They have developed solid business and customer relation skills and taken their program to the next level. When a buyer comes along—whether it is a single or multiple offer situation, these agents are most grateful for the offer and treat the buyer’s agent and their clients with utmost respect. I suspect this group will still go strong, long after the REO wave has passed.
Bank owned properties and also short sales (that’s another story) represent 50% or more of closed sales in many markets, including mine. These heavily discounted homes offer many lessons to us. Their existence shows the folly of irresponsible lending and consumer frenzy. The poor condition of these homes provides insight to the anger and frustration of the former owners. If there is a positive side to it all—our pricing model has corrected more swiftly than any other time in history. We also have great examples to show our flesh and blood sellers. After all, the REO listings account for a small fraction of total listings, but a huge chunk of the “solds.” What better way to prove that good pricing moves the product?
I’ll concede this is merely a phase in the history of real estate. At some point, the market will be stable again. Normal sellers will market livable houses that are well tended. Buyers will take their time and seek a home without fear of their investment tanking to the depths of financial hell. Banks will again loan to well-qualified people who share in the risk. Remember down payments?
Loss mitigation departments may become a cubicle in the corner, rather than a separate high-rise complex. Listing and purchase agreements will be generated by real estate agents and presented to living, breathing people who will typically not be in danger of loan default. Said folks will negotiate win/win counter offers and response time will be within the realms of the contract. Escrow will be opened at local companies of the buyer’s choosing, without fear of lopsided favoritism towards the seller’s interests.
A negative pest or whole house inspection may no longer be a deal killer, particularly when the buyer has a loan that requires clearance. Genuine human principles are more likely to influence decisions—buyers and sellers may actually make eye contact and hug each other after the keys are passed on. Once again, real estate sales will become less about the “deal” and more about the selling of a house to a family who will call it home, while the sellers make a reasonable profit and then move on to a new chapter in their lives.
We, as Realtors® may once again find satisfaction in helping people, as opposed to moving the product. Perhaps we can also restart that lost movement of building our credibility back. Seems to have fallen further these past few years. As the business has become more cold and cutthroat, so have our reputations.
In spite of the shifts, I am most positive and excited about the future of our industry. Once again the strong survive and then thrive. Partnerships and alliances have been formed via buyer agents and brokerage mergers. Most of us have by default been educated on the more complicated real estate transactions like short sales and REOs. That in fact, has developed a keen awareness of focus towards inspections, time frames, finance and certainly client care. We may gripe at the rules, but appraisals now have more integrity and no longer serve the interests of the mortgage broker. Sure, this market has spawned new forms of piracy and riff raff, but those miserable souls stand out like sleeves at a biker rally.
Realtors® can stand tall and proud, for we have proven that in the worst housing market of our lifetime and during an even worse economic recession, we have mostly been the rock of stability to guide buyers through a most confusing and uncertain process. The cleansing of our industry is running full steam and the consumer needs us more than ever.
Sure, the landscape has changed, but we still clip, mow and reseed that 2010 real estate yard, which we are so lucky to be a part of.
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