As home inventory and interest rates remain low in many parts of the nation, consumer confidence in housing is beginning to return. This is particularly true in California where supply cannot meet the demand of new homebuyers and investors. It is not uncommon that reasonably priced listings receive a deluge of competing offers. With the additional availability and attractiveness of owning a bank-owned property (more house for less money), some brokers have received more than 80 offers on one REO property. With the level of multiple offers at a record high, managing and securing the best offers while maintaining quality service may prove challenging.
While it might seem like a good thing to have so many people interested in a property, it can be exhausting to sift through the real offers, and those that are made simply to take the home off the market from competing buyers. There are several ways to approach this issue. According to Troy Capell, a Realtor® for more than 10 years in West Lake Village, California, “Discipline is a must. Brokers must develop systems and processes and follow them consistently in order to avoid confusion and ensure success.”
Here are some best practices for Realtors® and industry professionals on how to manage multiple offers in four easy steps.
Step 1: Providing Proper MLS Information
The first step to making sure that you have a smooth offer and negotiation process is to properly use the multiple listing service (MLS). The MLS is the real estate industry’s standard and primary system of listing properties and is used to provide all the necessary information about a property for sale to both the buyer and buyer agent. It is critical that you keep this information updated on a daily – if not hourly – basis. To help ensure a smooth offer process, you may consider including additional information in your MLS such as:
A. Clear directions on how your own offer submission process works
Adequately explain your process such as directing agents to send offers via a website, fax, or email. Providing real estate agents with an online portal to submit offers can significantly decrease any conflict that arises from multiple offers. An online system keeps track of the time and date when offers are submitted, provides an email receipt to the buyer when an agent confirms that the offer was received and gives the listing agent a centralized location from which to review submitted offers. Sometimes REO clients manage multiple offers differently, so agents and their buyers should know specifically how the seller operates to ensure no assumptions, confusion or frustration occurs.
B. Your (Clients’) requirements and standard practices
- Do they require buyers to get a pre-approval from a specific lender?
- Do you keep the property status updated with any changes within four hours, or have a process for agents to become updated via web, email or call center?
C. Financing details
- Do you list the available financing options for this property and provide multiple contacts of lenders who can finance this property based on their loan programs?
- Ensure that if the property is only available to cash buyers, this information is stated in the MLS, which avoids many unqualified offers. (Make sure this is cleared by your client first as there may be some prohibitions for various reasons.)
Step 2: Timely Notifications and Request for Highest and Best Offers
Once the property has been exposed to the market for an adequate time period (at least over a weekend or a time dictated by the client), then it is time to send out notifications to all buyers that have submitted an offer or will be potentially submitting within the due date. This notification should include the specific details about the negotiating process to the buyer and buyer’s agent, including:
- Date and time the highest and best offer is due back to the listing agent
- Details of the terms of the sale including inspection periods, pre-qualification requirements, and closing date
- Updated MLS reflecting the due date of the highest and best offer
Any new offer that comes in for consideration during this time should automatically be sent the highest and best notification.
Step 3: Diligent Analysis and Review of Offers
Once all offers have been received by the deadline, it is imperative that the listing agent review and analyze the offers carefully. It is not uncommon in this market of real estate scarcity and high demand to see fake documents and information from buyers. “I have seen documents ranging from forged bank account statements, to doctored pre-qualification letters from large institutional lenders, to deposit checks that are months old,” said Craig Finalyson, a Realtor® from Ontario, California. The documents were all submitted on some of his listings by both investors and homebuyers desperate to do anything to tie the property up in escrow.
Another problem that Finalyson sees on a regular basis is a practice he describes as “shot-gunning”—where investors throw out multiple offers on hundreds of properties at a time, several times, often unnoticed. Many times, these same investors are claiming that they can purchase the property with cash but reserve the right, deep within the contract, to secure private money loans on the property. Cash means money is liquid – i.e., bank account, stock fund, etc. Private money loan is just that, a loan, and is subject to conditions that lenders sometimes enforce even when the contract has no loan contingency – but non-contingent does not mean it will close without the loan.
It is imperative that the listing agent or his or her staff take the time to review all offers and ensure that the stated information is legitimate. Taking time to call and ask buyer agents several questions can dramatically reduce escrow fallouts down the road. Consider asking investor buyers these questions:
1. Has the buyer seen the property, and if so, when? (The presence of a certain number of days’ walk-through contingency is a red flag that the buyer has not seen the property.)
2. Can the buyer purchase the property with cash on hand today, or do they need to secure private financing?
3. How many other properties is the investor making offers on right now?
4. How many properties has this investor closed, and in what time frame during the past 12 months?
All signs point to a sustained housing market comeback. Now is a great time to review any processes or systems in place to determine if upgrades or improvements are necessary. You may find that you can streamline for efficiency and improve procedures—maybe even establish new ones—to minimize error and fraud. A quick audit and review of your practices can make a difference in successfully managing multiple offers on REO properties.
Mark Shandrow is CEO and Broker for Shandrow Group Real Estate brokerage in Long Beach, California, and a charter member of US REO Partners, a membership-based organization formed in 2010 by industry experts who have experienced the servicing default cycles more than once. Shandrow Group is a forward-thinking real estate firm that uses the advances in technology and marketing to reduce real estate transaction costs while also providing superior service. Responding to current market conditions, Shandrow Group primarily focuses on REO disposition, short-sale negotiations and buyer-controlled sales. More information about the group can be found on their website at www.shandrowgroup.com.