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Multiple Offers and Highest, Best and Final

As an Exclusive Buyer's Agent here in the Chicago market, I can tell you that multiple offers for REO properties with it's subsequent, Highest, Best and Final offers is becoming very common. I would like to use this forum to express my utter frustration and anger towards the system currently in place to handle these multiple offer scenarios.

To make it simple; WHY DOES THIS NEED TO BE A 'CLOSED BID' process???? To make it easier and more fair in my personal and professional opinion I advocate an OPEN BID platform whereby the end buyer/investor can see the other bids and adjust their HBF accordingly. The closed bid has a great flaw in that the buyer/investor who really wants the property is 'shooting in the dark' without knowing what the 'other guy' is thinking. I appreciate that Banks and Asset Managers believe this will yield the 'highest' offer but I think they can arrive at that number by opening it up.

The downside to this as I speak with my clients presented with these multiple offers is they get discouraged and frustrated with the 'buying a foreclosure' process and we as Real Estate and Banking professionals LOSE credibility and trust due to the perception that we are GREEDY and playing games. Why not have a transparent OPEN BID (ie. Auction) scenario which will most probably arrive at the dollar amount the seller wants and give the buyer their 'best shot' so at least they see where they need to be versus 'winging it'.

Oh how it would SUCK if my client today loses a HBF offer on a beautiful SFR because they were off by $1,000 on their offer!!!!!

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Comment by Henry B. Torn on July 29, 2009 at 7:34am
I really appreciate all of these comments. Jesse I especially want to thank you for this forum to 'vent' and to share ideas with my REO Brothers and Sisters!
Comment by George Bellino on July 28, 2009 at 10:02pm
I understand your frustration Henry. I have seen this happen many times on the other end as the listing agent. These banks are definitely giving cash offers priority but sometimes thay are doing the right thing. Only about half of my sales are cash and a little more then half of them wouldn't qualify for a mortgage. Most are selling for 50% or less of what the original mortgage was. So somebody out there is loosing alot of money. Sometimes you have to put yourself in the AM's shoes. I'm sure they have monthly quotas to meet and a cash deal is as close as you can get to a sure thing right now. Never the less, is I was a buyer right now I would be pretty happy with what my dollar can buy. Buyers just have to be patient and understand that this is how the process is right now. My advice to buyers agents is that when your buyers find a house they really like go after it full force instead of trying to get a bargain on a bargain. Too many times I have seen the mortgage buyer put an offer in first at a much lower price then they would actually pay and then a cash buyer comes in a little lower than that and gets their offer accepted. Also, knowing how to put together and present an offer goes a long way with REO's and most agents don't. That's one of the reasons banks are liking cash offers right now. Putting in an offer with just a pre-qualification is not going to hold much weight against any other offers. Just keep pressing and those buyers will eventually get a house.
Comment by George Kenner on July 28, 2009 at 5:34pm
Your very right but Real Estate making sence is long gone. In So. California we have even had our offers rejected by low apprasied values by the banks. We bring an offer for 300 k an they say the property is worth 260k which instructs the sellers that even they do not know what they are doing.

The banks are trying to protect against future losses by not making loans which is just making their already Toxic Asset even more Toxic. The Million Dollar sale in California is dead for the most part. If your under 600 you have a shot but if your over that in value you really have no value because you can not get a loan or a buyer to consider the purchase.

The million dollar loans are now going into NOD status in my area zip code with no sales in that value for a few months. This spells a problem someone is going to have to deal with.
Comment by Kim Knox on July 28, 2009 at 5:26pm
Have you ever used an Acceleration clause in a contract for a REO?
Comment by Henry B. Torn on July 28, 2009 at 11:03am
Ok so the obvious happened. My client did not get the deal. Don't know who or what it sold for but I would bet it was an all Cash buyer. So I should probably modify what my frustration and not advocate for a wholesale change to HB&F offers in today's REO World. Maybe AM's and Banks should just work with the all cash buyers and only ask them to give their HB&F. Why even give the average Joe and Jill prospective homebuyer the chance to offer if the probability that they submit an accepted offer is nill?

And what about these CASH OFFERS from buyers who are obviously from other countries? What is the source of their CASH? Is there a system in place that HOMELAND SECURITY and THE FBI monitors these large purchases here in the U.S. and the source of this money?

So maybe I should just advise all my clients that unless they can purchase their REO home with all cash then the likelihood of them actually purchasing is slim on high demand properties!

Comment by George Bellino on July 25, 2009 at 9:50pm
I agree. But every one of those low offers that comes in takes time to submit. Highest and best, with a deadline, is one way to avoid having to submit low balls and counter offer after counter offer. Now when we get multiple offers we put forth some pretty stringent, seller approved, conditions. The winning bidder would have to sign an addendum pretty much stating if they don't close for any reason they lose their deposit money. That seperates the serious from not so serious. So if the highest bid won't sign then we go down the line until somebody agrees to sign.

As far as the multiple offer " disclaimers," I don't feel that's the listing agents or AM's responsibility. It's real estate 101 that the seller can pick whichever offer they want to and the buyer isn't my client. The buyers agent should be informing their client of that.
Comment by Henry B. Torn on July 25, 2009 at 3:37pm

You are right on with this. We are coming from two different viewpoints as I represent end buyers and you represent sellers. I don't understand how my proposal to open up the bidding and terms has any bearing on 'low ball' offers which of course are to be expected. Let the clueless buyers who think they are smarter then everyone else make their low ball offers and lose everytime. Eventually they will get the cold hard reality that when all is said and done the MARKET will speak!! I also should emphasize that there should be some 'disclaimers' from the Listing Agent or AM when it comes to multiple offers that spell out in very easy to read English that the seller has the right to pick any offer they wish to and it is not always the 'highest' bidder that gets the deal. Yes unfortunately buyers don't want to hear the truth which is that CASH IS KING and that there are other factors including closing date, ernest money, inspection contingencies and finance contingencies.
Comment by George Bellino on July 24, 2009 at 8:28pm
In my opinion it is best the way it is. Too many buyers would just bid higher or put a quick closing date just to get the property. Then inspections come along and they want cash back or their closing date gets pushed back. Also, when would it end? As a listing agent I like the highest and best without providing numbers to buyers because it gets rid of the buyers just trying to steal a property or come just high enough so they can get it off the market and then try to play games with the price/terms. There would be counter offer after counter offer. There are too many buyers out there watching 60 minutes and reading the papers who think they can get any property for 30% under list price. I have seen many buyers lose houses because of that mentality. I recently had a property listed at $285k and got over 20 offers. The highest was a mortgage at $330k and in the end the bank went with an all cash $285k offer with no inspection contingencies. There were at least 6 higher mortgage offers and agents/buyers couldn't believe the bank chose the cash offer. I agree that in the end the bank will probably end up netting the same both ways but revealing prices/terms will just make the process more frivolous. Your mentality is probably coming from a buyers agent mentality, where as mine is coming from a listing agents.
Comment by Henry B. Torn on July 22, 2009 at 2:49pm
I appreciate this Jon. And I agree that the appraisers may not know the markets like the buyers do. My attitude is that now more then ever buyers for the most part are extremely educated as to where the market is and these 'bottom feeders' by definition only buy wholesale!! They know very well where their upper limits are and will never ever OVERPAY for a property!! As far a change is concerned, I am advocating for change to make the process more transparent to the end buyer.
Comment by Jon Baker on July 22, 2009 at 2:38pm
Henry, I wish I could agree that buyers do know their markets, however, it seems appraisers and agents don't know market values recently. I believe an unacceptably high percentage of contracts would see big problems with the appraisals, especially now. The other problem with an open highest and best period is that ALL of the terms of the contract would need to be open, not just price. The contract is to be between the buyer and seller and it would be difficult to keep terms of a contract confidential when all the other buyers have had access to it. Very intersting topic. Maybe I just don't like change. :)

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