Thursday, June 5, 2008

Our REO Rollercoaster

As I have alluded to in several of my recent posts, we have been trying to purchase an REO. I should emphasize the word trying, as it has been just that, a trying experience, and I feel the need to rant a bit. Unfortunately I was under the mistaken impression that an REO deal would be much easier than a short sale. Boy was I wrong (although my agent, who has done 7 or so, says this one has been particularly difficult).

To date, we have negotiated approximately 33% off the 2005 price of the home (it’s listed for approximately 27% off). The negotiations took quite some time as the bank/listing agent dragged their feet on just about every little point. Since we put in our initial offer, the other agent dropped the price 10k, perhaps looking for offers better than ours (annoying).

During negotiations, we also took a long hard look at the home, because we will be purchasing it as-is. At first glance, the home is in need of some major TLC, as well as some remodeling (which we are willing to do). However there is also some major HVAC problems under the home (the ducts were busted up). But without the utilities, we can’t tell the extent of the problem. This revelation also dragged out the negotiations (since it took two weeks to get an answer back).

In the mean time, an enormous hole was dug in the front yard by one of the utilities (it’s now been there over a month and no one seems to know who dug it, I have called at least 4 places looking for answers).

We like the home an awful lot, which is why we have stuck with the process to date. We also found out a friend of ours is under contract to purchase a home 8 doors down (and they have 2 kids the same age as ours). The home fits most all of our criteria and is very modestly priced for the area. We haven’t been able to find anything nearly as suitable for the price.

However the bank is now requiring us to sign an addendum which is not very buyer friendly. We have now submitted our own, addendum to the addendum, but have our doubts that they will get the utilities turned on in time for inspections to occur.

At this point I am not sure this particular home is worth the $$. I know the market will continue to drop. Mr. BT’s job is requiring a lot of travel lately, and his contract is not longer as secure as it once was.

In my 5 minutes of down time last night, I picked up my WSJ (the pile of unread copies is growing larger and larger), only to find that the bank we have been attempting to negotiate with is among the shadiest of them all. This helps explain our difficulties, and makes me even more prone to walking as they don’t seem to be a very ethical organization.


Max said...

You need to bail on this deal. You're already doing too much work trying to make this happen; the fact that they have you on the hook emboldens them to seek better offers and drag it out. I would send a short letter to the bank with a final offer amount with a 3-day expiration. Make it $10K below your past lowest offer. Include a single sentence expressing your disappointment with the difficulties you've been having and your unwillingness to take the process any further.

I bet they accept.

G Spot1 said...

Is the addendum a form contract? I'm not sure you are going to get very far with it. The bank is going to want to stick with their forms because it ensures them predictability and finality in the deal. No one at the bank wants to be responsible for creating a legal liability down the road. If you are trying to change the business terms you might be ok, but anything that limits the banks liability you are going to have a hard time changing.

I wish you best of luck on this house or the next one!

PeonInChief said...

I was gone with the ductwork problems, but the hole in the front yard would be the last straw. Some of this stuff sounds like it's really expensive and time-consuming to fix. It is not meant to be.

Deflationary Jane said...

I like Max's idea but I'd make it lower. The bank has a pig on it's hands and is trying to string you out because of all the 'spring bounce' hype. The bank won't take it but that's the point. Which sucks because I liked the place too but the mounting repair bill screwed the deal.

The fun part will be the asset manager having to explain to her superiors why they lost you. I'd love to be a fly on the wall for that one.

smf said...

Back out of the deal immediately.

I am in the construction industry, and I can tell you that remodels are nothing but a pain in the ass.

I would budget 2X the amount you think is going to cost, and it may still not be enough.

Plus living in a house partially under construction is just asking for trouble.

If you back out, the bank may come back later with an offer you can't refuse.

Max said...

The bank has a pig on it's hands and is trying to string you out because of all the 'spring bounce' hype.

I wouldn't rule out seller agent arrogance. The only real judge of your character is their representative; he could be playing you for unknown reasons (price target bonus etc.)

In my negotiations, whether it be Denios, ebay, or a $300K house, you have to have common ground and respect for each other. The way they're treating you reminds me of 2005 sellers tactics. Screw 'em.

Buying Time said...

When Mr. BT gets home tonight, we need to have a serious chat about our situation.

The way I see it, we are taking a big risk buying in a down the first place. So adding in more an more reasons not to buy this house, has really pushed me to the limit.

Ed said...

I'd suggest you walk away - there are too many homes in this declining market to get treated poorly. If you love this home, then I'd go with the decreased offer with a statement of final offer.

Ed said...

My wife and I have been discussing a this a lot lately (we are still shopping), and we use the term "ice water in our veins." We pick an offer, pick a final position, and we will not break our original agreement on that number/terms. We might counter up to our final position, but not higher.

Jacob said...

Do you mind sharing some info and the addendum they wanted you to sign?

Its too bad that the home has a lot of the things you want, cause it will make it harder to walk away. But it sounds like that is the best course of action.

In this market if you place an offer and get countered, you should counter with a lower offer than your first. Of course you have to be willing to walk away from the home to start playing that game.

But in this case there are some big cons.

1) Uncertainty in your husbands job.

2) Price is not a huge discount from what it "should" be so there is room for price declines, maybe large price declines.

3) Lots of repairs needed.

4) Some large repairs that you can't really be sure how severe the damange is, and you have to buy as is.

Your pros are all emotional reasons. You like the house, you like the neighborhood, friends with kids down the street etc. But none of those make this particular house a good deal.

But when all is said and done, if you get the house for your offer, and fix it up, and assume you have to spend double on repairs than you think, after all that is done, would you be happy?

If so then it may be the right move, but more than likely you will be better off waiting for the next home to come along.

Perfect Storm said...

The funny thing about REO's is that the individuals who are resonsible for handling them could care less if anybody buys them or not. It is happy hour and I am off work, time to forget about the REO's.

Were right on track for a 50% decline by 2009.

Hangtown said...

What part of "Real Estate is Over", don't you folks understand. Go home and come back in couple of years.

Curious said...

Don't walk, run. You're facing too many uncertainties in this deal.

Unless this house is more than $100k under the comps in the neighborhood, it's too much risk and too much stress.

There are too many red flags on this deal. Plus, you are facing increased risk on your income which could affect your short term ability to cover the mortgage and the remodel cost.

I'll try to find a way to email you privately for the address since I work in C&E for one of the probable utilities and can check further on whether we are the owners of the cavernous hole or not. : )

Curious said...

Email sent to your yahoo account, let me know if I can help. Good luck, either way.

JOATMON said...

I'd bail on this, though I do like the idea of cutting lower on a new offer to show that you won't roll over for them. Shrinking the stack of unread WSJ's should get you in the right frame of mind. Too much uncertainty w/ as-is purchase, HVAC questions, and a crater in the yard.

Sippn said...

You previously asked for advice, reread it.

REOs have pre written addendums.

Most have at least one problem, many have alot, a few are pristine and comparable to non-distressed homes.

It is a business, nothing personal.

It comes without warranties, disclosures, sympathy or empathy.

You only have the price to negotiate.

All that crap you are going to write is a waste - we're the only ones reading. The listing agent pulls the price off your offer, inputs it into a website and waits for an answer.

selmoh said...

Did you see the news about unemployment today ?

Imagine what is going to happened to the price of houses when people loose their jobs.

norcaljeff said...

Just keep lowering your price if you're still interested. Why are you in such a hurry to buy when bad news is followed by worse news?