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Is Price Everything for REO Properties?

Date:March 3, 2011 | Author:Diane Tuman | Category:Real Estate Advice

Here’s the situation: A person in Oregon, “Zwoe,” made an offer on a foreclosure property. The asking price was $520,000 and Zwoe made an offer of $500,000. The seller’s agent asked Zwoe to submit a second offer due to “multiple offers.” Zwoe never heard back, but learned the home was sold for $460,000. The question in Zillow Advice by Zwoe is:

Was my offer legitimately rejected?

Zwoe was bidding on what’s known as an REO property (“Real-Estate Owned” or “Bank-Owned Property”). It’s an interesting discussion between agents, lenders and Zillow community members to understand the hidden ins and outs of REO properties.

> Learn the difference between a short sale, foreclosure and REO property.

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Responses (4)

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DebtFree 9:57 AM - Mar 4,2011

The discussion of that offer paints a train wreck scenario, where a lack of transparency, agent self-interest, and tightly-controlled access to information leaves consumers at a substantial disadvantage, and completely vulnerable to unscrupulous real estate agents.

After a house sells, all buyer offers made, and all seller rejections of those offers, should be recorded as public information. This would shine a bright light on the activities of real estate agents, and provide consumers with actionable information to follow-up on unethical behavior.

Today, consumers are left twisting in the wind, with limited information, and little to no recourse to address shady dealings.
Diane Tuman 10:01 AM - Mar 4,2011

You’re right, DebtFree, but is the lack of transparency because the bank is involved and it’s not a traditional sale?
DebtFree 12:45 PM - Mar 4,2011

This same story plays out on all types of transactions — foreclosure or not — and consumers are forced to “trust” real estate agents whose interests are often diametrically opposed with those of the consumer.

Consider the example provided by Chris O’Connor in the discussion, to illustrate why the listing agent would prefer the lower offer:

Look to see if the listing agent had both sides of the transaction.

If the listing agent only represented the seller and your $520k contract was presented and accepted the listing agent would earn:

3% of $520,000 = $15,600 or maybe 2% = $10,400

If the listing agent had both sides of the transaction they would earn significantly more even at a lower contract price:

6% of $460,000 = $27,600 or maybe 5% = $23,000

=====

I have seen this behavior first hand, where the listing agent tried to put my deal aside, and put together another deal where she had both sides of the transaction, and double the commission. I threatened legal action, and would have followed through, had she not recognized the error of her ways.
Wendy Lee 5:56 AM - Mar 6,2011

I too have run into “questionable” activities when an agent is handling both sides of the transaction, but in my experience with REO properties in poor condition and need a lot of repair work, price is not always the main factor. If a buyer has cash and can close quickly the seller may just accept that offer which is a sure thing, even though they will get less money, rather that risk a denied loan, and a lengthy wait to close. I have see that happen even in cases where I was the agent for a buyer with a higher offer on my own listing and the seller took a lower cash offer.
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