Competition for REOs Heating up; Due Diligence Key to a Winning Bid

Freddie Mac’s HomeStep program, thernvehicle through which the company sells its foreclosed property or REO, isrnexperiencing increased numbers of multiple offers on its property a companyrnexecutive said today.  Buyer demand is collidingrnwith shrinking supplies of REO and, according to HomeSteps Senior VicernPresident Chris Bowden, Freddie Mac’s real estate sales unit sold two homesrnduring the second quarter for every new home the unit received. </p

In an article in Freddie Mac’s Executive Perspectives blog Bowdenrnwrites that this is good news for taxpayers who are currently benefiting from FreddiernMac’s profits, however, some potential buyers may be worried about being pricedrnout of the REO market.  The brokers whornhandle HomeStep properties are getting more questions from those buyers aboutrnhow multiple offers are handled and how buyers can best position themselves to submitrna winning one.</p

Bowden explained the HomeSteprnprocess.  First listing brokers arernrequired to enter all offers received into the web-based system and a cut-offrnday and time for submitting offers is set.   This date is communicated to each of the competingrnbuyers’ agents.  Any subsequent offersrnreceived before the cut-off are also entered into the system.</p

When the cut-off expires Freddie Macrnevaluates the offers to determine the highest and best one. In addition tornprice the evaluation looks at other factors including the concessions the buyerrnis requesting, the buyer’s intent to live in the home (about two-thirds ofrnbuyers are owner occupants) and the buyer’s capacity to close therntransaction.  </p

If any additional offers are submittedrnafter the cut-off they are entered into the system as well, but their post-cutrnoff submission is noted.  These offersrnare kept and evaluated in the event the offer initially accepted fails tornclose.</p

Bowden said the best tip for submitting an accepted offer is to do basic duerndiligence.  A buyer should determine howrnmuch home he or she can truly afford and if an affordable home meets his or herrngoals.  Buyers might consider meetingrnwith a HUD approved housing counselor or getting approved for a mortgage by arnresponsible lender.  </p

Next, he says, is the market homework, preferably done with the help of arnreal estate agent.  A buyer shouldrnidentify the communities that have homes within the established price range andrnwith the “must have” features.  Locationsrnshould be prioritized and communicated to the real estate agent so he or sherncan signal the buyer when an appropriate house hits the market. </p

A buyer can get a leg up by using the Freddie Mac/HomeSteps First Lookrnprogram which gives first-time homebuyers a 20-day window in which to submitrnoffers on new listings without competition from investors.  HomeSteps homes typically sell for an averagernof 95 percent of market value – helpful information to consider when making anrnoffer, Bowden says.</p

The bottom line is, “If you expect to succeed when there are multiple offersrnin a competitive market for a foreclosed home, do your homework,” he says, “thenrnmake sure your first offer is your highest and best offer.”

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