On the listing side, REOs are mostly about having a tightfisted, unresponsive, disinterested seller with a strong desire to minimize transaction costs and avoid all potential liability for the sale. For a “day in the life” view of what REO listing agents do, see Sheryl Vogel’s REALTOR® ONLINE ARTICLE. Although some lenders will spread REO listings among local real estate companies, more will work through only one local company or a large national “servicing” company whose business is handling REO sales for lenders. Listing REOs, if possible at all, is about making a deal with a demanding seller who has its own way of doing things. REO listings are, therefore, not for everyone.
A real estate professional on the listing side of any real estate sale has three general responsibilities. They will market the property, negotiate the deal and assist the seller in closing the resulting transaction. Those general responsibilities don’t change with a REO listing, but the way each is accomplished almost certainly will. Most banks and REO servicing companies have their own listing forms. These forms bear no resemblance to the MLS-generated homeowner listing forms most real estate agents are familiar with. REO listing agreements typically impose significant additional duties on the listing agent.
Marketing owner occupied residential real estate is about working with the homeowner to get the listing, throwing the listing in the MLS, running some ads and waiting for the buyers. REOs don’t work that way because there is no owner occupant to deal with. There is often no one at the property to discuss the condition of the property, make disclosures regarding the condition of the property, arrange for pre-sale repairs or staging or do any of the myriad of other things sellers usually do when they want to sell their house. Banks typically look to the listing agent to assume the duties of the owner occupant.
Most REOs come from foreclosures that dispossessed the owner-occupant. That means the previous occupant was living there for a period of time, sometimes a significant period of time, under severe mental stress and with no money. The condition of the property at the time of listing can, therefore, vary anywhere from an empty, neat and broom-clean house to a squatter occupied dump that has been stripped of all wiring and plumbing. Listing agents often become the point person for the bank in dealing with these issues. Indeed, some banks expect the listing agent to not only evict squatters, but fund with their own money getting the property in condition to sell. A wise listing agent will work through exactly how occupancy and property condition issues will be resolved before taking on the listing. Most lender service companies that handle listing REO property have provisions in the master listing agreement about such things.
The up side of REO listings is that REOs actually attract buyers (and their agents) because “REO” signals discounted property and that can mean the listing agent will see a flurry of lowball and oddball offers as soon as the listing goes active. How to deal with lowball and oddball offers, and the distrust and distaste of some buyers and their agents, are things the listing agent should work out with the bank at the time the property is listed. Some banks will handle the “lowball/oddball” issue by instructing the listing agent not to take offers below a certain price or on certain terms. Some will require buyers who make offers with finance contingencies to pre-qualify for a loan through the selling bank even if they are seeking financing elsewhere. Both of these strategies for dealing with lowball/oddball offers can put listing agents in a tight spot.
Oregon statute requires the listing agent “To present all written offers, written notices and other written communications to and from the parties in a timely manner without regard to whether the property is subject to a contract for sale or the buyer is already a party to a contract to purchase.” ORS 696.805(2)(b). Oregon administrative rules go a step further and require that: “A real estate licensee must promptly deliver to the offeror or offeree every written offer or counter-offer the licensee receives.” OAR 863-015-0135(2). As if that were not enough, the REALTOR® Code of Ethics wades in with: “REALTORS® shall submit offers and counter offers objectively and as quickly as possible.” Standards of Practice 1-6.
The statute, rule and Code provisions regarding the submission of offers and the like are often taken to mean the listing agent must submit every offer they receive to the seller whether the seller wants to see it or not. That cannot, however, be the case. Real estate statutes and rules and, of course, the Code of Ethics, do not apply to sellers. An agent cannot make the seller consider offers the seller has told the agent they do not want to consider. You cannot have a rule that says the agent must obey the seller and one that says the agent must make the seller consider offers they have specifically told the agent they will not consider. Fortunately, real estate rules create no such a conflict.
There is no reason to interpret the “present written offers in a timely manner” requirement as requiring the agent disregard or disobey the seller’s instructions. The seller has every right to say what they will or won’t consider as an offer. A piece of paper with the buyer’s signature and terms is not an offer to the seller if the seller has specifically defined what they will consider an offer. The seller can define the manner in which offers, in the form they demand, will be presented to them. They can define what they consider “prompt” by defining the circumstances. (“Prompt” means as soon as is practical in the circumstances and the seller can control the circumstances). In short, the seller can tell their agent they will not consider any offer that does not meet certain criteria established by the seller to be an offer. Until and unless the offer becomes an offer the seller will consider, there is nothing to submit or present or to be prompt about.
What is needed as far as the listing agent is concerned are clearly written instructions from the seller establishing what will be considered an offer and how the agent is to handle submissions from buyers that do not meet the seller’s definition of offer. The agent needs clearly written instructions because the agent does not have the authority to unilaterally decide what is and isn’t an offer. Real presentation rules are designed to prohibit agents from deciding themselves what the seller should see, but that doesn’t mean the seller cannot decide for themselves what they want to see. If the seller doesn’t want to see all offers, get the seller’s limitations on offers in writing and disclose those limitations up front to other agents and buyers by making it clear they are the written instructions of the seller.
Written instructions from a seller are wonderful things, REO or not. Unfortunately, when the seller is a bank, written instructions can be hard to come by. Banks aren’t people. They employ people to act on their behalf. That means the interests of the bank and the interests of the people employed can be two very different things. That the bank doesn’t want to see certain offers may or may not be the bank’s idea. It could be the idea of a burned out ex-mortgage broker riding out the real estate bubble they helped create by hiding out in the bank’s loss mitigation department doing REOs until things blow over. Such people know they can say pretty much anything they want to as long as there is no written record of what was said. The trick for listings agents is to make sure there is a written record of what is said.
Email is the perfect tool for the control of bank employees. Confirm everything that could come back to bite you, or the bank, your client by email. If a bank employee tells you not to forward offers unless they are above a certain price or that the buyer must be pre-qualified by the bank before an offer will be considered, thank them for the instructions and immediately repeat them back to them in a nice email. For instance:
“This is to confirm your instructions regarding offers on our listing #____________. I understand that you will not consider any offer below $_______________________ and that I am to inform buyers of this requirement and that their offer will not be forwarded for consideration if it is below $____________________. I will place this limitation in the MLS remarks so that agents understand your requirements. I also understand that offers contingent on buyer financing will not be considered unless the buyer has applied for and received a pre-qualification letter from the bank. Again, I will inform all buyers that this requirement must be met before their offer can be submitted for your consideration. I will place the requirement in the MLS remarks. Until I hear otherwise, I will proceed based on your instructions not to forward offers that do not meet these requirements.”
If the bank employee who signed the listing is not the same as the one giving you instructions on the listing, copy the email to the person who signed the listing. If they tell you stop copying them, send them an email that says “per your instructions, I will no longer copy you on emails regarding our listing # _____________________.” If this sounds paranoid, it is. Banks are institutions that handle other people’s money. Many of them are in serious trouble. They employ lawyers. The people they owe money to employ lawyers. When something goes wrong, you don’t want to be the one left holding the bag. That doesn’t mean being obnoxious or obstructive, but it does mean practicing situational awareness and paying attention to details.
Situational awareness means keeping things in context and thinking through potential consequences. Here is a true story that illustrates the point: A broker with a REO listing that wasn’t moving at $235,000 received an email from the bank’s loss mitigation department telling the broker to reduce the price to $99,000. The broker phoned their contact at the bank questioning the instruction, but was told: “do what you’re told; we need to get some interest going on this property.” Concerned about the potential for an unlawful trade practices claim if the bank had no intention of selling at $99,000, the broker emailed her bank contact person explaining her concern and suggesting the bank ask their lawyer about it. The broker immediately received an email from the loss mitigation manager saying the reduction must have been a typo and the price was really $199,000.
There is little, if anything, a broker can do to change the business practices of their lender client. It is often impossible to know whether what you are being told is the position of the client or just the position of the client’s employee. About all a listing side real estate licensee can do is keep from getting stuck holding the bag if something goes really wrong. The only way to do that is to document the client’s instructions and make certain there are written records that show why things were done as they were. It is always a good idea to then make sure the buyers, agents, third-party service providers and others involved understand what the seller wants as well.
Arranging for repairs, utilities, staging and the like is a good example of documenting instruction and making sure others understand why things are being done as they are. REO property is absentee-owner property. That means that the seller doesn’t know much about the property, isn’t around to do things for themselves and generally isn’t very responsive to marketing needs. This tends to put pressure on the listing agent to make arrangements, sign documents and so on. There is nothing wrong with that as long as agents remember they are not the seller and act accordingly. For instance, if the agent is ordering repairs, or utilities or arranging for staging, the order or contract for any services should be, whenever possible, in the lender’s name, not the agent’s, even if the agent will sign the order.
If Big Bank is the owner, and Sammy Sale the agent, the service order or contract should be in the name of Big Bank and is signed: Sammy Sale for Big Bank. The agent should be sure Big Bank is aware of the service order or contract for services. Again, this can be done by discussing the matter with the client and confirming the discussion with an email. For instance:
“This is to confirm our conversation yesterday regarding repairs on the property we have listed. Pursuant to your instructions, I will act as your agent to arrange for the repairs we discussed to be done on your behalf.”
Make sure the contractor makes the contract out to the client and that you sign for the client. That way, if something goes wrong, you are clearly an agent acting under the instructions of the client.
Some REO listings contain provisions requiring utilities, repairs, and so on to be in the listing agent’s name. This creates risk for the agent. Whether the listing is worth the risk depends on a number of factors. First and foremost are the terms for reimbursement. For instance, many REO service companies demand that all expenses be accounted for at closing or they will not be paid. That can mean the agent bearing the costs of utilities, repairs and so on if there is no sale. Read the master listing agreement and resolve these issues up front with the client. Regardless of who is paying, the key on the listing side is the same: The agent is acting under the instructions of the client as an agent and must make sure the records reflect that arrangement.
Back to Top