Five Ways to Reduce Re-Trades
- Feb 16, 2011
Special servicers and lenders are experiencing an unnecessary number of re-trades during the due diligence process when selling a real estate owned property. Here are strategies we've found that work to guard against a re-trade when representing special services or lenders, creating an optimal situation for seller as well as the buyer.
Special servicers and lenders are experiencing an unnecessary number of re-trades during the due diligence process when selling a real estate owned property. A re-trade happens when a bidder is identified to purchase a property and then determines they want to have a price reduction based on any number of findings. This is more likely to occur when the REO seller doesn’t have enough in-depth knowledge of the property, such as its trade area, tenancy issues and true property value.
Ultimately, sellers want to maximize value and get the best price for their bond holders, and buyers want to be comfortable with the distressed property they are acquiring as well as the price they have offered. Below are five ways we have found that work to guard against a re-trade when representing special servicers or lenders, creating an optimal situation for seller as well as the buyer.
1) The buyer needs to be prepared for the process. They need to understand that, with a REO purchase, things can take longer. Many times there are no guarantees. There are also added risks. We want them to enter into the process with their eyes wide open and if they believe they need to change their price, they need to do it early on.
2) The buyer should be pre-qualified. You can’t take a buyer at their word. If they want to pay cash, request to see the cash, talk to their banker, or if needed, verify overseas money. If they want to use financing, investigate deeper to see who they have as a lender. Talk to them. Make sure that the lender will finance a REO property. If the buyer has recently purchased a property, contact the previous seller and interview them about their experience with your potential buyer.
3) Provide the bidder with a clear understanding of the property. Let them know what the true vacancy is, if the anchor tenant may leave, and how the appraiser came up with a value. Most lenders and receivers don’t have good information about the property. You can’t take the previous borrower’s word. Someone needs to go in and interview the tenants and property manager. Make sure all the tenants are still there. Confirm the rents they are paying. Investigate the property to understand exactly what is going on so the buyer can be well-informed and secure in the price they are paying.
4) Be creative with REO properties during the marketing process. What are the hidden opportunities? Show the buyer how they can make money. Advise on the reality of increasing shop rents, selling off pads, and the potential for a break-up strategy. Create different scenarios to show a buyer how they can potentially make a return on the deal.
5) Compress the due diligence timeframe. Time kills deals. Once a buyer is pre-qualified, educated about the process and the property, and shows they are serious, they need to be required to make a substantial deposit. Once that happens, the closing process can be more flexible as it needs to be with a REO property.