Understand the Bank’s Motivation
Understanding the motivation of the other party is a fundamental principle in successful negotiating.
And dealing with the bank on these packages is no different.
In fact, from a motivation standpoint, a bank isn’t that different than an everyday motivated seller of a single piece of property…
…IF you have the cash to perform.
The same rule applies with bulk foreclosures; if you have cash (or access to it), you can get some REALLY good deals.
And the more properties you buy, the cheaper the prices you’re able to get the properties for.
What Motivates Banks
Banks make money when they lend money. They’re not in the real estate business.
They are mandated to keep a certain amount of cash in reserves so that they can offset their non-performing assets.
So the more REO’s they hold onto, the less money they can make from their lending business.
So if you have the cash, you can make magic happen with these bulk packages.
Know the Lingo
The more you can do or say to show you know the game, the better off you’re going to be in this business.
It just makes you sound more credible.
Spreadsheet = “Tapes”
One slang word you’ll hear a lot is “tapes.”
A tape is an Excel spreadsheet that contains a list of non-performing properties a bank is trying to get off of their books.
A tape can have anywhere from 10 to 1,000 or more properties in it.
The information you’ll find on the spreadsheet includes the Property ID assigned to each property by the bank, the price, along with
full property address, and sometimes a broker price opinion (BPO) on the home and the property’s condition.
(Note: The above list of items in the tape assumes you’re looking at a tape of non-performing REO properties. The information for other types of assets of course would be different.)
Master Fee Agreement
You’ll need an MFA (as they’re more commonly called) if you’re to be paid at closing from bringing the buyer and seller together.
It’s crucial that you get this taken care of before you bring the buyer and seller together. That way you make sure you’re protected, and that it’s documented that you’re to get paid.
Otherwise, you’re taking a risk of the buyer and seller cutting you out of the deal once you introduce them.
This document lets the seller know that:
- You’re not the buyer, and that
- Your end buyer has confirmed that THEY are the buyer (the end buyer signs this document)
- You’re to be paid out of the proceeds when the deal closes
- Lets the seller know how much you’re to be paid when the deal closes
Proof of Funds
Just like it sounds, this is a letter that lets the seller know that you have the money to be able to close the deal.
It gives the seller some assurance that you aren’t wasting their time.
To be honest, they don’t hold a ton of water, but they’re just part of the process. Proof of funds letters are a dime a dozen.
Non-Disclosure Agreement
Non-Disclosure Agreements, or NDA’s, are legally-binding documents that you’re going to be asked to sign before any bank will let you see their bulk REO inventory.
This is because these properties aren’t listed, and they want to keep the information discrete.
Letter of Intent
A Letter of Intent, or LOI, is what you submit to the seller that outlines your initial offer on the package.
These documents aren’t binding; they more or less just show that you’re getting serious about buying from them.