Working in REOland

[CANative]

It's getting brutal in some of the communities and cities I work. REO, short sale and foreclosure activity is so signficant that any opinion of market value stretches the definition.

One thought that's been running through my head but is still half-baked is how the REO/short sale/foreclosure seller's unique position influences the market offering and their willings or ability to withstand long periods of typical exposure time can effect other sales prices.

Is there any use in trying to make some attempt at equalizing these types of sales to market sales... perhaps by comparing the outstanding loans amounts or other factors? What about differences in the time required to sell these properties. In one area it might take 6 to 9 months to sell a property. But sales at blow out pricing for REO's have taken less than 40 days.

I don't know. Just grasping at some straws.

 

[TJSum]

When I work in subdivisions like this, I find the liquidation value pretty much equals the market value. With prices dropping several percent each month, what advantage is there to a longer marketing period? If you don't mind a six month marketing time as a seller, who cares, in six months at the current pace prices will have dropped another 15% or so. The only thing seeing offers at all are the distress sales or "regular" sales that have dropped their prices to similar levels in order to be competitive.

 

[Otis Key]

It's getting brutal in some of the communities and cities I work. REO, short sale and foreclosure activity is so signficant that any opinion of market value stretches the definition.

Some of my responses are redundant and antagonist but something to think about.

Do you include data and information about that market to support where you're working? (don't answer)

One thought that's been running through my head but is still half-baked is how the REO/short sale/foreclosure seller's unique position influences the market offering and their willings or ability to withstand long periods of typical exposure time can effect other sales prices.

Hell yes - If I was in the market to buy I would look at an REO in hopes of getting a better deal - so they are the competition, but not always for the "first time buyer".

Is there any use in trying to make some attempt at equalizing these types of sales to market sales... perhaps by comparing the outstanding loans amounts or other factors? What about differences in the time required to sell these properties. In one area it might take 6 to 9 months to sell a property. But sales at blow out pricing for REO's have taken less than 40 days.

I don't know. Just grasping at some straws.

Well, if there are so many of them, then they have become the market. Read the data my friend and you'll see that the market reflects itself and all we do is report it. The information is there and sometimes it takes you to step back one step to the full forest behind that one tree. You're probably appraising in a market that is now an REO market and the values are coming to a full reporting as they should be.

 

[Metamorphic]

It seems like as the REO ratio climbs, the gap in sales price between an REO and a normal sale gets smaller and smaller to the point where they're interchangeable. You can put a REO in the comp grid with 3 normal sales. Make all same same adjustments, and the REO adjusted price is right there with the 3 normals.

 

[jay trotta]

Met; and the REO adjusted price is right there with the 3 normals

who's the daddy now ??????

 

[Kali the Boston Terrier]

I'll try and give you a perspective of an area that has already been where you are, where it is going, and how to look at it. When the REO market and the sales/short sale start to merge, for a brief period the prices look the same. Basically its a race to the bottom...after the dust starts to clear you have three distinct markets REO, SHort Sale and Regular Sales. To a certain degree all of them are distressed sales...because if you have to sell in this market you are under some duress.

However I refer to them as three distinct markets because they all have completely different market delineations defined by different buyers. REOs tend to be cash buyers that can afford to finance the project themselves and are looking for a specific return on capital. For us in Detroit they tend to get about 20-25% above and beyond their acquisition price and the cost of the repairs...provided they either refinance (from rent) or sell within 3-5 months of acquisition. If there are no repairs, which are common, like in the case of Express Path Financing REOs they still sell at about 10%-15% (higher the range for more affluent areas) of the market which I attribute to oppurtunity cost, Pain the *** for closing, and/or stigma. The range is all about marketing time and repairs, the shorter the time, obviosuly the lower the price. The trick is getting to know what bank wants it sold in what time frame.

Short sales tend to be first time home buyers looking for a deal. Typically the bank will really only seriously look at a short sale if it is a real buyer and not an investor. In our market these are usually the only non REO sales left. If on the rare occasion there is a non short sale, the short sale tends to sell about 5-10% below what the regular sale (without repairs). A couple of years ago I would have never used a short sale, unless it was my last resort. Now they are the only sales.

After awhile you will get a backlash in your market from REO and short sales. People will start avoiding REOs and short sales because of the hassle. SOme buyers do not want the trouble of fixing up a house or the closing debacle which we call REO. WHen that trend starts to happen you will see statements in the Remarks "Not a bank owned!". Then suprise, suprise it will actually sell in a decent amount of time, albeit discounted. When that starts happenning is when you have three distinct markets, be careful not to mix the sales up in a report without clear distinction of value.

 

[Mike Boyd]

Some of my responses are redundant and antagonist but something to think about.

Do you include data and information about that market to support where you're working? (don't answer)

Hell yes - If I was in the market to buy I would look at an REO in hopes of getting a better deal - so they are the competition, but not always for the "first time buyer".



Well, if there are so many of them, then they have become the market. Read the data my friend and you'll see that the market reflects itself and all we do is report it. The information is there and sometimes it takes you to step back one step to the full forest behind that one tree. You're probably appraising in a market that is now an REO market and the values are coming to a full reporting as they should be.

OTIS.....;glad to see you are back!!!

And, I agree with you. Greg, stop looking so much to the future with your reports....unless you are doing relos. Your reports are for the effective date (being the day you inspected the property.) If foreclosures and short sales are your market, so-be-it.

 

[CANative]

Thanks Brian! I've had a lot of those thoughts occur to me but I haven't been able to organize them and watch for patterns. Listings in some of the neighborhoods I am working are indeed proclaiming "Not an REO!"

I'm going to copy and paste your reply so that I can digest it at my own pace.

Greg, stop looking so much to the future with your reports....

I'm not do that. I just want a better way of figuring out why the differences in sales prices between to very similar properties cannot be explained by cost or anything rational. Some differences in sales price approach what it would take to demolish and build a new structure but in reality the differences are not that great.:Eyecrazy:

It must be all those years of channel adjustments. j/k

 

[Kali the Boston Terrier]

If you ever need anything do not hesitate to PM me.

 

[Gregory Beck]

It's getting brutal in some of the communities and cities I work. REO, short sale and foreclosure activity is so signficant that any opinion of market value stretches the definition.

One thought that's been running through my head but is still half-baked is how the REO/short sale/foreclosure seller's unique position influences the market offering and their willings or ability to withstand long periods of typical exposure time can effect other sales prices.

Is there any use in trying to make some attempt at equalizing these types of sales to market sales... perhaps by comparing the outstanding loans amounts or other factors? What about differences in the time required to sell these properties. In one area it might take 6 to 9 months to sell a property. But sales at blow out pricing for REO's have taken less than 40 days.

I don't know. Just grasping at some straws.

As the short sales and REO sales become more prominent that will become your market.