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Current Market Conditions
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REO: Still an Opportunity
Its
selling season once again. Inventory temporarily down and the number of
buyers, at least in the bay area visibly increasing. Many buyers are
looking into distressed homes, bargain hunters have buying up homes at
an unprecedented rate. Actual sales have risen 91% year over a year.
The
Wall, Street Journal reports: As a weak housing market nudges the
foreclosure rate higher, next year is looking promising for investors
in distressed real estate. Lenders are stuck with foreclosed property
and slashing prices or selling through auctions. Add ongoing job loss
continuing beyond recovery and you can see why huge surpluses should
continue to drive prices.
Realtytrac offers research insight
into distressed markets. Here is what they had to say: Their U.S.
Foreclosure Market Report: Realtytrac sees a 10 percent decrease from
the previous month but still up 18 percent from January 2008. One in
every 466 homes filed for foreclosure January.
“The extensive
foreclosure efforts on the part of lenders and government agencies
appear to have impacted the January numbers, particularly the Fannie
Mae and Freddie Mac moratorium on all foreclosure sales that was
extended through the end of January along with Florida’s voluntary
45-day freeze on all new foreclosure actions and scheduling of
foreclosure sales that was announced at the beginning of December,”
said James J. Saccacio, chief executive officer of RealtyTrac. The
moratorium may have skewed the numbers lower for short period, but that
is over now. Sounds like the expectation is likely we are in for
another foreclosure surge.
There are three distinct REO strategies you can focus on:
NOD
The
Notice of Default (NOD) list. With the NOD list, you are dealing with
the owner. Ideally, the property will have a high equity, low
Loan-to-Value ratio. Why? Because your profit is the difference between
what the equity in the home is and the bank loan. Success here is based
on the agents ability to bring bad news to a stressed client and still
manage to keep the client in a positive framework. Finessing the
relationship is key to keeping the client in the game and not in denial.
Short Sales
With
a short sale you deal directly with the bank. The problem for the
investor is the bank is not willing to sell a property considerably
below current market value (another customer in denial). The second
huge problem is that the banks are under staffed and over whelmed. Very
difficult environment to work with, by the time you get an answer from
the bank, its often the case that the buyer has left the scene.
Forclosure
Its
expected that there will be a third big wave of foreclosures as the
Fannie and Freddie moratorium passes. Financial institutions have ended
their self-imposed foreclosure moratoriums and new foreclosure filings
hit record highs. As the supply in that market swells, look for even
further discounts to come. Housing markets slow down in the fall and
winter, so distressed property prices should be even better.
The Math
It
was clear to me that this is a very active market and that buyers were
out to buy. I asked a real estate agent who specializes in REO in the
bay area. I was interested in the cost benefit of selling distressed
property. I could see sales volume on the rise and buyers were actively
buying, but can you make money doing this. After all, distressed
property means low dollar volume. The volume of short sales and
bank-owned properties throughout the San Francisco/Bay Area is
staggering. Thousands of REOs are currently on the market, and many
more short sales than that. Most of the short sales will become
bank-owned because only a handful of them are approved short sales,
those where the listing agent has gone through the trouble of
negotiating with the bank pre-emptively. For more information about
short sales you go to Gabrielle Dahm's Squidoo page.
Bank-owned properties, also referred to as REOs, can be spectacularly good deals. They can also be disasters waiting to happen.
Let’s
first address the financial aspects. Generally speaking, REOs offer 20
to 50% discounts on properties in the market place. There are some hot
areas in which REOs make less sense, however, because their prices are
being driven up by multiple offers. Sometimes as many as 20! Clearly,
there is no deal in that scenario.
Just as with regular
properties for sale, location, condition, layout, neighborhood, and
amenities make all the difference, especially for many of the first
time homebuyers now flooding the market thanks to Obama’s First Time
Home Buyer’s tax credit.
Getting into the REO market place
requires guidance. Just like anything else, you can do it by yourself,
but why would you? It’s like doing surgery on yourself and the outcome
is a guess. That said, it pays to work with a real estate agent who is
able to discern the banks’ approach, and who knows how much to bid, how
to submit the offer (this is far beyond writing an offer on a contract
form). The realtor also must be persistent, responsive and in contact
with the bank.
Now back to the question as to whether REOs are bargains.
The
short answer is, it’s an individual assessment that requires homework.
An excellent and enthusiastic real estate agent on your side will do
that homework and understand your motivation for wanting to own a
particular property. Deep discounts are available, fixers can make for
an attractive bargain, the sellers are motivated, special loan packages
can make your buying experience much easier, Just as you, the buyer
want to get a great value on the property in question, so does the bank
want to get the highest return. Comps are still important. And of
course, always factor in the time and cost of any repairs or remodeling
for the property in question. Some REOs are likely to be good
investments while others aren’t. Work with a realtor who presents a
package solution, maybe even one who deals with buyers only because
shooting from the hip is gambling, simply put.
Need More..
SomeTips
Interview
the realtor you are going to work with and find out whether they will
show you short sales and whether they know how to negotiate them, plus
how they intend to represent you and what kind of protections they have
in place for you in regards to the property you want to own. Also, ask
them to explain their view of the local market to you, as well as how
they will help you get the right home at the lowest price.
1.
REO trade associations: that focus on the REO and default markets like
REOMAC or National REO Brokers Association (NRBA), a group with about
800 members.
2. Industry Events: Five Star Default Servicing Conference to meet people in all aspects of default servicing.
3. Education: Spend time on realtytrac and forclosure,com., rismedia and Radar Logic
4.
Check out the smaller institutions: Local and regional banks and credit
unions, they may be more receptive to a short conversation.
5. Real Estate Agencies: Talk to agencies that are specializing in REO's.
6. Law firms: that specialize in legal matters for banks with large foreclosed portfolios.
7.
Property Management Companies: Some management companies will handle
REO property for lenders. If the property has tenants then they will
collect rent and handle all management issues. Much of the time it is
limited to lock down and trash out functions. Talk to national
companies like Keystone Asset Management, Premier Asset Services and
Midland Loan Services (Do a Google search). Gabrielle Dahms can be reached at 415-200-7202
REsourced from www.yourpropertypath.com
You may republish these articles, as long as you do not edit and you
agree to preserve all links to the author and Your Property Path.com
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