The Low Cost Way to Sell Your REO Inventory Fast
With REO numbers running rampant, alternative marketing strategies are becoming a must for lenders and servicers.
Auctions are being described as one of the best alternative disposition methods in the industry. More people are embracing the auction method, including real estate brokers and agents, title companies, mortgage brokers and mortgage companies.
These industry professionals see that there are different programs and opportunities for all through indirect buys, sealed bids and studio auctions, just to name a few, according to speakers at 2007 Five Star Default Servicing Conference & Expo in Dallas.
Auctions companies such as Williams and Williams, RealtyBid.com and Hudson & Marshall are making their programs known by educating those who work within the REO community. The truth is, according to the companies, auctions provide the least amount of friction and the least amount of fear for buyers.
Many economists believe the persistent glut of houses on the market will likely drop prices by 7% this year, making it an ideal buyers' market. In fact more buyers are purchasing foreclosed or "bank owned" properties at auctions because they can find even better discounts on homes.
Each property is not treated as a commodity. The auction model is retail driven. Williams and Williams conducts auctions every 30 days. People can bid by cell phone, online or through on-the-lawn auctions.
Auctions are 100% reliable, the company's president and chief executive said at a recent meeting of the New York Financial Writers Association.
Out of the 1,000 homes the company is selling a month, 800 are coming from servicers, who are in charge of selling real estate that is defaulted on in REO disposition.
If servicers relist in the traditional marketplace, they can average out tremendous losses. To follow the traditional route of hiring a real estate agent, setting a speculative price, Mr. Williams said 1% of the homes are sold at a price they are listed for.
Through his experience over the years, he has learned best practices cost properties 30% to get liquidated. "I think it's too much, 30% or 50%. The U.S. housing market is fundamentally overvalued. That is huge. Why is that a surprise? Everyone has been incurring on average, 30%-50% to get liquid. Might that have always been the signal that value speculated and being paid was at a 50% gap?" Although there has been a stigma attached to auctioning real estate, it is becoming more and more acceptable. RealtyBid.com, which usually receives properties from two sources - lenders and outsourcers - now takes properties from real estate agents and brokers, said Mike Keracher, executive vice president, sales and marketing. In this technology-driven environment, the eBay-type auctions are attracting more and more first-time homebuyers. During the company's first two years of auctioning REO properties, 90% of buyers were investors. Now that number is around 65%.
Recently, Hudson & Marshall, which conducts ballroom-style auctions, has sold and closed over 40,000 homes throughout the country.
The auction firm markets and advertises properties for specific geographic regions. Sixty percent to 65% of the properties are bought by investors. Some markets are seeing declining values and large amounts of REO inventory. "The auction method is becoming more acceptable," said Annette Hamilton. The cost savings through auctioning is important to note, she said, and through auctioning sellers can see liquidity in 60 days vs. 120 days or more.
Deborah Holm, vice president of national default sales and product specialist for First American REO Servicing in Denver, works with all of these auction companies. She finds out who is working in a specific location and pulls a list of properties in the specific state. Ms. Holm then studies the track offer history on the property. If there were several offers, why wasn't it accepted? If there were no offers, she recommends that the property be put in auction. If the property is listed at a low price range like in Detroit for more than 120 days, it should be given to auction as an alternative disposition method.
Asset managers use auctions to get more eyes on the asset. With six houses located on the same street, auctioning focuses attention on a specific property. It forces a decision. Multiple offers can come from people simply driving by the home who becoming interested in the bidding event. The home doesn't just sit there for 90 days with a for-sale sign in the front yard. "When the market is slow, all of a sudden the seller is control. People think this is a bargain, an opportunity to get a discounted home," said Mr. Keracher.
RealtyBid.com sends out an e-mail blast to those who have requested to see notification about upcoming auctions. The company concentrates on a particular state each month. Most recently, properties have been auctioned in Georgia, Texas, Colorado, Florida and Southern California.
Many of the auction firms use the Internet, television, street signs, radio and newspaper to advertise auctions in different locations. Marketing does cost time and money but it is worth it. Ads are also integrated through the online world.
"You have to get a lot of people to ensure a high bid," he said.
Problems have come up recently when buyers did not line up the proper financing or had another issue and had to back out of the deal.
Hudson & Marshall sold 91% of properties at auction over the last five years. Nearing the end of 2007, that amount could be down to 80%-85%. "Michigan has six times the fallout and borrowers not closing." (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/