Disposing of REO Properties Still a Challenge
With markets across the country reporting excess REO inventory, it's important to come up with strategic ways to actually move these properties.
Part of the marketing strategy for asset managers is the desire to come up with new initiatives to attract buyers from other states and other countries. This is what industry insiders discussed at the REOMAC fall conference in Hollywood, Fla., during a session on "Turning REO Properties in a Saturated Market."
"There are 50 properties for every one buyer. Some agents have the mentality to have more volume - that they will only turn a certain percentage. That's the market we live in," said Todd Mobraten, COO for US Real Estate Services Inc. and its subsidiary Res.Net.
"The turn ratios of the total portfolios of servicers have gone up. It keeps going up every month. Not too long ago, we saw this huge REO market flood in. Everyone hoped there would be a 9%-11% turn ratio. In a matter of six months, it bumped up to 15%-17%. Now everyone is asking for 21% and it will be 30%. As more and more inventory comes in, they have more and more loss."
When it comes to alternative marketing strategies, asset managers continue to look at the option of auctions, which is a very scary word for a lot of agents, he said. "They see it as a threat taking away their business and livelihood. It is another strategy to get the home moved and it can help you capture a larger audience and a wider marketplace."
Michael Harris, vice president of operations, First American REO Servicing, says his company works with national online auction firms while simultaneously working with the local market MLS. This increases the buyer pool, according to Mr. Harris. "There is greater competition for the purchase of the homes. It shortens the marketing times," he said during the panel.
Michele McCoy, vice president of default servicing at Fifth Third Bank, says auctioning is still considered by some people to be taboo and a last-ditch effort to turn over real estate-owned properties. "Like everything in REO, times are changing. Look at auctions as an adjunct strategy. Before it was used as a last ditch effort. Now, we are not just auctioning the lower-valued properties. We are throwing everything in the mix now."
The other good part about the auction is the fact that it's another way to get exposure to the property even if it doesn't sell, said Mary Abarca, vice president of REO at PMH Financial. "It showcases another price range. If you were to put your property in an auction and you get an offer and it's $90,000 but it's listed at $110,000 - you may not take $90,000. But what it does, it gives you an indication of what the house is really going to sell for. And then you can turn around and the asset manager can present this to the seller."
Ms. Abarca believes the industry needs to practice price reduction. "In this case, the property has been exposed by the listing agent and the auction. We've had no offers from the listing agent and one of $90,000 from the auction. Obviously, we need to rethink our value. It's just another tool."
The speakers agreed that many of the auction companies in the market participate with the listing agents and are not taking away from their ability to sell the house.
"The auction creates excitement," said Marc Oppenheimer, a broker associated with Re/Max Greater Atlanta. "In Atlanta, we have simultaneous auctions and the public is mesmerized. We're able to sell the house and negotiate the offer. Everyone wants a foreclosure. My retail sellers aren't getting as much action. Just the word 'foreclosure' and 'auction' causes excitement. It works."
Ms. Abarca likes to see when local agents send in monthly status reports on properties to indicate trends and forecasts.
"The asset managers do follow this. I always tell them, 'Don't be robots.' You can't reduce the price every 30 days by 5% all across the board. Indicate important things in your reports that have happened in the local market. No showings? That is one factor that indicates you are not getting any activity and the home is priced too high. Did a major factory with 5,000 people just go out of business or file for bankruptcy? If this is happening in Ohio and I'm in Florida, you have to tell me."
The lenders said monthly status reports are more important that the initial BPO. "The market is so hard, it's very hard to nail it right after you put it on the market. You need to explain to me why there should be a price reduction or not. Tell me if you think we should paint the exterior. Show that you are being creative. That's what the asset manager wants," she said.
Ms. Harris agreed. "Give us your opinion on how the house will sell. Remind. Gently nudge the asset managers. Everybody is busy because volumes are so high. Don't bug or e-mail them every 10 minutes."
In terms of disposing of REO in today's market, offers are being rejected, countered, and managers are getting frustrated because there is no explanation as to why.
Ms. McCoy said the outcome often depends on a lot of different factors associated with each property. "It might be it's an investor owned property with restrictions. Or a bank-owned property and there is some lender who is emotionally tied to it who made the loan. My client is saying that there's no way the house could have deteriorated that much," she said.
"Or it might be it was a bulk sale and they can't afford to take a total loss on many properties all at once. It's generally not an emotional decision."