Lenders Need to Act Faster Than REO Home Price Changes
Hollywood, FL-Values are changing so quickly on REO properties that lenders are asking for updated BPOs within 60 days, according to speakers at the REOMAC fall conference here.
In fact, monthly reports on properties are becoming more and more relevant. As a result, many say asset managers should eventually collect a BPO every month in order to introduce market trends and get price reductions.
"Once that number is set, the fair market value, that's the number we will start the property listing with," said Molly Merchant, REO manager with Citi Residential Lending Inc., on the "Valuations, Pricing & Today's Market" panel. City Residential Lending requires two broker price opinions from agents. "It's really important the agents work with the asset managers. That's where knowledge and experience come together to get the value."
Michael Harris, vice president of operations, First American REO Servicing, says seeing reports on a monthly basis is important relative to what activity has occurred on the property and whether or not it is valued right.
"Have you done an open house and has it been successful? What is the number that is being presented? It starts giving a feel if the pricing is not effective. If we are seeing very little showings and no offers, then it's a pricing issue."
According to Ms. Merchant, lenders are seeing "as-is" listed and sold property comparables as well as "repaired" listed and sold comps.
"This really paints a broad picture for us. If I repair this property, this is what I think we can get for it," says Ms. Merchant. "If I sell it as-is, this is where I need to be or under. I think in today's market we need to be looking at both the listed and the sold comps. Since there are as not as many sales now, we need to look more at the listed properties. If some are conditioned at $200,000, I know we need to be listed at $190,000. At least, we should go out there aggressively for the first 30 days."
Citi Residential Lending supports rehab on properties, especially with the limited mortgage financing that's available in today's market, she said. "I really think we need to be looking at these properties and if it makes sense to repair them, we should do it. I think before if it meant spending $5,000 or $10,000, people questioned it. Now, I think that isn't anything anymore. Some paint, carpet. If that's what it's going to take to make our properties look better, let's do it."
She said it helps when the REO agent who is suggesting rehab includes the bids with their BPOs. "Citi does use property preservation to do their initial trash-outs and cleanups. We do utilize the agents and their local contractors to get the repairs done. I prefer to do it that way."
Citi Residential Lending also has a repair analyst on staff to assist the asset managers, review the BPO, and give an opinion if it makes sense to repair the home. "It's not always good to get a higher return. What's it going to take to move this property?"
At Citi, the lender can't contact the appraisers to discuss the appraisals with them. "We can contact the agents and go over details. It is necessary to list if it is a closed short sale vs. a listed. Lenders are more cautious about short sales. Make sure you identify listed and sold comps and whether they are auction sales, probate, REO or short sales."
From a loss perspective, Mr. Harris says it is important to look at what is happening if the asset manager puts money into a property and doesn't necessarily recoup the costs from the investment and capital expenditure.
"If you put $5,000 in, did you get it back? Maybe, maybe not. Are you increasing your buyer pool by making the repairs? Are you reducing your marketing time?"
Beatrice Davis, the membership chair for REOMAC, told attendees it is crucial to recognize client needs. This means being aware of the lender's schedule. "If I am in California, and I have partners in New Jersey and New York, often I have conference calls with them and I am in my office at 5 a.m., 8 a.m. their time." she said.
"If your asset manager's day starts at 8 a.m., don't hound them at 8:05. Give them some time to get through their morning. And give them the courtesy of 24-48 hours to return your call. That is standard time. But if you are coming in at 10 a.m., there is a good chance they are halfway through their day. If you try to call at 4:30, you may not reach them. Know your partners and clients."