REO Expert Shares Sales Strategies

One of the most important aspects of selling bank-owned properties is to “know your assets,” according to David Brown, vice president, director of REO at First Horizon National Corp., Memphis, Tenn.

Brown, a 20-year veteran of the real estate world, will be speaking at the Best Practices in Short Sales & REO conference, hosted by Mortgage Servicing News Nov. 9-11 at the Westin San Diego.

In preparation for the show, he spoke with Managing REO about the latest strategies his company is using to liquidate REO.

The team at First Horizon National Corp. makes it a point to line up resources and engage with the asset prior to foreclosure in order to shorten the gap from ownership to listing. Brown said he is a “big fan” of separation of sales and administration roles.

“I like to have sales folks making preservation, listing and negotiation decisions without being burdened with compliance, audit or other administrative functions.”

The 20-year real estate veteran has grown to expect “intimate familiarity” between his market managers and their assets. Brown’s advice is to beware of anything that separates the asset manager from the asset, whether that is outsourced asset management firms, internal process or even technology.

“Asset managers need to feel ‘every bump in the road’ as they preserve, value and sell their assets,” he said.

In order to move homes during these challenging times, it is crucial to know individual markets and market forces. Is there oversupply, under demand? What are the drivers and how is pricing strategy affected?

Brown recommends that asset managers get to know their agents. Just like no two REO are alike, so are no two agents.

“Interview them and be sure to get the right one in the right place (e.g., Park City vs. Salt Lake City are different markets). Who will the likely buyer be, and what would they want to see in terms of price, features and property condition?

Banks and REO managers depend on brokers and agents and cannot sell real estate without them. More is demanded of them today and they have more at risk.

“They work harder than ever and are on the front lines of our national recovery. Their levels of professionalism and use of technology, even in the most remote markets, continue to impress me,” Brown said.

“They have responded well and adapted to a broader audience of just buyers and sellers. They have to respond to ever-changing demands of asset management companies, idiosyncrasies of banks, and in many cases unique demands of the FDIC and GSEs.

Today, the mantra “real estate is local” isn’t refuted, and is, in his opinion, a key requirement to the effective management and disposition of REO.

“Local became national and is again becoming local. Handshakes, full documentation and traditional underwriting used to be the norm,” Brown said.

His recent experiences in REO have taught him a lot. “It’s easy to play ‘Monday morning quarterback’ and second guess a lender’s decision after the loan fails, but in many cases, it’s like the show ‘CSI,’ discovering all the factors that contributed to loan failure. It’s this forensic thinking that has brought me back to the mantra, ‘real estate is local.’”

Today’s markets are commonly declining in value, and as time goes on, the gap between market value and the list price grows, he pointed out.

“The longer an asset remains at an irrelevant price, especially in a sale or unpreserved condition, it will both lose value and become rejected by the local market. Essentially overlooked, it will grow into a negative stigma for the area.”

Brown requires weekly agent communication, monthly agent reporting, quarterly broker valuation and no less frequently than quarterly listing price reviews. This essentially becomes a circular pattern enabling a re-release of the property into the marketplace should the price decline.

“The alternative is a lender with increasing levels of other real estate-owned with longer days on market creating a lock on capital and resources while in the background, values are declining, properties are degrading, and latent expenses are adding up.”

He speculates that there are hundreds of thousands of homes held by the FDIC, the GSEs’ equity companies, or even some larger lenders that “lurk in the shadows.”