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How To Handle Declining Markets

With a housing slowdown nationwide, sellers are in a position to be hurt more in a down market and cannot fail to recognize what they need to do to make their properties sellable.

Hold back on high prices and ask a price commensurate of the marketplace. This is the advice of one industry veteran who has been in the business for more than 20 years. Take a back-to-basics approach and focus on communication at every level of the business, especially if the seller must get the property off the books quickly, says CJ Gehlke, president and founder of REO Nationwide, an nationwide outsource company in Newport Beach, Calif.

No matter what market it is, a seller is in trouble if they price too high, she adds. "If you are in a down market, that doesn't mean that you change what you are doing. You get back to basics. It gives us a wakeup call to pay attention." Success in a real estate downturn is all about communication and making good choices. "Communication becomes more important in a down market. Good business practice is always important but difficult to attain, particularly when we have a whole industry of new staff, some of who have not seen a down market," said Ms. Gehlke. "Many have retired. And there is no school to teach new people and get them fit for a down market. It's all about everyday good business, which becomes even more important."

The goal is to give the owner of the property as much information as possible on the home and to give the lender choices regarding how to deal with the asset. The asset management company provides choices for how to market the property and turn the asset into cash in as little time as possible. Lenders make decisions on how to maximize their bottom line and limit the red ink.

Complications such as winterizing homes and end-of-the-year accounting are particular issues that can add up this time of year, she adds, which is why lenders strive to find outsource companies with the best capability and quality of service.

Many properties lose value because of severe winter issues, according to Ms. Gehlke. "During this time, you have to try and price the home well so you don't end up eroding value further because of the sheer fact it's winter. If you lose a day of generating a new loan on that property, that's more holding time, which costs the lender money to keep the property."

Lenders also try to clean up inventory through auctioning houses to get rid of those that they can't guarantee to get offers on for the traditional rate and time. Auctions allow buyers to set the price within reason and buyers have a more active role in setting the price. In the more traditional market, lenders go through an outsource company and the price is set through communication between all involved including the Realtor and asset manager, and the seller must listen and respond accordingly. The price can then be adjusted.

Overpriced homes are sitting on the market even longer these days. They attract lookers, not legitimate buyers, Ms. Gehlke says. She believes it reduces the number of showings and helps the competition look better. "It waste's an agent's time and most often, the lender will be resentful that it didn't sell, move the listing to another agent at a lower price, and they will be the ones getting paid for the work the first agent did on the overpriced listing."

Pricing a property creates a sense of urgency in the minds of buyers and agents alike. Buyers are often reluctant to make an offer on a home that has been on the market for some time thinking there might be something wrong with it. "When the asset is listed a little lower than the others, not only does the house look like a bargain compared with higher priced homes currently listed, but the price will be in sync with some of the underlying shifts in current market dynamics," she said.

Realtor research indicates that at 10% overpriced, only 2% of the available buyer pool will view a listing. Alternatively, at 10% under priced, over 92% of the available buyer pool will view a home. "There are fewer serious buyers. Those who are tend to be well informed and picky."

First impressions are key as buyers often make decisions about a home within the first few minutes of entering the door, according to Dianne Usher, senior manager, Royal LePage Real Estate Services in Toronto, Canada. "As the real estate market begins to moderate in many markets of the country, the need to impress buyers becomes even more crucial."

When asked which home improvement they would pay a premium for, 79% of buyers said they would be willing to pay more for a home with a renovated kitchen, while 73% would pay more for a home with a renovated bathroom.

Jodi Holmes, senior national REO sales specialist with REO Nationwide, says it's important not to chase the market during a downturn, because it will lengthen as asset manager's marketing time and could end up costing more in the long run. "Some of my clients are real aggressive and they understand that. Some tend to price on the high side and end up sitting on properties longer and then later they have to reduce them. Those properties can cost more than if they had just priced it on the lower end to begin with."

Cities across the nation are getting creative in handling vacant properties. Property preservation companies say there are plenty of things those assets managers can do to improve the movement of their REO properties.

While in the past, mortgage servicers had the option to be selective about the repairs being done, today, they are much more aggressive in their approach to marketing REO properties, evolving beyond basic cosmetic repairs, according to Allan Martin, chief executive offer of Mortgage Contracting Services in Tampa, Fla.