Eyeing a Market Opportunity In First-Time Home Buyers
Marketing and presenting REO properties in today’s market is not handled in the same way as it was two years ago. It’s a completely different ballgame, says Robert Klein, the founder and CEO of Safeguard Properties, a property preservation provider in Valley View, Ohio.
There is a whole new competitive market with short-sale strategies, as well as foreclosures and REOs up against homeowners next door who are trying to sell their own homes. “It’s not so much a price reduction. In my opinion, it’s more the appeal of the property that is going to make sense. The industry obviously wants to accommodate cities from the point of view that they want the property sold to a homeowner instead of investors,” Mr. Klein tells Managing REO.
“There is a lot more communication now with the cities and with the servicers and lenders to get as much return as possible. In order to get that, the way the property is marketed is more important than it used to be.” It’s no longer “sell the property as-is,” adds Mr. Klein.
“Lenders and servicers are investing money into properties to make it more appealing. It certainly depends on the value of the home on whether on not you are going to do repairs. But even if you take a property with damages and the value doesn’t justify putting $5,000, $10,000 or $20,000 into it, there will still need to be some action taken to make the property more appealing.”
The first step is to make it clean so when a potential buyer walks in the door it doesn’t smell like an REO.
“Regardless of the value, the maintenance, or curb appeal, you are trying to entice, you are trying to sell to a buyer’s market. Salesmanship is going to do it and the property value is going to be very critical. It doesn’t really matter if you put repairs into it or invest in the property — it’s more the appeal. I think the key is potential buyers have to be able to envision themselves living in the home. When it smells and looks bad, they can’t do that.”
There is a big push to move REO properties towards first-time homebuyers. Investors are jumping through hoops to figure out ways to best lock-in a property, working hand-in-hand with communities and nonprofit groups on no-value properties to use as donations. There are a whole variety of functions being performing on a mainstream level. Fannie Mae, Freddie Mac and HUD have programs specifically geared to entice first-time homebuyers. “Investment-wise and training-wise, there is tremendous effort on getting these properties to first-time homebuyers.”
Properties need to be separated into different categories. Each one such as low-value homes must be addressed in its own fashion to attract the highest price. The same process and procedure is not done on a $500,000 home that you would on a $50,000 home. “It’s all about making an evaluation about the category or what I call the bucket it belongs to and making the strategy accordingly. You need to have different strategies for different categories of properties.”
While the main goal of numerous local, state and federal laws is to prevent foreclosures, Mr. Klein says what happens when the property is vacant? Twenty-eight percent of the properties before foreclosure have become vacant, he said.
“You have a large group of properties where the homeowner is no longer there. They have abandoned the home for whatever reason. But the moratoriums that have been put into place still apply to these properties. Take it to the next level — certain states have a foreclosure process that can take anywhere from 18 months to sometimes more than that. Now you have a situation where the property is vacant, and there is no chance of trying to keep the homeowner in the house because they’re already gone.”
Mr. Klein said the foreclosure process stops the servicer from being able to take the property to foreclosure through the length of the process. Safeguard sees this happening all the time where a property becomes vacant that looks fairly decent and is in good condition.
“It is definitely marketable to a homeowner to start the property. By the time the process ends, which is 18 months later, the property is garbage. It’s been vandalized. All that time the property is sitting there vacant. I don’t care how well the servicer or bank maintains the property, a property that is vacant is going to deteriorate.”
Once a property is vacant and abandoned, it should be fast-tracked right to foreclosure, he says. “Everybody we talk to agrees with me. The question is how do you do it? Now it’s a legal process and every state has its own laws, but the logic is there. There is no reason why properties should sit there vacant in that state for months and months and months.”