When default management firms maintain bank-owned properties on behalf of servicers, the ultimate goal companies have is to provide their clients’ nonperforming assets with the greatest amount of value so they can be sold to buyers for more money.
There are generally two strategies that firms can utilize to market REO homes to a prospective buyer: either a wholesale or retail approach.
With the wholesale approach, which many of the larger servicers currently use, multiple people are appointed the task of marketing the property. For example, a regional area manager may assign the property to a local asset manager who then hands it to another asset manager.
“It just keeps going down and down from person to person, which dilutes the ultimate goal of bringing the most value back to your clients,” said Joe Bada, CEO of Five Brothers, in an interview.
Another aspect of the wholesale strategy is that Realtors also already have a list of investors who want to buy the REO properties. As soon as the properties hit the market, the Realtors immediately contact these investors so they can bid on the homes first.
However, Bada said his firm has instituted the retail method over the last two years. Bada said this strategy is a “unique approach to selling properties on a nationwide basis because it uses local flavor.”
Through the retail approach,
Additionally, the Warren, Mich.-based company hires a local Realtor who knows the proper value homes are sold for in that region. Furthermore, the Realtor knows whether repairs such as changing doorknobs, fixing windows or renovating the bathrooms are needed to enhance the overall value that the REO home could sell for.
“These things are not common for Realtors to pay attention to in the industry. A lot of times, a Realtor is too busy to handle selling a distressed property and they don’t concentrate on getting it off the market, that’s why it sits there for over a year,” Bada told this publication. “In our situation, our Realtors get more for the property than what they are asking for on a 40% basis.”
Bada said Five Brothers gives Realtors three months to manage and market the property effectively. If the first Realtor can’t complete the sale within this time period, another broker has to then sell the asset immediately.
“We’re not going to let the property sit on the market for a long time,” Bada added.
Also, once the REO properties are available on the open market, Bada said anybody can bid on the homes, whether it’s an investor who is “shooting for the bottom price” or a future owner-occupant.
“When you’re competing for a property, it’s the person who wants it the most that gets it,” Bada said. “We sell the property to the highest bidder. Everything is all about perception when it comes to buying an REO property that this is a good house in a good neighborhood with good value.”
