Home : Blogs : Kristal Kraft ~Denver Real Estate~303-589-2022 : Denver Real Estate & Relocation

REO Manager...Would YOU buy this?

broken down abandoned house Foreclosures are dominate in the market these days. You don't need a special map or even an address to pick them out of the neighborhood. All you need to do is drive down the street with your eyes open. They will pop out at you.

Why? There is a "look" a foreclosure has, a sad neglected, nobody loves me type look. Why? Because nobody loves them, that's why. The investors or management companies in charge of them just aren't paying attention. Instead of sprucing up the properties with some basic tender care, they are throwing them on the market "as is" thinking some one will come along and buy them, just because.

Well REO Manager...guess again.

Your houses don't stand out. They do not shine, they are dingy, dirty and nasty. Newspapers, fliers and tumbleweed adorn the front yard. This makes them magnets for taggers and other persons looking for fowl play. Why advertise vacancy? Why ask for more trouble?

Marketing a home in this huge sea of mediocrity takes a sharp strategy. It's not time to play "let's make a deal." It's time to check on your asset, improve it. You need to do what it takes to bring it up to the neighborhood standards, before it along with the 25 others in the area bring the neighborhood so far down, there's no end in sight.

What does that mean?

Be proactive. Create a budget for fix-up. Paint and carpet will go a long way to sprucing up a home. Adding new appliances will attract a buyer too. Will you get your investment back? Probably, if the time-value of money means anything to you, you will end up selling the asset sooner, with less fallout.

It's time to "get real"

Getting real means accepting the fact that buyers aren't going to purchase a home just because it's a "foreclosure" and they think they are getting a good deal. Buyers want a real live "good deal" not a pretend one.

Would YOU buy this house?

In the end its all about supply and demand. We have a huge supply of foreclosure homes on the market, but the demand is not there for crummy, nasty, dirty homes that need fix-up. Unless you reduce the price. Price the crummy, dirty nasty homes at an "as is" price and they will sell.

Which will it be? More days on market or proactive strategy to eliminate the glut? The choice is yours, are REO Manager are you up for the challenge?

Kristal Kraft

Broker Associate, ABR, CIPS, CRS, GRI, ePRO, PMN, PNG
TheBerkshire Group, REALTORS
3801 E. Florida Ave., Suite 400
Denver, Colorado 80210
303-589-2022 ~ direct 303-953-5362 ~ fax

Selling Colorado Since 1984, Serving the Following Areas:

Denver Home Search	Highlands Ranch Home Search	Parker Home Search	Englewood Home Search
Littleton Home Search	Search Denver Foreclosures	Greenwood Village Home Search	Relocation to Metro Denver

Posted by Kristal Kraft ~Denver Real Estate~303-589-2022 on 12/15/2006 12:59 PM

Comments (36)

reo managers, foreclosure, real estate, colorado

Originally posted at: Denver Real Estate & Relocation: REO Manager...Would YOU buy this?

36 Comments on REO Manager...Would YOU buy this?

DEC

2006

It's a no brainer for me - just a small investment can make these properties attractive and marketable. I always like the way you put your ideas out there - so refreshing! TAKE THE CHALLEGE REO MANAGERS!

Sometimes the obvious needs to be pointed out--even to wiley old codgers. You CAN pick these homes out just driving by, before seeing the official vacant structure sign on the front door.

Jay Merton

I have a client who has decided that she would like to get into this flipping business - yes, I've told her she missed the boat by a couple years - but we go out occasionally to look, anyway. We have LOTS of short sale homes here thanks to the 100% financing and ARM's. The problem is as you mention. The homes are deteriorating, but the bank won't budge on the net price because the mortgage is/was too high. The amount they want to net is fast becoming the price it should be listed at.

There are particular neighborhoods (3-4 yr old homes) with a good number of these homes in them. As you say, it's adding to the inventory problem because these homes just sit, plus, it's bringing down the value of other homes. 'Z's' zestimate will further hurt these neighborhoods once those short sale prices start being reflected in their updates from Auditors.

We sell bank foreclosures when one is in the mix of homes to show a buyer. But, to date, I have rarely found one that is the real "bargain" that buyers expect when looking at a foreclosure.

These homes are a tremendous untapped resource of asset recovery for the banks. Or, they could be a good resource of instant equity for our buyers.

If only someone would cut the dang grass

What I don't like is when a foreclosure has the "look" and the Listing Agent has it listed as though it's not a foreclosure. The photos on the MLS look great.... I'll find out it's a foreclosure because the Agent will give me a call after I set the appointment. The Agent will make the house sound like a great deal.... Then the house really looks bad and neglected once we actually see the home, no Seller's Disclosure, and priced above the market.

I find a FTHB doesn't want the house that needs a ton of work. They can barely squeeze in as it is and they can't afford to buy a home in that condition.

People think because it's a foreclosure that they're getting a deal. They've been watching too much TV or going to the "building wealth" seminars....

Not a market segment we have worked with - but as foreclosures increase - it may get on our radar. Good information!

Kristal, Just got through writing a blog on the subject of buying foreclosures on my other blog to post while I'm on vacation...great minds think alike.

"Marketing a home in this huge sea of mediocrity takes a sharp strategy."

But it does not necessarily mean that someone would have to spend a bunch of $$. People want nice houses ... or at the very least- presentable. Clean up the yard, clean the floors and throw up a coat of (cheap) paint ... maybe put $100 into it?? I would almost guarantee that those acts - alone - would set the home apart, and make it sell quicker.

Thank you, again for a great post, Kristal!

Hello Kristal and all you other AR bloggers......yes, it is me....I am back and ready to get back in the middle of things again. Foreclosures are 99% of what I work with. I can find a few a week that are willing to sell but the ones I focus on are the ones with 30 % equity in the home that I can buy outright and turn around and flip and make a larger profit. There are ton of people willing to hand over their home so that they do not get foreclosed on; however, there normally isn't enough equity in the home to make it a sound investment on our part.

What do you do then? Hmmmmm....well, there are a few options. Possibly if the person can get back on their feet and just had a bad case of luck due to health, etc..... You can pay the backpayments for them for instance, have them quit claim the property to you and do a "lease back" to them with the option to purchase the property back from you in one year.( A Re-fi pulling equity out at that time) You definitely have to do some homework on these though so you don't get stuck trying to evict the individual and get stuck with another mortgage payment or paying the whole amount all at once.

If they have exhausted all other options and can't work something out with their lender it is almost best to give them some cash to walk away and turn round and flip the house after repairing what needs to be done. It can be a win-win if it benefits the home-owner as well as you; the investor.

Give me a call or anyone at 1-866-807-2887 and we can pick each others brains if you like.

Happy Holidays and Have a Prosperous New Year!

I have been dealing thia market for over 10 years. The asset manager asks what would optimize the recovery, but the work is almost never done. It has been this way since dirt was new and is not going to change. The lenders are already loosing money and, for the most part, are unwilling to drop more money in the hole. It is what it is.

Lenn - If the grass is not cut then the agent is at fault. This exterior maintenance is always approved.

Rich

I've shown a couple of foreclosure homes in the past which were priced at least $20K below value. Back then to a first-time buyer, these might have sound like a good deal. However, many times upon closer examination on the inside, there were just too many repairs needed and of course, the banks would not budge any further. I'm sure though if things continue to head in the same directions with many people losing their homes to foreclosure, then the banks will come up with better strategy.

It's the same as washing a dirty car before you bring it to the car dealer... a little spit and polish goes a long way! Most of the time it doesn't even require investing more $$, it's just having someone (who you are probably paying already) put in a couple of hours to make it "look" nicer.

I used to do a fair amount of foreclosure work back in the early 90's. It was a lot of work, especially in the winter time. I worked with some wonderful REO Managers and some real obnoxious ones. I finally told one young twirp from California that I had taken enough of his crap and he could take his listings and shove them. I believe those were my exact words. It felt really good.

I suspect the work will be coming again since we have been doing a ton of BPO's.

The Listed Foreclosures in Atlanta are so nasty, some agents won't even show them. The REO listing agents don't take any pictures of the homes, I guess thats why. LOL

Lots of great information, Kristal, as always. Unfortunately some of these situations area really tough as no amount of sprucing up, etc. is going to get them the money they want to net in this market. I suspect we will continue to see this for some time.

The REO's in my area are just starting to come back on the market. For almost a year the REO's disappeared. When they were prominent I gave up on trying to put offers in on them, because they always got caught up in the bidding and ended up selling way over market. The local banks took advantage of the situation, and never let the homes sit in bad condition. They have renovation teams and contractors, and always went for the top dollar. I know the "good deals" are out there, but I'm still trying to find them.

I am not presently working with foreclosures; but is actively looking into it because I think my market place will be seeing alot more .

Great post Kristal! You described my neighbor's house to a tee. I have been already telling clients about a potential foreclosure coming up.....

Bought for $395 in 2005, listed for $465 by summer 2005. Currently worth only $380, that would be in pristine condition. Has a great virtual tour that was done right when the bought/listed it. Since then it has had two renters that trashed it. Never watered the plants. All landscaping dead, pool green, hate to see what the inside looks like.

Virtual tour being used shows lovely green vegetation, sparkling pool, and overall a well cared for home. If I were an agent dragging a client through the home I would be VERY mad after seeing the deterioration from 1 1/2 years of neglect! I don't know if I would be more annoyed than the poor lady across the street trying in vain to sell her house, great condition, well cared for, priced well below other neighborhood comps, no takers

I have a house now that in total disrepair. I would not even ask the bank to "spruce it up". It needs to be torn down. It was not the bank that put this home (and I use the term loosely) in the condition that it is in.

Three things I see happening.

1. With the amount of REO's we are presently seeing, the 80/20 rule will apply and some of them will be nice. Especially the ones that were bought in 2004 and the new buyers took out an equity loan to "fix them up" which is why they are losing it now.

2. The banks have to be getting overloaded with these. Sooner or later they will be in a hurry to dump them and the "deals" from long ago may start to appear again.

3. The market will turn and this will all be a bad dream:)

Kristal, what a great article. I read it twice. I'm always looking for expert opinions to refer back to on this subject since its (foreclosures) so intriguing to the young and inexperienced investor. You're so smart.

Great article. It's the same as any other listing. If the listing Agent cannot tell the Bank what has to be done with condition and price, then you get an overpriced listing. The Agent believes the bank will provide more listing if they go along with the program. But, when it does not sell, the Bank will dump them and start the process all over again with another hungry agent who can't walk away, except the house will look worse by then.

I sometimes get the feeling the REO Department is where all the new people start and think the higher prices they can get, the quicker the get to move up.

Kristal, Thanks for the good points you make in your article. Here's my opinion. By doing some minor touch-up work on the REO property we are limiting the buyers to only investors. As you know, my first time homebuyers cannot visualize what a little paint and carpet can do to a well-priced REO so they pass on it to pay more for a non-REO in better condition.

Ines ~ I know the REO Managers have a ton of properties, but that is because they aren't taking the challenge!

Jay ~ Here in Colorado we have the "official this house has been winterized" seal of confirmation...(don't use the potty!) :)

Elaine ~ The trouble is the "short sale" prices are the comps. Of course how good of a comp is it if the home is el crappo inside? el crappo to el crappo works, but not el nico to el crappo. I think the people doing these bpos are hoping for el nico...but don't get it.

Lenn ~ I am amazed at the lack of care the listings have. When I handled REO's I made the rounds twice a week to be sure they looked ok. I kept a plastic trash bag in the trunk to place the newspapers and fliers in. The grass was cut by a service. You are right about the value just not being there. Just the same buyers want to "take a look" just to be sure they aren't missing out on something.

Lauren ~ Everyone tries to follow that "dream". If they were such hot deals, we won't have them!

Suzanne ~ your area must be at the "lagging indicator" stage. Just wait.

Gena ~ Great minds indeed! Foreclosures can be a good deal when you have the right property. That usually means the right REO manager has blessed the right Realtor with the right priced listing...Right?

DEC

2006

Mariana ~ you are so right. It doesn't cost as much to make something look better. The problem gets deeper though, the reo companies expect the real estate brokerage to shoulder the expenses. Sometimes its just for a month, other times its for the length of the listing. When looking at volume that is a lot of money for a brokerage to assume, so they let it sit in neglect.

George ~ Welcome back to the Rain! Your comment is interesting. A few years back there was a fella doing something like you mentioned, but he wasn't very honorable, he ended up getting in serious trouble. He now lives in another state (the one with a star on the flag). Anyway, be very careful "helping" people. All you need is one bad apple to go to the media and you are toast. They side with the poor bloke who failed to make a mortage payment...

Melissa ~ Rich is using your account! Rich ~ I know what you mean. I bet you even have to get 2 or 3 bids to do the repairs too! With original signatures too! hahaha ah the life of a corporate paper pusher... I quit playing the game after 20 years of such nonsense. :)

Netta ~ First timers just don't have the resources to do significant repairs. They are lucky to pull together closing costs on a 100% mortgage. So you are right, they aren't a good deal.

Joanne ~ No truer words are said. Keeping your car clean pays off in spades.

Linda ~ Our lives are so parellel! I've fired many an REO manager in my lifetime. It feels so good telling them where to go.

Jennifer ~ sometimes pictures are harmful...:)

Jeff ~ Oh they will wise up. The balance sheets will suffer and then they will learn how to do their job. I've often wondered if they do a poor job to begin with because it means longer job security for them...

Michael ~ Funny how you mention "local banks" that is so true. Being local brings more pride and common sense to the table. It's the far away ones, who don't see the effects that don't seem to care or understand. Sounds like your market is in the "lagging indicator" stage.

Jennifer ~ If they aren't there, maybe you will be lucky and you will miss the fun! IF not, you can join the club here...there's plenty of us, lamenting!

Renee ~ amazing how some people suck up all the air and leave. sounds like that's what your neighbors did. Such ashame.

Karen ~ Bad dream? One we need to learn from. Your "tear down" needs a torch!

Geno ~ thanks for the compliment...I don't know about smart..just experienced and slightly jaded. :)

David ~ ah great minds think alike. Job security for reo managers! Yes, there are 1,400,000 Realtors. Most are hungry..they can burn through us for years and years!

Steve ~ good point. I believe the first timers not only can't visualize, they can't afford to do the work. so the market is limited to investors be default. If that's the market, then lower the price. INvestors are in the game to make a profit. Eventually the REO managers will get a clue and start pricing the properties to sell to investors. It would make better sense to me to spend the money on improvements..Did I say that already? Like 1001 times!

Kristal - My laptop stays at the office on Fridays to get backed up to the server. I lost one a month or so ago and lost 6 weeks of data on it. I just forgot to log on to my acccount befor reading your post.

Rich ~ that's ok! I just thought that was funny. You are wise to back up. My main baby is at CompUSA still. My fingers are crossed she will come out OK.

Hey you tok the picture of my house from the wrong angle. The roof doesn't look that bad from the front.

Great post.

Kristal, Thanks for the post. The upside in my market at this time of year, is that we find the lien holders anteing up incentives to buyers and agents alike, as well as taking offers well below the list price. Now that they have done the least possible, they're willing to pay a premium to clear their portfolio.

DEC

2006

John ~ LOL! Sorry, I'll go back and redo the photo!

William ~ And that makes sense how?

DEC

2006

REO Management, Foreclousres, Broker Price Opinions,
Banks are driven by numbers. Their non-performing assets do not generate income, they require reserves to be set aside in addition to the loan amount and large numbers of non-performing assets do not look good on the bottom line. Additional information can be found at http://www.camreo.com

Ken ~ you stated "they require reserves to be set aside in addition to the loan amount" Why not use those reserves to "spruce up" the REO? So many are not in marketable condition. If they were, the REO's would be selling!

Kristal, That's just the point. It doesn't make sense not to improve the property. The investment would make it more saleable. Letting it sit for months with no activity and then creating incentives for the buyer and selling agent are not in the best interest of the stockholders. However, during the fourth quarter the buyer usually gets the property for less than list with an incentive and that's good for the buyer!

William ~ You are right about the 4th quarter. Of couse we don't really know when that "4th quarter" is. None of it makes sense to me. I beleive they will eventually begin to wake up to the economics of the situation and be proactive from the start.

JAN

2007

I'm an REO broker, and fully understand the frustrations involved. Often, the bank's primary motivation is geting the asset sold quickly, not for top dollar. Any loss they take can usually be recouped through the PMI, the bank's insurance company, or even a deficiency judgment against the former owners.

Some of the Asset Managers seem very inexperienced, with no clue about the sales end of real estate. They refuse to take lower offers on a property, but when it doesn't sell, the list with another agent at a lower price, or auction the property and accept less than the offers their first agent brought in. Others are very knowledgeable and will make concessions, minor repairs, etc, to make the home more appealing to the market. As REO rates continue to increase, it will become more necessary for these things to be done just to get interested buyers into a property.

By the way, that house looks like one in my town! Been trying to sell it for months now...

Hi Amber ~ It's nice to hear from you. I appreciate your comments. We are dealing with an enormous amount of REO's that have absolutely nothing done to them. I find it amazing and curious how either the listing agents or the REO managers aren't doing anything to help the properties compete. The shear volume of properties competing with each other continues to drag the market down, compounding the problem.

Funny how the REO market is a separate segment. Homeowners who have really nice homes or are willing to stage them are selling.

I always wonder if there is a plan, but no one gets around to implementing it or they are ignoring it. Certainly investors want the best return on their money. Are they not paying attention, or do they just figure years down the road it will come back from the judgment?

I can count on one hand the properties I have sold that had PMI, that hardly seems to be a source of relief for most reo's today. All in all none of this makes sense to me.

As for the picture, I think we all have a house that looks like that...to us. The REO managers think it looks like a palace!

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