Overpricing REOs is a risky move for both agents and investors because of the consequences associated with vacant homes and time on the market. Some of the problems we can expect to see with overpricing are loss of interest due to time on the market, recurring maintenance, vandalism, and decrease of value. The most common of the problems of overpricing REOs is the loss of buyers' interest. Buyers and their agents realize that most of the activity on a listed home happens within the first few weeks. Homes that have been on the market a long time cause potential buyers to think that there may be something wrong with it.
At the same time, underpricing REOs has risks, although they are more long term related. The bank or lender can sell the property more quickly but this will further drive down prices of comps in the area, reducing opportunities for home owners to both sell their home at the desired price or to refinance the property when e.g. ARMs reset. The market will become further depressed and more REO will enter the market creating a vicious cycle.
When pricing REOs, the bank or lender needs to fair and honest about the price. Overpricing a house is usually the number one reason why REOs do not sell. The REO should be competitively priced with other homes in similar style, size, bedrooms, and baths; of course, taking in consideration that an REO will likely have repair cost adjustments.
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