In Parts 1 and 2 of this series, I discussed how banks handle the initial part of the foreclosure process up to the point that the foreclosure is concluded and the property is secured. You can read more on those articles here:
In Parts 3 and 4, I plan on discussing how banks determine value when pricing REO properties, the common time frames affecting these listings, and financing issues in selling them. For definitions of R.E.O, B.P.O., and other commonly used terms please refer to Part 1 of this series.
I want to first put to rest once and for all a myth regarding the pricing of R.E.O. properties. People commonly ask me "Do you know how much was owed on the mortgage balance when the bank foreclosed?" Or "How much was the final judgment amount at the foreclosure sale?" These questions are asked on the assumption that the bank will only consider offers equal to or a certain percentage less than the original mortgage amount. Nothing could be further from the truth, especially with today's declining market prices. In order to determine what a property is worth, banks rely heavily on both Realtors ® and appraisers for determining the value. For instance, I listed and sold a home recently where the principal balance on the original loan was roughly $150,000. This REO home was originally listed for $89,900 by our firm and it sold in April 2009 for $68,000.
When a property is originally listed for sale the listing Realtor ® performs a BPO typically using 3 comparable sales and 3 comparable active listings. The selling bank will also hire a second Realtor ® (or even an appraiser on higher priced or special-type properties), to provide a second opinion of value. In a declining market like we are currently dealing with in Central Florida, the active listings especially if they are "sale pending" will provide a more accurate determination of value than will the comparable solds. I would go so far as to say that presently any comparable solds older than 90 days are for the most part irrelevant to what the value is today. Additionally the listing Realtor ® will provide anywhere from 15 to 50 photographs of the property depending on the size and the condition. Photos are taken of the exterior, all rooms of the interior, and any damages.
Typically every 30 days the selling bank will require a monthly report with an update of market conditions, new listings, new solds, number of showings, and other relevant information affecting the property. This allows the bank to make intelligent decisions (at least half-way intelligent) on price, terms, sales bonuses, and other concessions to help sell the property faster. While seller financing is rare it does happen on occasion. The borrower will have to go through normal credit and financial underwriting, but the bank often offers more favorable terms like a lower interest rate, lower closing costs, quicker approval time, and a streamlined evaluation of the borrower.
During the first month that a property is listed, you can normally forget about submitting "lowball" offers. The bank will not come off of their asking price by more than 5-10%. The key time points to consider submitting lowball offers are at 90, 120, and 180 days on the market. These time points are when the bank starts requesting a new BPO from the listing Realtor ®. Time frames of 90, 120, and 180 days are considered normal marketing periods necessary to sell a property especially in a slow or declining market. Once a listing gets past those time points, the seller will often get more motivated and may even slash the price in order to unload it.
Additionally once a property passes those 90, 120, and 180-day time points, the seller will often re-evaluate the performance of the listing Realtor ® as well. If no offers have come in, the bank may cancel the listing and re-list it with a new Realtor ®. So often listing Realtors ® are motivated to get offers submitted on old stale REO listings. This is the case even if they are lowball offers just to show the selling bank that the agent is able to get someone interested in the property. Stay tuned for Part 4 ...
Rob Arnold - Your full service and investor friendly Realtor ® in Orlando and Central Florida.
ABR, CPL, CRB, CSP, GRI, Managing real estate broker, Notary Public
We sell foreclosures, short sales, and bank owned REO properties throughout Central Florida. We sell and list Central Florida real estate and Orlando real estate. Free list of foreclosure and short sale houses available.
I also provide flat fee MLS listings, For Sale By Owner, and menu-based services in most parts of Central & South Florida, the Space Coast, and the Treasure Coast including Orlando, Winter Park, Maitland, Ocoee, Winter Garden, Apopka, Altamonte Springs, Casselberry, Longwood, Winter Springs, Oviedo, Lake Mary, Sanford, Deltona, Debary, Deland, Mount Dora, Eustis, Clermont, Kissimmee, Winter Haven, Lakeland, Tampa, Sarasota, Bradenton, Miami-Dade, Fort Lauderdale, West Palm Beach, Port Saint Lucie, Melbourne, Daytona Beach, Ocala, Gainesville, Palatka, Jacksonville, Volusia, Brevard, and more.