When a property is taken back by a lender through the foreclosure process they not only have to deal with the loss of the monthly payments for the better part of the last year – or n some cases even longer. They not only have to provide the financial resources for the legal process to take the home back. In fact the lenders losses are just starting to add up and the real money could be forthcoming.
Once the property has been secured and back “in the hands’ of the lender / owner the process begins to minimize the loss incurred. Of course the best way to minimize any future expense is to sell the home quickly.
The local South West Riverside County in Southern California is experiencing a rapidly declining market and no area is hit harder than my local Hemet – San Jacinto Valley. When I perform a BPO I always try to emphasize a 30 day price as the most realistic. I believe that if a REO property is priced to sell for the maximum return at a 90 to 120 day price then the gains that are hoped to be realized will be eaten up with a decline in value that has averaged at least 3% per month since the beginning of the year.
In addition to the decline in market value, the seller must take the season of the year into consideration. Here it is September 21st as I write this article and the market has already dramatically slowed down over the past several months.
The lender will have to spend hard earned money in necessary sales cost and write it off as the cost of doing business. Money is spent on the following:
Occupancy Check – A report is generated informing the owner if the property is still occupied or if it is vacant.
Winterization – An expense that may not seem to be necessary in the Hemet – San Jacinto Valley or elsewhere in the South West Riverside County region of the Inland Empire, but all it takes is one cold night to cause an old pipe to burst – and that can create major havoc that the REO REALTOR® will be responsible for if they advised the Asset Manager that this task would not be necessary.
Maintenance – When a property is secured, there are often tasks that must be accomplished to ensure that the property is both safe and secure, to local standards. Once the REO property has been cleaned and secured it must be maintained until it is sold and escrow closes. Ongoing maintenance will include such tasks as monthly lawn care, pool maintenance and general supervision and maintenance of the property.
Valuation / BPOs – As far as I can tell, every lender / owner will have a full appraisal performed on each property they take back through the foreclosure process and now carry on their books as REO. If there is more than a 10% discrepancy between the REALTORS opinion and the opinion of the Appraiser than the Asset Manager will typically order a 2nd BPO.
Listing Price – This may be one of the biggest expenses of the Owner / Investor in the sale of the REO. If a property is under-priced then the Owner will not receive the most they could have for the asset. On the other hand if the property is overpriced and sits on the market while the competition sells all around it – they will loses additional funds as the REO Asset ages in the MLS, often making it undesirable to agents in addition to the loss incurred by depreciation in this rapidly declining market.
Blessings to all who read,
John Occhi, REALTOR®
Century 21 Crest – CrestREO
Over $1 Billion in Closed REO Sales
CrestREO.Com
Hemet - San Jacinto Valley
951-927-9473
Servicing THE REO Needs of Asset Managers, Servicers, Banks and Lending Institutions in the Hemet - San Jacinto Valley, Temecula, Murrieta, Winchester, Wildomar, Menifee, Sun Valley, Perris, Moreno Valley, Romoland, Homeland, Nuevo, Banning, Beaumont, Cherry Valley, Yucaipa, Redlands, Mentone, Loma Linda and throughout South West Riverside County and The Pass Areas of The Inland Empire in Southern California. If you are a buyer, investor, first time home buyer or are just interested in REO real estate, please contact us at the above phone number.
This article is part of a series based on my own experience and the lessons taught by the prestigious Five Star Institute in their “REO from A To Z” class that is necessary in order to obtain the coveted Five Star Designation, by far the most respected professional designation a REALTOR can earn in the specialty niche of listing and selling REO properties.
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