Prescott Arizona Area Foreclosure News

FSBB - For Sale By Bank

Are banks and loan servicing companies able to accurately price distressed properties and REOs?

Some do a good job, but more often than not they rely on national indexes, rather than use local assets in the field such as qualified Certified Foreclosure Specialists who know their cities neighborhood by neighborhood.  And they are in tune with what prices are doing right now…not several months ago.

In the second installment of a two-part Inman News series that focuses on the waves of foreclosed properties called, Obstacles delay REO Sales, the author, Matt Carter, comments on a timely book by professor, Norm Miller, and Michael Sklarz about the methods needed to properly price properties by local and micro market: 

A recent analysis of more than 1,000 distressed properties in 25 states suggests lenders and loan servicers stand to lose billions of dollars because they are either underestimating or overestimating property values when deciding whether to foreclose on a property or do a loan modification or short sale

In “Home Pricing in Rapidly Changing Real Estate Markets: The Need for Micro Market Metrics in Lending and Loss Mitigation,” Norm Miller, a professor at the Burnham-Moores Center for Real Estate at the University of San Diego, and co-author Michael Sklarz argue that lenders rely too much on backward-looking valuation tools such as appraisals, broker price opinions (BPOs) and automated valuation models.

As many real estate brokers and agents are aware from firsthand experience, lenders may overestimate the foreclosure value of a property, and turn down short-sale offers or opportunities to engage in workouts or loan modifications with troubled borrowers. Instead, they foreclose on a home and put it on the market at an unrealistically high price. In rapidly declining markets, those homes may sit on the market while their real value declines, causing an even greater loss for the lender.

At the same time, Miller and Sklarz say lenders sometimes underestimate the value of some REO properties in their inventories by relying on macro-level data — such as the Standard & Poor’s Case-Shiller indexes — that don’t reflect the unique characteristics of individual neighborhoods.

Such undervaluations by lenders can create windfalls for savvy local real estate investors who purchase and flip these properties, Milller and Sklarz say, but fire-sale pricing can also hurt neighborhood property values.

In the Prescott Arizona area foreclosure market, we see this happening all the time.

 An example of this are homes priced in the Talking Rock Subdivision where a foreclosed home was listed at $446,000 or $225 per square foot and 2 comps nearby were listed at over $400 per foot.  Needless to say, it was snatched up by a cash buyer who was looking at the subdivision, but didn’t want to pay $650K to get in.

For more information on how to take advantage of the Prescott area bank-owned market, see my latest Prescott Arizona Real Estate and Foreclosure Market Report, or contact me. 

Happy bargain hunting!