Why are REO homes priced all over the place?
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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!
Tags: bank-owned, BPO, Inman News, micro market, pricing, reo 
Categories: Foreclosure Wiki, National Foreclosure News, Prescott Foreclosure News| | 
Thanks for your comment, Robert. I think if you read the entirety of my blog you will see that I try to post the current news and views about the market. You are welcome to post your analysis of what the market will do. My readers welcome input from all sides.
Thank you! This is just what I was looking for. Keep up the great work!
[...] How to help speed up a short sale tips [...]
Great blog post. The media will never pick up on this because it is more complicated than a soundbite.
If I may add that with the number of outstanding loans that are scheduled to reset in the next couple of years, decreasing home values and stricter lending guidelines, the rate of foreclosures are on track to peak in 2010. Short sales have become a growing niche for Real Estate Agents to sell homes before they become bank owned.
short sales | short sales education | short sales success
1/3 on the market are foreclosed or short sales – wow. It’s nice that you research this information. The agents who represent home sellers prob don’t share that info with buyers. Take care.
Dear Patrick,
Great article! I agree with you. I also would like to add couple more alternatives to those homeowners who want to stay in their homes.
There are two products those aren’t widely knowing and common in the market place. Trsutee Foreclosure Delays and Loan Re-Write.
Did you know that Homeowners are illegally being foreclosed on especially in Trustee States?
In Judicial Foreclosure states, a judge reviews the legality of the foreclosure proceedings to ensure the homeowner is being protected against greedy lenders and yet still the lenders are not properly following the foreclosure laws correctly (see this article: http://www.nytimes.com/2009/08/31/nyregion/31judge.html?_r=2).
In Trustee States, lenders employ a “third party” trustee company to replace the legal function of a judge and orchestrate the foreclosure process. If banks are not legally foreclosing when they know a judge reviews the case what do you think they are doing when they only have to go through a trustee that they pay? And what is more interesting, the trustee company is liable for the foreclosure proceedings but who is going after the trustee companies to review the legality of these foreclosure packages? You guess it! Yes, No one is..!
Did you know that a loan Re-Write program has the ability to reduce homeowner’s current loan balance down to the current market value at prime + 3%?
Here is an example: You owe $500K on your home but it is only worth $350k. Investors will bulk purchase the note from your current lender and re-write it back to you at $350k, saving you (the homeowner) over $150k!
I hope this helps!
To find out more about our services you may want to visit http://ASNDinc.com/
Yamen Elasadi
yamen@ASNDinc.com
Arizona Unemployment Trends – September 2009
Arizona Unemployment Trends Visualized as a Heat Map:
Arizona Unemployment in September 2009 (BLS data)
http://www.localetrends.com/st/az_arizona_unemployment.php?MAP_TYPE=curr_ue
versus Arizona Unemployment Levels 1 year ago
http://www.localetrends.com/st/az_arizona_unemployment.php?MAP_TYPE=m12_ue
[...] How to help speed up a short sale tips [...]
[...] How to help speed up a short sale tips [...]
This is good news… Foreclosure market needs movement to make more money and start leaving this situation
that’s good to hear. when you are experiencing foreclosure, you need the help of reliable real estate agents. when you are looking for them you may visit this site:
REALTOR
[...] How to help speed up a short sale tips [...]
[...] How to help speed up a short sale tips [...]
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Considering, finding the right foreclosure home is the most essential step involved while buying a foreclosure some research should be done ahead of time before finding the most affordable home.
[...] See: Why short sales aren’t always a good deal. [...]
[...] Considering making an offer in today’s distressed home marketplace in Prescott or Prescott Valley? See: Top 10 tips to win the REO multiple offer game. [...]
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[...] 31% of Phoenix area home sales are foreclosures in March down from 51% in Feb [...]
[...] How to help speed up a short sale tips [...]
[...] See: Why short sales aren’t always a good deal. [...]
[...] Considering making an offer in today’s distressed home marketplace in Prescott or Prescott Valley? See: Top 10 tips to win the REO multiple offer game. [...]
[...] See: Why short sales aren’t always a good deal. [...]
[...] Considering making an offer in today’s distressed home marketplace in Prescott or Prescott Valley? See: Top 10 tips to win the REO multiple offer game. [...]
[...] How to help speed up a short sale tips [...]
[...] How to help speed up a short sale tips [...]
[...] How to help speed up a short sale tips [...]
[...] See: Why short sales aren’t always a good deal. [...]