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All we here about today is the media rambling on about all the bank REO’s (stands for “real estate owned”…means the same as repo, foreclosure or bank owned property, etc) that are out there in America, waiting to hit the market. Mind you, they are not here yet, and have been promised for almost 3 years…and if we in the business hear the term “shadow inventory” one more time (the favorite media term meaning bank repos are heading our way), my head is going to spin!
It took me a while to get this information together….. But, here’s a little lesson on Bank Repos (REO’s). There are a massive number of REO’s the banks are hiding, more on the way, and when the number of homes that are worth less than what is owed are figured into the mix, the amount of REO”s and potential REO’s is mind blowing. So as a real estate professional and consumer, I have this HUGE QUESTION:
Where are they? We have been hearing about this huge surplus of REO’s headed our way for over 30years, and they have yet to show up…and so my clients ask me all the time…Where are all these REO’s they keep hearing about?
Remember the old TV show with Bob Barker called, “The Price is Right” (My favorite game show), where contestants will often get to pick “potential” prizes behind certain “Doors”. In the case of the missing REO’s, there are about 5 doors from which you can choose.
Door #1… Behind this door, the banks actually have their REO’s ready to go…they are just “waiting” for the best time to sell them. Mind you, with the exception of the really depressed areas of the country, they are not waiting out of a concern for the neighborhood. Banks can care less about people. What they are waiting for is the best time to take the loss on their books and report it to Wall Street…because the DO care about that. So…they parcel these properties out when it is best for them.
Door #2… Behind this door are the properties that the bank has foreclosed upon, but cannot take possession of because they are currently occupied by the former owner or tenant. In this case, because the government has passed so many new rules and regs that are designed to “protect” the occupants of a foreclosed home, it can take another 6 months or more to get the home vacant for sale. Those who side with the occupants feel that this added time beneficial to the former owner, and those that side with the banks think it is just a costly delay of the inevitable. The time time it takes to get an REO to the market for sale has doubled or tripled in the past 12-24 months. Is that a GOOD thing or a BAD thing?
Door #3… In two words…”Bulk Sales”. If a particular bank has a BUNCH of REO’s in the pipeline, there are large investment groups that will buy hundreds at a time from this particular bank. From the banks viewpoint, they get to dump a lot of properties in one swoop and eliminate the hassle of selling them all one by one. From the bulk buyers viewpoint, they get both the benefit of some really reduced prices on these homes (volume discount), and the opportunity to purchase them first. Yes, they get the headaches that come with the properties, but to them its worth it. Most of these houses are fixer uppers with some paint, new carpet or a new roof and is ready for someone to buy it.
Door # 4… The courthouse steps. Here, savvy investors can purchase the property from the bank before the bank actually takes ownership. These sales are done every day at courthouses through out California, and either investment groups or individuals can play…These purchases require lots of cash, research, and nerve…and there are still risks. However, they have become quite popular, and many of the potential REO’s are sold here. Some are kept as rentals to be sold many years down the road, but most generally return to the market fixed-up for sale as in Door #3 above.
Door #5… Short Sales. In the beginning of this real estate market crash (mid 2007), there were very few short sales because the banks simply were not geared-up to handle the process. Now, almost 4 years later, short sales make up a large part of the homes currently for sale. In this case, the short sale is simply a REO in waiting, so when the bank chooses to accept a short sale price, they are simply getting rid of the “potential REO” earlier rather than later. It never becomes an official REO so it will not appear on the REO stats.
The bottom line is, if you’re a buyer holding your breath waiting for the banks to open the REO flood gates, don’t hold your breath for too long it’s NOT going to happen!!! Time will tell if that remains the case, but for now, be aware…there are many ways these properties get to market other than as a bank owned REO. In the meantime, Short Sales over the next 2 years will increase.
With a documented 85% closing ratio on Short Sale negotiations and closings, I am more then qualified to answer your questions. Call me for a consultation and I will be more then happy to help assist you with Buying or Selling a short sale.
Shantell Owens: (925) 594-0321
