Real Estate News & Updates from the Monadnock Region
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Strange, but True: Your House Price Drops but REO Properties go up in Price!

May 10th, 2012 | Posted by Dick Thackston in Mortgage News | News | Real Estate News - (0 Comments)

According to several industry sources the average value of bank owned, REO Properties, has actually increased in the last years while the value of non-bank owned real estate has dropped on average! There are several reasons in the realm of conventional wisdom as to why this is happening; the most common reason given is that REO properties are being bought up by investment groups and turned into rentals thus driving up the price of REO’s on average. While this certainly is a factor there are other factors that are probably more important to the change in real estate values that I see happening as a “boots on the ground REALTOR”.

Here’s how I see it. The initial wave of foreclosures was for the most part badly maintained and marginal properties: no real surprise that the most marginal home owners were the least able to maintain and upgrade their homes and least able to hang on through tough, tougher and tougher economic times. These homes languished off the market as so called “shadow inventory” for months and in many cases years due to a hostile regulatory and legal environment in which mortgage holders found themselves, thus slowing up the process of foreclosure, resale and return of these residential assets to productive use. No news there really. What the facts recently made public noted about rising REO prices and declining price on non-bank owned real estate indicates is not that we are “moving toward the middle” but in-fact indicate that we are continuing to crater the housing market in slow motion.

This pattern of rising REO value reflects exactly what many experienced REO REALTORS have noted over the last six to nine months: we are getting better quality inventory. The better quality inventory is the result of the economic damage moving up the food chain from the economic bottom into the middle and above. The middle class buyer that bought his house at a fair market price in 2009 is likely to find that when he goes to sell his home today it’s worth the same or a little less and that any improvements he made have added little or no value. So, if they can’t hang on and they can’t sell they let it go. Thus leading to a better class REO property and putting further and continuing pressure on the middle of the market.

What does it all mean? It means that there is no foreseeable improvement coming for non-REO properties and that REO properties will continue to dominate the residential real estate market. Warren Buffet is right: single family homes are likely to continue to be an excellent investment for those who can“buy and hold” but only for those who can buy and hold either as owner occupants or as investors looking at increasingly higher and higher rents over the foreseeable future.

 

By Dick Thackston CRB, ABR, ABRM

Broker NH, MA & VT

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HOW COME THE BANKS WONT ACCEPT THE OFFERS I MAKE ON THEIR FORECLOSURES? IVE MADE THREE OFFERS AND STILL NO DEALS!

March 28th, 2011 | Posted by Dick Thackston in Buying Tips | Real Estate News - (0 Comments)

By Dick Thackston

I hear this all the time. Many would be buyers, both investors and just plain home buyers, are looking at bank owned properties and are very excited about the obvious opportunities but can’t get a bank to accept their offer and they don’t understand why.

The first and most common reason is the “Uncle Louie Effect”.

The “Uncle Louie Effect” works like this: everyone has an Uncle Louie who could have bought the same house of kind of house twenty years ago for one half of whatever they are paying for a particular property. It doesn’t matter if it is land, an apartment building, a house in a subdivision or the Empire State Building, no matter what the deal is they could have done better or they know someone who just did better; because of this the buyer or potential buyer feels a competitive need to make an ridiculous offer.

Example: Bank owned property at 123 Happy Street has gone to foreclosure. The bank has cleaned the house out, obtained valuations from two local REALTORS. One REALTOR valued the house at $95,000 and the other valued the house at $105,000. The bank ordered an appraisal from a Licensed Appraiser, registered with the State Banking Commission who arrived at a price of $102,500. The bank puts the house on the market for $99,000. Mike and Mary Jones see the house in the Saturday paper and call their buyer agent to set up a showing. It’s just right, they want the house, they go home, they talk and they think “I wonder what we should offer, the last time the house sold it sold for $150,000 and the town has it assessed for $142,000.” They call Uncle Louie he says “Take 40% off the asking price, I wouldn’t give a bank more than 60% of what they are asking.” So that’s what they do. Mike and Mary have a buyer’s agent who tells them “You know it’s really a good price maybe you should offer something closer to the asking price.” But they ignore their agent’s advice because Uncle Louie said… So they offer $60,000 – just to be sure they aren’t paying too much and to their utter astonishment the bank does not accept their offer, does not counter, and sells the property to some one else. A few weeks later when they are sitting home in their apartment, (Oh, by the way their rent is $50 per month more than the PITI would have been on the house if they paid full price!), and they are looking at the Saturday paper and read the real estate transfers when they see 123 Happy Street was sold by the bank for $92,500. They immediately get on the phone and call their REALTOR, mad, and tell the REALTOR, “That house sold for only $92,500 – we would have paid that!” the REALTOR then meekly asks “Then why did you only offer $60,000?” The Uncle Louie Effect!

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So we begin a New Year, a New Decade and a New Normal in real estate. Happy New Year

January 6th, 2011 | Posted by Dick Thackston in Mortgage News | Real Estate News - (0 Comments)

There are signs of improvement in our region but more important expectations about real estate have changed; it seems unlikely that the real estate business as it was from 2002 to 2007 will return in the foreseeable future.

Not necessarily a bad thing.

There are two big changes that make for a New Normal expectations and technology.

Housing prices are driven by expectations. According to Trulia and RealtyTrac one in five or 20% of consumers believe that housing will not recover fully till 2015 or later, this means that for at least 20% of potential buyers there is minimal urgency to buy – everyone wants to buy on the way up; fewer people want to buy if they’re unsure.

The U.S. Census Bureau released the results of its Housing Vacancy Survey and the nation’s Home Ownerships rate declined for the fifth year in a row in 2009. Clearly Americans have been choosing to rent versus own in this elongated period of economic uncertainty. Ownership is no longer everyone’s goal or expectation even when the households can well afford a home. That being said everybody’s got to live someplace which has driven up rents and created a new profit opportunity for individuals and investors willing to buy and hold real estate or buy, renovate, rent and hold real estate.

Being an investor willing to buy and hold or buy, renovate, rent and hold real estate is not for the faint of heart, it’s a business which means there can be losses as well as gains and all the challenges of being a landlord. The incentives to take these risks are the tremendous opportunities that exist from acquiring REO properties if you have the cash and the stomach.

Lenders know they face huge costs with vacant properties. Their costs are reported to average $500 per month on the “easy” properties, meaning properties in fairly stable condition in safe locations. Lender overhead, taxes, maintenance, insurance interest charges in many situations easily drive that price up to $1,000 per month.

That being said it’s important for investors to understand that the REO departments are responsible for obtaining the very best net revenue they can for the underlying investors. It is highly unusual for REO departments to take 30 and 50% off asking prices. Normally there is a recent underlying appraisal that drives their pricing and there cost to hold may only be $1,000 per month so a property priced at $100,000 is probably not going to go for $50,000 anytime soon – that’s 50 months worth of carrying costs. There is undeniably some wiggle room generally more in the 10 – 15% range by the same token if an investor is willing to wait and/or willing to loose a property then once a property gets into their strike zone they would be well advised to execute a clean contract and have all their paperwork ready: evidence of cash to close or other source of funding, inspection scheduled in a short time frame etc.

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