how to sell REO property

Question

Dear BP members,

Recently we took back Vacant property (Deed In Lieu). Now we own this property and want to sell.

1. We have inspected inside and noticed lots of trash left by the previous owner. Should we clean out first and fix minor repairs like boarded windows?

2. Who can sell this house quickly? I was told by Auction.com that they only work with banks. Is there any other auction vendor who can work with an investor or any recommended wholesaler for western Maryland?

Thank you,

Nick Patel

Andy Mirza · Answer

@Matthew Olszak I wouldn't discount your experience at all and it sounds like you've got an excellent handle on your market. It illustrates the difficulty that asset managers and decision makers at banks face when they're trying to liquidate a couple of hundred assets, each with its own market which requires a different course of action to maximize profits, decrease holding times, or whatever goals are most important. You can't be in an expert in all these markets at the same time.

I won't say "always" do a trash out and minimum landscaping but more like "In most cases..." And what I mean by a trash out is just the trash, debris, etc, in the entire interior and what's reasonable on the exterior. I don't mean gutting or doing any demo and replacing that.

Recent examples: we took a deed in lieu of foreclosure from a borrower in Cicero, IL. She left the place in broom swept condition but the interior needed a complete cosmetic rehab plus a long list of other things. We believed that the Town of Cicero would be way too difficult to deal with and sold it without doing anything to a local, all cash buyer that knew what they were getting into. If the place was not in broom swept condition, we would have cleaned it up before putting it on the market.

We have a hoarder house REO in Enid, OK. There was so much stuff in there, that you couldn't see the walls or flooring in some of the rooms. If left in that condition, any investor would ding us more on price. I was surprised that the trash out bid came in at $800 for the amount of trash.

Finally, we had an REO in Savannah, GA, in which the borrower took in every stray dog in the neighborhood. She even put in some wood kennels inside her old Victorian style house. There were dog feces and urine everywhere on the old wood floors in addition to trash, old furniture, clothes, and appliances. $1500 to clean up and worth every penny. Another $1500 to take care of the vines growing on the exterior walls, remove fallen trees, and an old trailer in the driveway. The house went from a total nightmare to a regular fixer. We ended up doing the rehab ourselves but I would never have wanted an investor to see it the way it originally was before making an offer. They would have wanted a lot more than a $3000 discount!

Jeff Copeland · Answer

Generally speaking, yes, cleaning out any trash and repairing boarded up windows will make a huge difference in the marketability of a property.

The quickest way to to get the highest price for the property with a serious buyer is likely going to be listing it with a realtor. The banks figured this out years ago and that's how they dispose of their REO inventory.

There's no reason an MLS-listed property can't be a quick cash closing.

Auctions can be risky and complicated for both seller and buyer, and a wholesale arrangement is just going to add more middlemen who may siphon off more profits than an agent would.

Nick Patel · Answer

@Andy Mirza I recently got a quote on a clean out for $4000 in Cumberland, MD. I think that is too high for 100 items (some of it is large like a mattress, dresser, chairs)...

I am looking for someone local at this point to trash out and I can provide a dumpster for around $500.

Thanks for sharing your experience.

Matthew Olszak · Answer

On the BPO note - absolutely I'm with you for a local listing agent doing it direct for the client. I've done 100s of BPOs this year, and its amazing sometimes the "revision" requests I get requesting me to use completely incomparable properties as the basis for my valuations from these companies, even in neighborhoods where I have a well-established sales history. Literally me having to tell them sometimes to just re-assign the order and not pay me before they get that a 4 unit in a different neighborhood, albeit within their mileage radius, isn't comparable to a SFH in a totally different area.

However I stand behind not always doing a trash out or any other improvement. There are communities here where the value ($800k+) is in the land. Equally, for a gut-rehab, investors know they aren't competing with joe-203k-fha-loan-buyer, they are competing with like-minded folks. IE if the plumbing is shot due to not being winterized, wiring is cloth, and heat is still on '50s space heaters - the place is getting gutted so a few extra personal effects laying around the house make no difference. Also, I've had clients "upgrade" their properties to levels above the current condition but well below standard for the area, and buyers, knowing they'll have to tear all that work out anyhow, value the property equal to the original condition. Which is why I suggest a BPO to get a solid idea of the as-is value and any improvements and their cost to get a property in marketable condition if it isn't already (like doing a board-up to protect the asset).

But with that said - you are a lender and my experience is simply anecdotal on a large scale, so I'll defer to your position.

Andy Mirza · Answer

@Matthew Olszak If you're suggesting to have your listing agent provide the BPO as part of their duties, I wholeheartedly agree. That agent will give your BPO the attention it deserves and have an incentive to provide the most accurate information. At this point, I wouldn't use a 3rd party BPO company because those will most likely be a lot less accurate and be a waste of money.

I disagree on the trash out. If you do nothing, investors will try to get even more of a discount, even if they can see through the garbage to see the potential. A trash out and essential landscaping will provide about the biggest bang for the buck of any rehab cost that you can do. I've see how a few thousand bucks will change a property from unbelievably disgusting to just a cosmetic fixer.

Matthew Olszak · Answer

Get a BPO done w/ the 30 day as-is value and "marketable" value w/ expense estimates (like trash out, etc). IE it likely wouldn't make sense to do a trash out and clean up the yard if the most likely buyer is an investor who is going to gut the place anyway (and can see past the clutter). Then list it cash-only (if applicable) at a price that will get you multiple offers in the first week.

@Nick Patel

Andy Mirza · Answer

@Nick Patel Definitely, do the easy stuff like trash out and necessary landscaping if the place is overgrown. You should be able to find a real estate agent that can be your boots on the ground and oversee these or more extensive renovations. If you don't have the time, I know an asset management company that might be able to help you.

Phil Z. · Answer

Yes, do trash out and repair boarded windows.

I would get bids from local REO Field Services guys.  They are used to tight budgets.

Andy Mirza · Answer

@Nick Patel  Trash out fees can vary greatly from market to market. I'd try to get another couple of bids and maybe you'll get something less than $4k.

Ron S. · Answer

You will get exactly what you pay for. Sometimes dump fees alone exceed your $500 offer. Perhaps you should clean it out yourself and save the money if you think that price is high. I've done that before. Next time i'll pay the $4,000 quoted.

how to sell REO property

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