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REO_marketBrokers around the nation are seeing different trends in the real estate-owned market, but whether there is a full pipeline of properties being unloaded in your territory or the supply has just about fried, one thing is consistent—there isn’t a lot of time to get these homes sold.

As home sales began to drop off in 2007, millions of Americans couldn’t afford to keep their homes, and they were forced to either short sell or be foreclosed upon by their bank. It took several years for this trend to fully play out, but eventually, recoveries began to take hold in different areas of the country, largely fueled by institutional investors such as banks, mutual funds, investment groups or any other entity looking to capitalize on the rock-bottom real estate prices produced by the Great Recession.

In some of the hottest REO markets, like Southern California, the recovery has been just as massive as the crash, and the inventory of institutionally owned properties have all but sold out.

“They are very much down in the key REO markets,” says San Diego-based broker Steve Rodgers, CEO/president/o wner at Real Living Lifestyles Real Estate. “At one point a few years back, the distressed market, including short sales and REOs, was about 45 percent of total sales for a month or year. Now, it’s less than 10 percent.”

Other areas haven’t seen the return of buyers like San Diego has, but the recovery is still taking hold, albeit inconsistently. Jon Paul Molfetta, managing director of Keller Williams in suburban New York (Rockland County) and New Jersey (Bergen County), has seen activity pick up around New York City at all levels of the market, especially in the REO space.

“Specifically for the REO market, there are people there ready to buy,” Molfetta says. “The buying public has been hesitant, but now the reports are coming that the market is improving nationally and locally. Because of that, you are seeing more buyers come into the market, and we know what happens as more buyers come into the market: Prices stabilize and then they increase.”

That’s been the case with the hefty inventory of suburban foreclosures and short sales as they’ve been slowly unloaded onto the market. Because they are priced so aggressively, Molfetta says that the listings often trigger bidding wars.

“For any home that is priced aggressively, and most REO homes are, there is an abundance of buyers who want it,” he says. “People have looked at the properties that are REO and they lost it in the bidding process.”

Just as it’s important for buyers to be quick to grab an REO listing, brokers have to be equally vigilant to get them.

“There are always opportunities,” Molfetta says. “You just have to be ready to go.”

To be competitive in this space, Molfetta suggests that brokers be understanding of how the REO market works, and less reliant on the natural instinct to get the best price at all costs, because in the REO world, time often trumps price.

REO properties are held for a relatively short time, whether they’re held by a real estate investment trust or a multinational mega-bank, and they get sold at a precise time. Also, a lot of the REO inventory is in an odd state of ownership where the resident living in the home hasn’t paid their mortgage in a long time, but the bank hasn’t foreclosed on them because its case load is so backed up. However, the picture is becoming clearer and the economy is improving, so now there is an additional wave of foreclosures.

“The banks are in a better place than they were years ago, and we are seeing better prices,” Molfetta explains. “The agents that I know that represent the REO market are very busy. The reason they are busy is that there is still a lot of inventory that is in default that (the institutions) own, and they are making an attempt now that the market is getting better. Rather than hold it and take larger losses, now that the market is coming back, we are seeing these properties come to market.”

A lot of factors go into an institution’s decision to sell a home, including:

-How many properties are in the overall portfolio?

-Have they been generating any revenue as a rental?

-How long have they been held?

-Is there a strategic tax incentive to selling the property at a loss?

Unlike most real estate transactions that brokers manage, the price is not really one of the top factors that goes into this decision.

“Their main purpose is to get the property under contract—lock up the buyer,” Molfetta says. “It’s about timing more than price. When they decided upon the market, they’ve vetted it. It’s already gone through the bank’s channels. By the time they get there, it’s ready to go.”

But the institutions know better than to unload all of their inventory at once. In parts of San Diego that might have worked because there was enough demand coming to absorb the REO supply, while in other parts of Southern California, there weren’t enough buyers in sight, for REO or otherwise.

The Northeast is probably more typical as it is demonstrating a sustained recovery largely supported by REO, and Molfetta expects it could continue for several more years.

“They are slowly releasing the inventory over the years, but they are doing it gradually out of fear of collapsing the market,” he explains. “Otherwise, it could plummet the prices even more.”

Andrew King is an award-winning journalist with 15 years of experience with the Gannett newspaper company, appearing in The Journal News (Westchester, NY), Asbury Park Press and USA Today. He also contributes to The Real Deal, TheLadders.com and TechPageOne.com.

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