Posted on Saturday, January 15, 2011
The market’s been flooded with REOs, and banks are struggling to get these properties off their books and back into the hands of responsible homeowners. According to Field Asset Services, the answer to moving these properties
faster is simple – with some pretty standard repairs, such as fresh paint and updated appliances, the company’s independent market study found that lenders can cut more than two-thirds off the length of the sales cycle.
Field Asset Services tracked 17,252 properties across 13 states during the first six months of 2010, and found the average days-on-market for those that hadn’t been rehabilitated was 222.8. This number dropped significantly for properties with rehabilitation to 69.8 days.
“In a time when foreclosure filings are continuing to reach record high numbers and a looming shadow inventory is predicted to be in the millions, lenders are looking for alternative ways to accelerate the recovery on their foreclosed and REO properties,” said Dale McPherson, president of Austin, Texas-based Field Asset Services.
“As illustrated by our independent study, rehabilitating … can reduce the time a property spends on the market while preserving, and in some cases, improving sales values and eliminating neighborhood blight,” McPherson added.
In 2009, Field Asset Services introduced its REoMODELING solution aimed at enabling lenders to more easily and cost-effectively rehabilitate foreclosed and REO properties. The company utilizes a network of more than 13,000 vendors, in addition to its 600 employees, to deliver on this goal.
In 2010 alone, Field Asset Services completed more than 15,000 REoMODELING projects. McPherson describes the typical rehab as “lipstick on a pig.” He says the primary fixes include fresh paint and flooring, new countertops, and updated appliances.
A standard rehab project will generally run the lender between $6,000 and $8,000, according to McPherson. He says the business case for such a renovation is compelling if the lender can get at least a 20 percent return on that additional investment with the sale of the property.
Putting a property in repaired and habitable condition will get the lender that return in most cases, McPherson says — not only because of the value it brings in negotiations versus selling a home as-is considering the typical extent of damage on REOs, but also because of the 68 percent reduction in days-on-market, which drastically reduces the lender’s property carrying costs.
According to McPherson, a rehabilitated property is also more likely to go to an owner-occupant rather than an investor buyer, and he says owner-occupants will characteristically pay more than a savvy investor. He sums it up as “fair market value at a repaired price.”
By: Carrie Bay, DS NEWS