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   ARTICLE   |   From Scotsman Guide Residential Edition   |   February 2012

Team Up for REO Sales

Successful distressed-property deals require collaboration

Mortgage brokers and originators who work with prospective real estate owned (REO) property buyers should know what has been done with these homes before they go on the market. A property’s maintenance can vary with servicers’ desires, the home’s location and how long the property is expected to be on the market. By understanding these maintenance issues, brokers can be sure that clients get the home they desire — and that financing isn’t stalled because of appraisal problems.

The best perspective on these issues may be held by the property-maintenance specialists hired by servicers and the listing real estate agents. By partnering with these professionals, brokers can ensure that their REO deals get funded.

One challenge with an REO property is to make it fit in with the surrounding area, while being an attractive standout. There should be no odors of mold or cigarette smoke, and any prominent stains on carpeting should be cleaned. The interior should have a fresh smell, even if from air fresheners, as long as they are not overpowering attempts to mask musty or moldy odors. These are red flags for prospective buyers.

When an REO property is on the market, servicers ultimately decide what is done to the property based on the amount of money they want to invest in the home. There are multiple solutions for these problem properties. Property-maintenance professionals often give options based on price, outcome, and both short- and long-term impacts.

When there is mold, remediation paths are reviewed. Some servicers like to have spot cleaning done; they’re not interested in a full remediation if they are aware the property is going to sell in an as-is condition. Others want a full remediation so mold does not come back. Originators, their appraisers and potential purchasers need to determine which path was taken.

Another thing to examine is the maintenance of the property’s yard. First impressions come from the front yard and entranceway, which should look appealing to potential buyers, lenders and appraisers. A property should appear welcoming on the outside not only when it is newly marketed, but also when it has been on the market for a month or more.

The lawn and the home’s exterior should be well-maintained and other actions should be taken to make sure that the property is still up to par, especially for those that remain longer on the market. Such properties may need a bit more attention because they are often in mortgage-stressed neighborhoods.

Another issue to monitor is whether a home has been winterized. Typically, these are expenses that servicers try to avoid, especially if the property is being readied for marketing in spring, summer or fall. For potential buyers, their lenders and the properties’ appraisers, these steps must be taken when winter is approaching, however.

There also may be liens, fees and fines imposed on an REO property. These often are the result of code violations or emergency work performed by a municipality.

These should be resolved by the time the home is marketed, but that is not always the case. Often they can be cleared simply by bringing a home up to code, after which fines and fees may be reduced. Municipalities’ major concern is maintaining the value of REO homes and other homes in the neighborhood. They especially want vacant properties sold and occupied. Mortgage brokers and originators must ensure that there no longer are any liens, fees or fines levied on a home before purchase.

By working closely with property-preservation professionals, mortgage brokers and originators can uncover any potential issues with a property and ensure a successful REO sale.


 


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