Reading the Seattle Times Business Section article today, “HOME SALES IN KING COUNTY UP IN 2011; NOT PRICES”, I became curious as to exactly how sales of foreclosed properties are in fact impacting the King County Eastside market areas. I limited my sampling of sales data to quantities that I could handle and concluded that:
1. In various price ranges from $300,000 to $600,000 foreclosed properties represented less than 10% of properties sold.
2. In the same price ranges foreclosed property sale prices averaged 20% less on a per-square-foot basis than similar properties.
3. Market time for all properties averaged the same at 112 days.
Please keep in mind that this information was gleaned from East King County market areas only, but 20%? YIKES!?!?! What does this tell us? Quite a number of things, but the overiding factor is that banks are willing to take a 20% hit to get rid of their foreclosed properties within a reasonable timeframe. If that’s your neighbor’s house, how do you feel about it? Not good.
Those of you that know us and how we work understand the concept of fully preparing a house for market. It reduces market time and increases the net price to our clients. Banks generally will not consider this approach. We find that the damages suffered by foreclosed properties are usually superficial in nature. Yes, there are the instances of stolen toilets, lavs and appliances, even the furnace. But these are exceptions, not the rule. Cleaning, carpeting, refinish hardwoods, painting and miscellaneous cosmetic repairs are not readily part of the foreclosed property manager lexicon. They should be, and it surprises me that shareholders and the media let it slide. This is an example of the old saying “penny wise, pound foolish”. Anyone reading this understands that discounting a $500,000 house to $400,000 because it’s too much trouble to spend $30,000 and 30 days of prep time in order to sell for $475,000 is not a smart way to go. Leave $45,000+ on the table because it’s too complicated? Too many moving parts? Too difficult to set up accounts for each property to manage and facilitate repairs? Would you buy shares in a bank that manages their assets this irresponsibly?
There are many, many great real estate agents that could manage bank owned properties effectively. But the banks tend to hire very few agents to handle multiple properties at once……at a steep discount. These agents tend to be REO specialists, and most of them are quite good. They know the yard looks like crap, and the house is filthy, and they are forever trying to get the banks to do something about it. The agents aren’t blind, but for the most part their hands are tied. They’ve put all their eggs in one basket by going to work for a lender, and if they make too much noise they’ll get fired.
The real travesty is how the banks DO NOT CARE how much their discounted sales of their foreclosed properties punish the values of your neighborhood, or mine. It doesn’t need to be this way, and the banks could realize some nice net gains, or reduced net losses, if they would consider changing the way they’ve done this for the past 90 years.
Had the bailout/TARP money never happened, I think banks would be trying much harder to do a better job today. Instead, we get increased fees and arrogance. It appears as if they continue with policies and actions that can only be justified by a limitless safety net. “Too big to fail” needs to go away in no uncertain terms. Once was enough, and there can be no consideration that it would happen again.
One last thought: think of how many people this would put to work.
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