Is REO inventory overpriced everywhere?

72 Replies

I am a rehabber dealing mostly with REO properties and I am having a miserable time finding deals. I am up here in New England (northern MA/southern NH) and for the past 6-8 months the prices on REO properties have increased about 30%, making the margins on these rehabs very thin. I've even resorted to HUBZU to try to find something with no success there either. The Auction frenzy has these prop's bidding up well beyond my comfort zone. Anyway, just looking for a sanity check. Any other rehabbers experiencing the same thing or do I need to adjust my numbers?

yes, they are all retail.  Might get some deals on Huds in B or C markets but nothing in prime areas

@Gary Marcotte   You're sane.

Have you put the magnetic signs on your car yet?

Bandit signs on the telephone poles?;-)

John - I actually put a bid in on a HUD prop today. We'll see how it goes.

@Mike Hurney  - No Mike, haven't tried those yet....just might though.  Thanks for the suggestion.

Austin TX is in the same boat with inventory down there have been a lot of bidding wars.

REO list prices in my area have been the same, and I'm by no means in a major market. The majority of REO's hitting the market here over the past 8+ months have been significantly overpriced (based on their current condition). A good majority are sitting on the market for 4-6-8+ months until the price has been reduced enough to warrant an investor purchasing the property. The only REO properties that I've seen reasonably priced are the VA foreclosures. I've been purchasing quit a few VA foreclosures while waiting for other foreclosures to drop their price to a point that makes sense for me to begin pursuing.

I'm finding REOs are selling for exactly what the market will support ;)

I routinely track my offers so I can follow up on my analysis and numbers when my bid is not accepted, just to see if I was off or not.  Because I have been in so many bidding wars over the past 6-8 months I wanted to see if I was being too conservative.  After checking up on a number of them (post rehab) I have to say that my numbers were pretty much right on and at least I felt some kind of validation.  Unfortunately validated feelings don't pay the bills.  Properties that were purchased for 15-25k higher than I was willing to pay ended up being listed for a similar amount over what I was going to list them after the rehab was complete.  Also, they have been sitting on the market for over 3 months without selling.  You do NOT want your rehabbed props sitting on the market that long.  To me, this means it is over priced and that is because you paid too much at the purchase.  As they say, the money is made at the purchase.  Thanks to all for further validating my feelings on this one.  Maybe I should try a short sale or an auction....maybe there's not as much competition?

Nope @Gary Marcotte  you aren't nuts things are all stupid expensive now.

REOs are the worst in that kind of change the last couple years.

The problem is that they were always overpriced generally but then they would sit for a long time and/or the sellers would entertain big discounts off list.  Now the stuff seems to sell $15-20K to high all the time and relatively fast.  So no discounts on stale listings or banks taking early discounts to avoid holding a long time.

You'd think at some point once enough of these guys overpay and end up making little to nothing on a deal that they'd go away but I was saying that 18 months ago and it's still holding strong...

I also see the same thing with the places coming back similarly overpriced (And often even more overpriced than they overpaid) and sitting there with no action in this "hot sellers market".  Yeah validation doesn't pay the bills but what really doesn't pay them is working for 6+ months on a project that you lose money on... Stay the course! 

@Gary Marcotte Glad you posted on this man, I'm brand new to investing listening to some older podcasts about REO buying and thought I must be looking on the wrong websites at REOs. I'm in Austin seeing the exact same thing as @Sonia Roberts  , been considering tax deed investing instead.

We don't see any deals on REO's in the SW Florida market. Everything is going sky high. I got an email about a listing yesterday. Small 2/2 in Naples listed for around 215K. It has been on the market 2 days. There are only SIX contracts on it in two days:) (I was NOT one of them LOL)

I have been on the Wells Fargo Foreclosure sales team in Naples. When we list a home we typically have a bidding frenzy and sell for over list and often above market. As investors further North in Florida we sometimes find good REO buy and hold deals but competition keeps increasing.

Even worse in Houston, some bank started to hire contractors to do the rehab and then sell it retail price. 

Yes they get into the flipping business..No more REO to buy

Wells Fargo also does Rehab in Naples on many properties Prior to sale as do several other banks

In Miami and Fort Lauderdale area, REO's listed on MLS are at market or higher. South American money buying everything they can get their hands on. I recently sold an as-is property to a South American investor at approx. $35K below market, they rehabbed it and now have it listed for $45K+ above similar comps!! The market here is nuts.

Fannie Mae/Freddie Mac inventory is priced 20% above retail... Most of the new listings that come out are way overpriced.. If they are mis-marketed, keep your eyes out on it every 30 days when there is a price drop.. Best chance of finding deals= being patient.

I've been seeing lots of them at retail, often priced as if they needed no repairs. And I don't mean the ones that the banks are rehabbing and listing way high. 

Not only that, after 2-3 months they pull the listing and then re-list them with no history. As if we are stupid enough to not recognize the same set of pics and the same address that has been on and off market for the past year. And when you make a reasonable offer it is as likely as not to be ignored or countered with a reduction of a few hundred dollars. 

@Gary Marcotte  

I straddle the central NH/MA border looking for REO properties and there are few deals to be had. And some of the listings make the asset manager/listing agents look like they're out of their minds. But every once in a while... Luckily REI is a part time thing for me, so I can afford to wait for the rare deal.

I looked at a property about three weeks ago, the price was ridiculous. I live in neighborhood so i know the property and the area. I made an offer and the agent told me i would not get it because the bank wants FULL asking. It was a rehab and poorly done i might add, but the banks are rehabbing their REO's and listing them for ridiculous prices.

They key to getting REO properties is followups. We routinely get them $30k+ under list price but you need to followup with the agent every 2 weeks to see if they will take your offer yet. It can sometimes take months to do, but the system works.

@Walt Payne  

I've experienced the same exact thing.  "New to market", give me a break.  Yeah new to market with only a NEW PRICE.

The responsibility of the asset manager is to get the best price he can.  If houses are selling at asking, he is doing that.  The difficulty rehabbers may have in making money on those properties is irrelevant to the question of whether or not they are overpriced.

I bought an REO last year. I was initially listed at a price that had absolutely no connection to the realities of the market (I assume it was based on what the bank was on the hook for) but it was quickly and dramatically price corrected.

The market is just heating up, is all.  Not enough inventory.  I'm thinking that we're going to see a real pickup in spec building in Southern NH soon.

@Walt Payne  

I've seen the same thing here. The only thing about "new to market" is the "price". They take them off and relist with nothing done to the prop except an increase in the asking price. They were over priced to begin with which makes me really question the BPO criteria REO agents are using to come up with these numbers. No offense to any realtors out there but I have to assume that this is where the process starts.

For me, just keep following the reo properties every 30 days to see if any reductions. It may take 90+ days to as much as 6 or more months for the asset manager to decide to reduce the price on some of the REO's. Just keep simply watching and good luck with it.

P.S.   Yes, all reo properties are way over priced to begin with. And that's why all sit on the market a long time.

I am a real estate agent in the Cleveland Ohio suburbs, working mainly with investors. You are correct, foreclosure properties become much less of a value over the past 6-12 months somewhat due to less REO inventory. Another factor is most larger institutions (National lenders, Fannie/Freddie) prefer owner occupied buyers & are making repairs to properties so they will conform to FHA financing requirements, while putting time restrictions on investor offers essentially freezing them out of the market. I have had luck pursuing expired listings for some of my investors & watching the frequency of price reductions on properties with extended market time. The values are still out there, find a good agent to help you!

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