All Forum Posts by: Vikram C.

Our official financials use the lower of cost or market. That means we value assets at cost but if anything has depreciated, we value it at market. I think this is the best and most conservative way to value short-term assets, such as inventory.

For my internal management decisions, I value all assets exactly as Jason does - estimated market value minus expected cost of sale. These are short-term assets for me so the cost of sale is inevitable.

I do not think Bryan's goal is to lock in the ARM rate for a long period. His idea was whether he could get a lower fixed rate using a combination of an ARM + futures versus going in for a fixed rate mortgage.

Thanks, Steve. This is not an REO and maybe that's why we got the disclosure.

Bryan, I do not think we are really debating the theory behind this. We actually have a disagreement with respect to the data itself. We both have a lot of experience with the data, but our experiences are from very different sources. Scott's experience is in negotiating with lenders on behalf of his clients, and he is reporting based on what he is hearing from lenders. My experience is in looking at and analyzing actual sale prices of SS transactions that sold through the MLS in one particular area of the country. I suspect we are both reporting our experiences accurately but the data sources are not identical and therefore the results are not the same.

I have seen that as well. In fact, I have even purchased a property at 20% less than what the SS agent claimed was their offer price.

Just to clarify, I am not stating that a bank will have an opening bid at auction that is higher than the best SS offer that it rejected. It may or it may not.

What I am stating is that the average closed price of SS in the areas that I operate in are lower than the average closed price of comparable REOs of similar property condition in the same areas. (At least for 2010.)

Scott, I am not a theory guy either. I think theories are only good if they are consistent with the data. I also know that you are a very good short-sale negotiator and know what you are doing, so I do not dispute that either.

The conundrum here is that I have analyzed vast quantities of data here in the East Valley based on MLS closed sales in 2010 and have noticed the lower prices of SS consistently in a like-for-like comparison with REOs. My data is much more reliable and granular than macro-data such as from the Cromford Report.

In any event, either the East Valley is an outlier, or there was something about sales in Q2 and Q3 of 2010 that caused SS to be cheaper, or James's assertion is valid, or the areas that you have recently been dealing in are outliers, or something else.

Bryan, I don't mind arguing in support of that position. As far as I know, we had a bubble caused by excessive private debt and a nice recession when the bubble burst. We have tried to claw our way out of the recession by converting individual debt into our collective public debt. I do not see how that solves the underlying problem of excessive debt in the economy.

One other thing that can misleadingly depress REO prices is the number of partially complete houses in this area. Those houses sell for what seems like a big discount from ARV when in reality the discount is mostly offset by higher rehab costs.

Finally, we also notice that REOs are, on average, somewhat less desirable than trustee sale and SS listings. Many of the most attractive floorplans and lot locations get offers at the SS stage and often get bid up at auctions while REOs tend to have a higher proportion of the dogs.

Scott, I, too, get the AZREIA reports every month including the Cromford data. The reports were what got me curious about this because it did not make much economic sense. Since we comp about 100 properties each day in the East Valley, we started paying attention to the sale price per square foot within the same subdivisions for SS and REO compared to retail sales. I think the Cromford report is flawed because it does not consider the condition of the property. Most SS properties are in liveable condition and if you take similar condition REOs, you will find that they, on average, sell for more.

This in fact makes sense intuitively as well because an REO in good condition is a more marketable property as buyers consider it almost equivalent to a retail property. We often face competition from REOs when we sell a rehabbed property while we never face competition from SS because the latter, as everyone knows, have a low probability of success and can take a very long time for a decision.

Andre, I focus on trustee sales, which, chronologically, come in between a SS and an REO. I also sometimes make REO offers but that is my secondary strategy.

Regarding making offers to REO bankers, I do not think that is an effective retail strategy. Perhaps if you are a hedge fund you might be able to negotiate a bulk deal with a bank but I do not think it really works for individual residential properties. (I have had my bank offer me commercial properties, though.)

I have read online sometimes that some people buy REO properties before it hits the MLS, but I suspect that strategy is not as easy today as it has been in the past. In fact, when I look at some of the deals of people who claim to get pocket listings, I find that they were in fact listed on the MLS. While it is possible that there are some people who do genuinely have the ability to get such pocket listings for REOs, for the most part I think such claims are BS.