2010 Outlook for Foreclosure Sales - Outer Banks Real Estate

THE DEAN AGENCY

FOR IMMEDIATE RELEASE

PR Log (Press Release) – Jan 13, 2010 – The supply of foreclosure properties is slightly down as of January 2010 - 57 active foreclosure listings on the Outer Banks. This is NOT due to a slowdown in foreclosures on the Outer Banks. In many cases properties are being delayed in their sale due to the explosion in bankruptcies by borrowers. In other cases banks are overwhelmed and simply cannot deal effectively with the process of getting bank owned property to market. Bankruptcy typically delays marketing a minimum of 5 months.

Non-bankruptcy timeline for The Dean Agency is as follows: Notice from lender that we have been chosen to represent them on a given asset arrives with a laundry list of tasks to complete within 1 week. These include determining occupancy status, preparation for eviction of tenants or borrowers,  a thorough inspection of the physical condition and repair recommendations and finally, a lengthy evaluation of probable market value. A second opinion by another broker and then a true, certified appraisal will all contribute to the list price. After this initial flurry of activity there is typically a 30-90 day time period before we can list and legally advertise the property. Of course, this varies between lenders and each property tends to have its own conditions and circumstances that also contribute to this.

I say probable market value  because a property over $530,000 may require very difficult financing for a potential buyer or by contrast, we may quickly find a cash buyer - availability or lack of financing options can greatly affect ultimate selling price. Properties under $400,000 will typically be much easier to price accurately and predict marketing time more correctly. This is because they will be financed with conforming (non-jumbo), conventional fixed rate loans that are much more widely available in today’s credit depleted loan market. Cash offers will also be much more likely in this price range. A desirable resort property will have a VERY short shelf life - maybe 10 to 15 days.

THE INCREASE IN MULTIPLE OFFERS: “Bring your highest and best offers by 5 PM”, words that every Buyer’s Agent hates to hear. We have seen this with increasing frequency on desirable foreclosure properties and short sales in the last 6 months. We prepare our clients for this situation in advance for one simple reason; we will bring them the very best returning investment properties and these will certainly receive multiple offers within a few days of listing or after a dramatic price reduction. This is a very precarious time for buyers because the “best deals”, as we define them,  totaled only about 12 pieces of real estate in 2009.  I estimate that the entire 2009 market had only 50 highly qualified and ultra savvy buyers at any one time aggressively searching and ready to make offers on some or all of these until they made an acquisition. That translates to about 4 competing offers per “best deal.” That also translates into 3 disappointed, “day late and a dollar short” buyers per “best deal.” Our successful clients on these properties took our guidance on being prepared PRIOR to even identifying a property of choice. This allowed them to move within a day, and sometimes within hours and beat out other buyers from other firms. Because of new pricing strategies by lenders on bank owned property that developed late in 2009, multiple offers are a reality for anyone seeking the “best deals” on the Outer Banks.  For a definition and examples of “the best deals” as The Dean Agency defines them, consult with a broker at 866 340 1166. If you choose to become a client of The Dean Agency you will be well prepared to navigate a multiple offer situation.

NEW PRICING STRATEGIES ON REOS FOR 2010. The foreclosure market seems to be ever changing. The biggest change for buyers is dealing successfully with new list price strategies. With everyone afraid to call the bottom, lenders are under pricing assets to create an auction like climate in which they will receive multiple offers usually exceeding list price. This clearly rules out leaving money on the table for lenders and has been very, very successful. In most cases too, this has been a win/win situation. Most buyers were able to end up with over 9.5% gross return on purchase price. This is sufficient to get positive cash flow when properly managed. The “best deals” of course, will exceed this.

DON’T BE THIS GUY! In 100% of the “best deal” scenarios there is at least 1 grossly misinformed buyer that will always lose out. Here is a generic profile of this buyer so that you can avoid being a sure loser in the race for the best deals. This buyer will invariably ignore all sales data, comparable sales and advice by the buyer’s agent. This buyer has a set percentage of list price they will offer, let’s say 70%. This unfortunate buyer type cannot differentiate value from price. If he receives a discount on price he perceives value - what a terrible approach to investing! His agent will likely search out “soft” sellers whose agents indicate greater flexibility so this unwise buyer can feel he got a bargain. His agent will avoid seeking value because this buyer is not searching for value, he is searching for a discount. A wiser buyer will allow his agent to establish value OUTSIDE of the seller’s number. More specifically, who wants a 30% discount on a house that is 50% overpriced? The Dean Agency establishes value for our clients’ consideration based on a handful of independent factors. If you are a true investor you seek value, not discounts. Value may mean paying 6% or 7% over list price in a multiple offer, highest and best situation to acquire a property 10-15% undervalued. As hard as this may be to swallow, acquiring a well valued property often means competing aggressively with other buyers and winning. So with regard to unwise buyer, seeking discounts in lieu of value - DON’T BE THAT GUY!

HIERARCHY OF OFFERS - Not all offers are created equally, especially with regard to bank owned and foreclosed property. Banks will show preference to a properly crafted offer and many times accept it over higher priced offers. To find out what constitutes a well crafted offer for a particular REO property contact your Broker at The Dean Agency. We do not publish that information as it is proprietary and is not “one size fits all.”

THREE TYPES OF FORECLOSURE SALES - There is no trick to finding foreclosures on the Outer Banks. There are three ways to buy a bank owned property. First is the courthouse auction. This is only for the most seasoned, professional investors because the opportunities for disaster are many. You could easily buy a $100k house with a $50k lien - not great investing. There are NO protections for the buyer in this method so all the burden is on you. You may find this is a very expensive learning curve. Secondly, you can attend foreclosure auctions. This has not produced very many sales in our market although there have been many. Reserves are set high and few bidders ever make acceptable bids. Expect to pay a large 5% or more Buyer’s Premium to the auctioneer on top of purchase price. Expect to do all inspections prior to the auction as well. Losing your earnest money deposit becomes more likely at auction as well. Title issues and liens will be resolved for the most part, unlike the courthouse auction. The third and most straightforward method to purchase foreclosures through a broker when listed on MLS. Buyers can retain all the normal NC protections for buyers, providing they use a Broker specializing in bank owned property who can craft a protective offer. The other advantage is transparency - you can easily search all foreclosures at http:// www.thedeanagency.com and compare your wants and needs. We prefer this method because our buyers are better informed about the property and better protected by NC law.

Any serious buyer should have an experienced REO broker working for them in this fast moving market.

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Yesterday we joined a group of about 30 Brokers in our area to hear a speaker and discuss foreclosure real estate and short sales in Dare and Currituck Counties. There was little difference in opinion; everyone unanimously agreed that these bank owned property sales were shaping the landscape of our market. Some other conclusions were interesting, but also predictable.

There are opportunities to be had buying foreclosed oceanfront homes and other resort real estate owned by banks, especially income producing “A” grade real estate. Several Realtors expressed frustration with buyers who have unrealistic expectations or aren’t prepared for the “process” of buying default property at the beach. Others expressed frustrations with the complications of dealing with lenders.

Let me offer a tip to Buyers considering foreclosed real estate for sale. Don’t even consider trusting your business to a Realtor who is not specially trained, duely insured and most of all, highly experienced with this most unique real estate. All the problems and frustrations expressed by the Realtors above resulted from a lack of specialization on the Broker’s part or poor preparation of the Buyer by the Broker. Our Buyers are far better prepared and every Broker in our office has received extensive lender training, and industry training to understand the navigational skills needed for foreclosure properties.