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Managing REO “Ramping Up REO Maintenance”

Managing REO recently published an article by Robert Klein, CEO of Safeguard Properties.

Ramping Up REO Maintenance

Real estate owned assets have to be taken care of and preserved in order to market these homes, which are?competing more and more with the growing traditional home market.

By Robert Klein

It wasn’t long ago when the path to an REO sale was pretty straightforward. After foreclosure, an REO property was placed on the market “as is”, with little more than basic “trash out” and maintenance services, and along came a willing buyer looking for a value-priced property.

In today’s slumping housing market, those days are gone. As traditional-sale homes linger on the market for months and even years in many parts of the country, bargain-hunting buyers have far more choices. REO properties now compete with reduced price traditional homes, and sellers are recognizing the need to rethink their strategies in disposing of REO properties.

In the past, field service companies focused primarily on property preservation – securing, maintaining and inspecting an REO property on a regular basis to preserve the seller’s asset. As the REO market has become more competitive, field servicers have adapted their REO service offerings to help their clients
maximize the value of REO properties in their portfolios.

One of the most important strategies in REO disposition is determining the optimal investment to maximize value and minimize time on the market. Investing too much may price the property out of the market. Investing too little may cause the seller to miss an opportunity to attract a strong buyer in search of a move-in ready family home.

Certainly, market potential is a key factor in the investment decision. A seller is far more likely, for example, to invest $10,000 in upgrades to a property with a half-million dollar sale potential,
compared to a property with a $100,000 potential.

Attention to details

Regardless of the potential sale price of the property, it is essential that sellers make the small investments that make a big difference. Even a significant investment in a high-value property won’t be
enough if a property lacks basic curb appeal and attention to minor details that cost little and add a lot. What are those details?

They start with the potential buyer’s first gaze at the property curb appeal. It won’t matter what a house looks like inside if the exterior is poorly maintained and the property looks neglected. This
is especially true if other properties in the neighborhood are well cared for.

Bottom line, if the house shows like an REO, prospective buyers will begin deducting value the minute they drive up to it. Buyers shouldn’t be able to tell the difference between an REO property and a traditional for-sale property, or for that matter, even an occupied house on the street.

The goal in maintaining the exterior of an REO should be to make it look like every other house on the street. Prospective buyers shouldn’t begin deducting value the minute they drive up. Rather they should immediately begin to imagine themselves living in the home and raising a family there. The grass should be cut, bushes and trees trimmed, and planting areas weeded. Mulching, minor repairs and even some
painting may yield stronger returns on the investment if they help to draw the prospective buyer to the front door.

The next detail to invest in is cleanliness, regardless of the property’s condition. When the buyer walks through the front door, the house should look and smell fresh and inviting. Washing windows and walls, scrubbing floors and carpets, adding air fresheners, and making sure kitchens and bathrooms
are spotless all can add thousands of dollars to the value of an REO property at very little cost. Something as simple as cobwebs can reduce an offer by thousands of dollars.

Higher value properties may warrant additional expenditures such as painting, minor repairs, updated fixtures and lighting, new flooring and carpets. These expenditures may yield additional returns from a buyer willing to pay more for a home that is “move-in” ready.

Protecting “precious metals”

There is an important additional incentive to assure that REO properties are unidentifiable to passers-by as vacant. As scrap metal prices have doubled and even tripled in some markets, vacant properties have increasingly become targets for metal thieves. This is happening not only in urban areas, but in suburbs as well.

All vacant properties are important to protect from vandalism. With REO properties, it is even more important because additional dollars have often been invested to make them market ready. A thief can steal metals that bring hundreds of dollars from a scrap dealer, and the damages they leave behind can run into the thousands.

In struggling neighborhoods, properties can actually end up with negative value if the cost to repair
damages exceeds the market value. If the property has to be demolished, costs can run between $5,000 and $10,000.

As REO properties languish on the market for longer periods, it is even more important to invest in upgraded maintenance packages on selected properties to keep them looking their best. A thief is less
likely to target a property that either appears occupied or one that appears to be receiving regular attention.

The value of teamwork

To move properties out of REO portfolios as quickly as possible and maximize the sale price, REO managers, brokers and field servicers must work as a team. The broker obviously is essential to determine the home’s market potential and to expose it to a wide audience of prospective buyers.

The field servicer’s job is to keep the property in the best condition possible, maintaining the home on a regular basis to the standards of the rest of the neighborhood. That includes cutting the grass, addressing repairs and maintenance issues as they arise, and providing routine “maid service” to keep the interior clean, dusted and fresh.

Brokers and servicers should be each other’s eyes and ears, backing each other up, quality-checking each other, and working together to protect the property interests of their mutual client.