If you haven’t seen any of Jim the Realtor’s videos over at Calculated Risk, you are not getting a feel for what’s happening in residential real estate in America. The guy really gives the whole housing problem in California a look you wouldn’t have unless you were a real estate agent living it. His videos do have a certain twisted voyeuristic appeal to them.
In the videos below, Jim cruises around looking for REO properties. All of this stuff is ‘shadow’ inventory, meaning it’s not really on the market. There aren’t any for sale signs in the front yards. You can only imagine the shattered lives behind these videos. It gives you a good idea of how much more inventory is out on the market and the distress that creates for people selling. In the first video, Jim does say there isn’t a ton of shadow inventory yet, though. He works in North San Diego County.
Since foreclosures are flooding the market in places like California, it pays to do your homework because some of these houses are being unloaded by the banks for ridiculous prices.
Just in case you don’t know what an REO is, here’s a great primer from the bloggers at roost.com:
Real estate owned or REO is a class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction.[1] A bank will typically set the opening bid at a foreclosure auction for at least the outstanding loan amount. If there are no bidders that are interested, then the bank will legally repossess the property. As soon as the bank repossesses the property, it is listed on their books as REO – Real Estate Owned – and is categorized as an asset (non-performing).
As soon as a property goes into a distressed status (the borrower/home owner misses mortgage payments) the bank will want to determine the amount of equity that the property has. A popular method to determine the equity is to obtain a Broker Price Opinion BPO or order an appraisal. Based on the amount of equity that is determined from the BPO, the bank will decide to try for a short sale or to allow it to go through the foreclosure process. If the bank is able to sell the property through a short sale or at a foreclosure auction, then the property will not become a REO property.
After repossession and the property becomes classified as REO, the bank will go through the process of trying to sell the property on its own. It will remove some of the liens and other expenses on the home and try to resell it to the public, either through future auctions or direct marketing through a real estate broker (REALTOR). Generally speaking, bank REO properties are in poor shape in terms of repairs and maintenance; however, real estate investors will often go after these properties as banks are not in the business of owning homes and so, in some cases, the low price can more than compensate for the condition of the property.
Once a property is REO, the bank or lender will try to get rid of the property by either selling it directly themselves or through an established broker. Many larger banks such as Bank of America and Wells Fargo have REO/asset management departments that will field bids and offers, oversee upkeep and handle sales. The majority of REO properties that are on the open market are listed in MLS by the broker/REALTOR that performed the BPO.
And now for the clips.
Shadow REO Tor 1
I should mention that all the data for these houses is right there on the Internet. Here’s the page at Zillow.com for the 2nd house from the previous video and here again on Redfin.com. It’s pretty amazing how much reconnaissance you can do without even leaving your home. Scary, actually.
Here’s video 2. Shadow REO Tour 2
Shadow REO Tour 3
Shadow REO Tour 4.