Recently, I sold a home in Fountain Valley, California. This was an REO home, which means it was owned by a bank, and had several challenges to overcome. This is a synopsis of the process from start to finish.
This particular home was a 1965, 5 bedroom, 3 bathroom that was approximately 2,300 interior square feet. It sat on a lot that was approximately 7,500 square feet. The home has a pool in the back yard with a small “pool house”. The home has some fairly decent upgrades, such as granite counter tops and tile floors but had deferred maintenance issues in almost every room.
The loan had been in default for more than twelve months by the time the property had been assigned to me as an REO. There was more than $500,000 still left on the loan. Eviction was immediately started in an effort to get the home vacant as soon as possible to recoup the bank’s investment quickly.
Cash For Keys
My first visit to the home, I found it to be in an excellent location, only about 5 miles from the beach and in a neighborhood with high pride of ownership. This meant good things for the bank; so long as the home didn’t have any major issues, the home would sell quickly and fetch a reasonable price. 100% return of the loan balance became an attainable goal for me.
I scoped out the home prior to arriving and could tell from Google Maps that the home had a pool in the backyard. The back yard was fenced in well; it was nice and private. Upon arrival at the home I could barely see the pool and pool house in the back yard. I noted that the exterior of the home was in decent condition; it needed patch/paint work throughout. The roof looked to be in good shape and there did not appear to be any major issues.
I knocked on the door and found it occupied by the borrower. I introduced myself as a real estate broker who worked with banks and let him know I was here to help. It’s important in this situation to tread lightly. You do not know what this person has been through, how the loan went into default and what they’ve done to try to save it. I always ring the bell and take 10-15 steps back. It’s good to let them answer the door and check temperament before proceeding closer.
Sadly, personal issues had forced unforeseen expenses and there was an employment issue that lead to the default. The borrower knew he would not be able to stay in the home. This always makes my job easier. While it is extremely unfortunate what had happened to this family, the important thing was that they accepted it and were ready to accept whatever help they could get.
I let them know that the eviction was already underway and made it clear that the bank starts eviction on the day it becomes REO. This was not a decision directed at him. I let him know that due to the value of the loan balance and home, I could offer him up to $5,000 to move out in the next 15 days. This was not the max time frame or dollar amount I could offer, but felt it juicy enough to start negotiations. The borrower stated that he needed as much time as possible. I told him the eviction will have him out in less than 90 days. We settled on $2500 to move out in 50 days.
Preparing The Home For Sale
On the agreed upon move out date, I met with the borrower at the home to give him the check and secure the property. Step one is always to rekey the home. You never know who may have a key to the home or what someone could do. While my locksmith was securing the property, I did my visual inspection. The home was not in as good of condition as I had hoped.
All the carpet was badly stained and every wall would need to be repainted. Overall this is relatively good news. Most REOs need at least paint and carpet. Then I walked out back to check out the pool and pool house. They were both total disasters. The pool had been empty for several years. This had caused the bottom of the pool to crack, allowing plant life to push up through the bottom. By now, there was literally a small tree growing up, right in the middle of the pool. The pool house was in rough shape too. I found that it too would need full paint, ceiling replacement and flooring replacement.
There were a couple things I knew to do right off the bat. I had my cleaning crew go through and clean the home as good as possible. A good cleaning goes a long way and is inexpensive. Then I ordered the carpets cleaned. While the carpets could probably stand to be replaced, $300 to steam clean is much better than $5,000 to replace. Once the carpets were steam cleaned, they looked far better!
In the current condition, the home sale could not be financed. The condition of the pool surely precluded it from FHA financing and likely from most conventional financing. I immediately got on the horn with a few pool vendors. The first two vendors who went out suggested just filling it in with soil, at a cost of about $10k. I knew this would not be ideal for the bank and made the decision to begin marketing but would keep looking for pool solutions.
Determining The List Price
Next we needed to set the list price of the home. This bank requires that two Broker Price Opinions (BPOs) be performed. Then a reconciled value is set for the list price.
My BPO came in at $540,000 as is vs $560,000 repaired. This is to say that if we sold it without doing any repairs I felt it was worth about $540,000. If we got the pool up and running, we should be able to get another $20,000 out of it.
The other BPO came in at $575,000 as is and $585,000 repaired. I felt that this BPO was high due to the broker not realizing the repair costs associated with the pool.
Since the price was going to be above $500,000 this bank requires an appraisal. The appraisal came in at $570,000 as is, so we had to list it at $569,900 and we did not repair the pool.
Marketing The Home For Sale
We put up a For Sale sign in the front yard, installed lockboxes on the front door, created property fliers, listed the property in the MLS, and syndicated the listing to our network of websites including CAPropertyFinder.com, Trulia, Zillow, Realtor, and 40+ other real estate sites. We also sent out feelers to our investor network.
Our marketing efforts proved successful yet again. Within the first two weeks we had secured 6 written offers. Even with the list price being higher than I wanted it to be, the offers came in and the highest one, we were able to negotiate up over the list price to $572,000. It was an all cash offer and their only contingency was that the bank repair the pool prior to close of escrow.
I previously mentioned above that while the decision was made not to repair the pool during marketing, I was still searching for a good pool vendor to repair the pool at a good price. Luckily, I found Aqua Link Pools and Spas in Carlsbad, CA. I connected with the owner directly and met him at the property. He had extensive experience with vinyl liner pools, which was what we were dealing with. Grant, the owner, got me an excellent price and quickly got to work. The vendor did an excellent job and the only thing that prevented the work from being done early was the vinyl liner materials, which had to be manufactured and delivered.
As we progressed, the buyers did their inspection and several major issues were found. It was discovered that in addition to the cosmetic issues, the AC unit had to be replaced and there were roof repairs needed. As a result, the buyers requested a $15,000 price reduction. Through negotiations that reduction was cut down to $6,000 and the buyers agreed to reduce the price to $566,000.
Home Sale Specs
This property was listed for 18 days until the bank accepted the cash offer described above. This 18 day marketing time period compares very favorably to the distressed portfolio I manage, which has an average marketing time of 38 days. This escrow was closed in 54 days, due to the pool repairs, which unfortunately served as the bottleneck for the closing. Normally, properties in this portfolio sell for 98% of list price. Originally we had this home sold for 100% of list price, but after the price reduction it sold for 99% of list price.
In the last 150 days, 21 properties sold within a half mile radius of this home. Those properties averaged 82 days on market, compared to our 72 days on market (which included the extensive pool repairs) and they sold for an average of 2% below list price.
This was one of the more successful REO transactions I’ve seen, even with the costs to repair the pool. On the gross price, we recouped the outstanding loan balance. After you factor in seller closing costs, utility costs during the hold, tax prorations, the cost to repair the pool and the amount given to the borrower to move out, they ended up about $40,000 short of 100% return for a return of 92% of the outstanding loan balance.
List Your Home For Sale
Selling a home quickly and for above list price is a matter of experience, market knowledge, and connections in the industry. If you are seeking similar results and would like us to sell your home, call us at 1-800-287-1808.
You may also reach me directly, Scott Mehlman, at 310-430-6361. I am the managing broker of our office and I look forward to exceeding your real estate needs.
Powered by Facebook Comments