I recently sold an REO home in Placentia California. If you still think the real estate market is a dump, make sure you read this case study to be proven wrong. This case study will be an overview of what happened on this home from Foreclosure Sale through final Disposition.
This was one of the listings I was happy to get as an REO broker. It was in Placentia which is a great area and it was a beautiful home in a nice neighborhood. This home was a 4 bedroom, 3 bathroom home with approximately 2,500 square feet and was built in 2001. Additionally it had an office loft, open kitchen looking out over the large living room with fireplace, a formal dining room with double-high ceilings, a beautiful backyard with built in bbq, waterfall and seating area. To cap it all off the garages were organized with cabinetry.
The home was the best condition REO I have ever seen. As close to a perfect home as you see in the distressed business. It was lacking the major upgrades most high end buyers look for, but it was still in excellent shape; which made it a perfect home for owner occupants. It would be easy to upgrade over time and get an excellent return on investment.
Cash For Keys
The day the REO was assigned to me I jumped in the truck and rode down to Placentia. I did my usual market survey, noticing that it was of course in a great area. It’s in a good school district, close to freeways, retail and dining, and in a nice association neighborhood. I knew immediately we were looking at a fairly high dollar home, with my immediate gut being somewhere in the mid $500s.
I arrived at the home, it was in beautiful condition from the exterior. While sitting in my truck, I went over the facts I had before approaching the home. I knew, from county records that it was a 4 bedroom, 3 bathroom home, no pool and that based on its condition and location had to be worth more than $500k. Therefore, based on this bank’s guidelines, I knew I had quite a bit to work with on the cash for keys side, so I would offer $4,000, leaving myself a few thousand dollars to negotiate with.
I stepped out of my truck and before I could even put on my blazer a man walked out of the house. I said “hello” and introduced myself. Before I could even explain what I was there to do, the man said “I know why you are here.” This can be both good or bad for a listing broker like myself. On the one side, the owner knows he lost the home and he is ready to leave (check in hand). Unfortunately, many homeowners get horrible advice from all kinds of people about how to handle this sort of a situation. I have had people living in homes worth less than $100k ask for $25k to move out.
I let the previous homeowner know I would offer him $4,000 to move out in the next 30 days. His almost immediate response was “the going rate is $5,000.” Knowing that was well within my means to do, I told him I could get that done for him. They would be out in 30 days in exchange for $5,000. These people were so nice, I tried everything I could to help them. They left the home in immaculate condition, gave me a full run down of the home and the homeowner manual and then they told me the landscapers would be arriving that day to do a final mow of the grass! These people paid every HOA due, every utility bill and every tax bill for this property. It’s a shame when such bad things happen to such good people.
Preparing The Home For Sale
As I mentioned, the previous borrowers left the home in immaculate condition. The carpets had the usual staining and it needed Carbon Monoxide detectors installed but that was it. I had my carpet cleaner, Dr. Carpet, get out there, and he made the place look brand new for only $315. Seriously, I had several prospective buyers say while on a showing “wow, I can’t believe the bank installed new carpets!”
The only other thing I could say negatively about the home was that it was lacking major upgrades. The kitchen, while pristine, had original white tile counters and white appliances. To catch top dollar, this home needed granite counters and stainless steel appliances. However, with 3 bathrooms and a large kitchen with island, the upgrades would be +$15,000, which was just out of my budget.
Nonetheless, it was a beautiful home, with beautiful curb appeal, it was ready to show for only $315. If only they could all be like this.
Determining The List Price
I had already ordered a third party BPO and appraisal. For homes worth more than $500k, this bank requires 2 BPOs and an appraisal to establish value. Much to my shock the third party BPO came back at $564,900, I really thought it was worth more. Then the next day, the distressed appraisal came back at $535,000.
I have been working with this bank for quite some time; they work with the same appraisal and BPO company. NEVER have I seen them come in on a value that was lower than what I thought the property was worth. Companies like this need to keep their business with the bank, so I feel like they usually pad their values to reduce “sticker shock” for the bank.
I did my BPO and thought it was worth $575,000. Typically I have to give an as-is and a repaired value. This home did not need any repairs, to it was straight $575,000 for me.
The next step is to submit the values and a write up to the bank for a price approval. I’ve never been so much higher than the appraisal and BPO before, I did not know what they were going to do. They picked the value in the middle, the third party BPO and listed it at $564,900, despite my thinking it was worth $10,000 more. I listed the home that day.
Marketing The Home For Sale
I had my for sale sign up for the weeks it takes the bank to set a list price, as I typically do. This is what I call pre-marketing. Having a professional For Sale sign up for a few weeks on a home that is not in the MLS creates a lot of buzz. By the time we hit the market I had a list of 15-20 potential buyers to go along with my usual investor list (who I didn’t think would like this home anyways since it was in too good of condition).
I got on the horn with all my prospects and broker network in the area. Within the first week we had 19 offers. That’s right, 19. Still think the real estate market is in the dumps? Not in Placentia! Of the 19 offers, 15 were above list price. It’s my job as the listing broker to get the best deal for my client. My client is the seller, the bank. Any time I spoke to anyone about the home I pushed all the features, its great condition, and its list price below market.
I knew this home would sell for more than list price, but I had to push. When it was all said and done, I put the home under contract for $588,000; $23,000 above list price and $53,000 above the recent appraised distressed price of the home. During escrow it was found that there was a leak in the garage, so we agreed to a moderate price reduction (we split the cost of the repair with the buyer) of $4,000 and ended at $584,000.
Home Sale Specs
This property was listed for 10 days until the bank accepted the above list price offer described above. This is a marketing time frame that compares very favorably to the distressed portfolio I manage, which has an average marketing time of 39 days. This escrow was closed in 43 days, due to a few hiccups with the loan documents on the lenders side and the minor inspection issues that came up.
On average, properties in this portfolio have sold for 98% of list price. Originally, I had this home sold for 104% of list price, but after the small price reduction it sold for 103% of list price, which is a success no matter how you look at it.
In the last 150 days, 21 properties sold within a half mile radius of this home. Those properties averaged 95 days on market, compared to our 59 days on market and they sold for an average of 3% below list price.
This was a model REO transaction, the kind of transaction every REO broker and seller wants to see happen more often. We crushed the market statistics, got the seller as much money back as we could and have a happy buyer.
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.
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