The REO circus of the last two weeks has exposed and verified a few growing trends in Mammoth real estate and specifically the foreclosure and REO markets. While the banks and investors who own these properties are unemotional, methodical and have a very structured sales process, the (potential) buyers are quite another story. I’ve talked to dozens in the last couple of weeks and I can assure you there are lots of nice, respectful, earnest people who are looking for a bargain property in Mammoth. I have no doubt they desire a place to escape to. Then there’s a whole group out there that really need some enlightenment, especially if they desire to score a good REO deal.
The really interesting trend might be a new asset manager strategy of under pricing good properties to create bidding wars. We’ll see if it continues. It sure created some frenzy and wild emotions in the past two weeks. It brought the good, the bad, and the ugly buyers out of the woodwork. Mix in some inexperienced and/or hungry agents and it spells a recipe for real estate mayhem. And of course, once again, it’s all my fault. I’ve done plenty of laughing-out-loud. Many (potential) buyers think they are the only ones who still have cash. But I’ve got news for you, lots of people still have lots of cash. And many are looking for a Mammoth locale to own for themselves. What has become so typical in life is the ones who have the least amount of buying capacity usually bark the loudest. Real buyers just put the best deal on paper, and then perform.
The possible shift in pricing strategy to create bidding wars (?) is one thing. The other noticeable trend of the last few weeks is the bank’s willingness to foreclose on properties with ongoing short sale negotiations. Or finally foreclose on properties that have been in default for years. This week they look like they want to “drop the hammer” and get on with liquidating non-performing properties. But it could be different next week. Who really knows? It is a “controlled burn” and what they are trying to control is the bottom of the market. And so far, they are succeeding.
I recently, and very personally, experienced a very interesting trend in the REO market. The (potential) buyers are watching the market closer than many local agents. On a recent Wednesday afternoon a couple of banks/sellers listed low-priced but attractive REOs. (These properties had been in pre-marketing phase with us for months.) By Thursday morning the phone was ringing off the hook. These were (potential) buyers. The local agents weren’t calling until Friday. The consumers were a good 24-hours ahead of their agents. Amazing. Welcome to real estate and the age of the Internet, and “data exchange.” The rules change once again. But the net effect is a prime environment for creating bidding wars on newly listed properties, or at least the best new REOs.
So how are these bidding wars handled by the listing agent?? Very carefully. There are stories of abuse by the real estate industry in the REO side of the business. But I don’t see it here. But the losing bidders (and their agents) are always quick to accuse. Behind the scenes there is a mountain of details and process. Today, there is an incredible amount of documentation in a REO transaction, including dozens to hundreds of time/date stamped photographs. The closed files are quite comprehensive and offer the parties to the transaction as much protection as possible. But in the offering stage, many of the offers come incomplete. And the slop received from (potential) buyers and their agents is almost embarrassing. Most of the time these offers have to be sent back for repairs. And many times these are the most frivolous offers of the bunch. But the clock is ticking. The asset manager is not going to wait, if at all. Slop begets slop?
Even more entertaining are the (potential) buyers utilizing strategies they learned in late-night infomercials or some guru’s website; cozy, heartfelt letters about how the family has been coming to Mammoth for decades and little Johnny made his first run on Hansel and Gretel, and how the family dog just loves fresh snow, blah, blah, blah. Or the return of a strategy from the Roaring 2000’s “offering price is $3,000 above the next highest bidder.” Or “my cousin is a vice president at the bank that owns this property and he will contact the asset manager about my offer.” Yeah, sure, but your offer is still substantially lower than these other ones. And speaking of asset managers, losing bidders aren’t entitled to receive their names and phone numbers to plead their case. Talk about lunacy; asking me to violate confidentiality agreements and destroying business relationships makes a lot of sense. And then there’s the serial lowballers in these multiple-bid scenarios….and their agents who enable the behavior.
What many agents and buyers haven’t figured out is this; when the call for “highest, best and final” comes from an asset manager, the offer with the highest price isn’t always the best offer. These days a financing contingency is almost a death knell. Not only are there plenty of cash buyers, but financing is trickier all the time. A super high price with a financing contingency impresses no one except for the (potential) buyer. What asset managers are looking for is the buyer who is least likely to implode. Even buyers who have their proof of funds coming from 12 different bank accounts don’t look as good as the one with 5X (the purchase price) sitting in one account. For the asset manager there is no emotion. It is about maximizing the return to the investor (go figure) and assuring the transaction is tight. The pathetic accusations by indignant agents and their (potential) buyers is almost comical. It certainly makes us want to do more business with you. And while all offers are presented (assuming they are complete), many agents would be better off making better assessments of the situation before creating too much hope for their clients (I like the word hopium). Now if the property has been on the market for a few months, that’s a different story, go ahead and lowball.
The local appraisers represent an interesting trend too. The appraisal hired by the bank is the leading influence on where the property will be priced. Lately, it seems some of the appraisers are actually working for the seller/owner/bank and trying to make an accurate valuation of the property. And other appraisers appear to be trying to uphold or even inflate values (one in particular even has his house on the market!) In this market maybe owning property in the local market has become a conflict of interest for appraisers?
Another visible trend and a very good thing for Mammoth is what is happening to many of these REO properties after they are sold. Quite frankly, we often see these properties at their worst. But after trash-out, cleaning, some repairs, etc., they can look better. But some are still rough. But we often get to see what the new owners do to these properties and the aggregate effect is very positive for the town. One recently sold 2+loft was just terrible, but now it has a brand new kitchen including solid granite counter tops, new bathrooms, new doors, new paint, new flooring throughout, and basically looks brand new. And we get a new owner who will keep their common area fees paid and money flowing around town for goods and services. There is a silver lining.
Many Mammoth agents were given the opportunity to be active and educated about the REO business, but many walked away. From 2007-2010 I heard, “I don’t want anything to do with foreclosures.” Now many of these agents are getting calls from buyers who want information on these properties. But the savvy buyers have figured out that utilizing an inexperienced agent in this segment of the market is asking for misery and failure. It reminds me of the whole unemployment/employment situation I hear about all the time; people who are offered jobs are the people who have jobs. The moral of my story; when your offer on a REO is rejected by the asset manager, don’t blame me or my staff. And no, your gushy, heartfelt cover letter about why you should be the chosen buyer in a multiple-bid scenario isn’t going to impress the asset manager. In fact, the asset manager will never see it because it is not included in the “upload” process.
Mammoth remains a limited supply market, and that includes the REO inventory. I still like a recent comment from one of my clients, “The more you know the market, the smaller it gets.”