Earlier this month Swedish scientists published a design for what could be the world’s smoothest roller coaster. Evidently roller coaster technology has really evolved since the first kind with a loop was designed in 1846. This 13 foot coaster entered the loop with so much force that it would break the riders’ collarbones.
So ponder this question for a moment…if the Swedes can design such an elegant and comfortable roller coaster ride (a highly scientific, but admittedly fun task) then why can’t banks and asset managers come up with a more efficient system to liquidate their growing inventory of homes? Yes, there have been some minor improvements. But, we are three years into this slide and they still haven’t completely mastered what should be a very simple process.
On June 26th I attended an REDC auction. REDC auctions off excess REO properties that aren’t selling on the MLS. Many of them aren’t even on the MLS because they have an issue (i.e. they’re occupied or are uninhabitable.) I won the bid on a home in Goodyear, Arizona. It was an all cash sale so presumably the closing would occur very quickly. Well, here we are 33 days later and I just got the executed purchase contract from the asset manager at American Home Mortgage Servicing. What is amusing is that the transaction coordinator at REDC asked if I wanted a “quick closing.” Can you imagine how long it would take to get this deal done if I said no?
About this same time I wrote an offer on a Fannie Mae owned home in Chandler, AZ. It had been on the market for more than 60 days and needed a major rehab. We ultimately had our offer accepted after some back and forth negotiating and were on our way to opening escrow when I got the addendum with this language:
Oh no. The dreaded deed restriction! Fannie Mae apparently doesn’t like it when investors like me fix up their houses and sell them for more than they can (in good condition this home would retail for $285,000.) The problem here is that this home will not sell to anyone BUT a real estate investor because it’s a clunker. I just checked today and the house is still on the market…93 days and counting.
I’m by no means suggesting that you should give up buying REOs. There are some great values to be had. Just be prepared for a wild ride that won’t break your collarbone but may make you sick.