Fair Housing and REO Part 3 of 4

Pricing and Undervalue effects

In the National Fair Housing Alliance (NFHA) publication “Here comes the Bank, There goes our Neighborhood”, there is  a section entitled “Banks Must Not Undervalue Homes and Must Price REO Properties Properly“. So there are a couple of pieces to this. The property needs to be properly maintained so that the value, or the perceived value is not diminished.

Their report found that in predominately minority low income neighborhoods, often times the banks “failure to adequately maintain a property may be related to an inaccurate perception of the House’s actual value and is also often related to the false belief that a REO in a distressed neighborhood is not worthy of financial investment.” It stands to reason then, that deferring maintenance will assure that the property stays on the market longer – thereby driving down the price even more – the bank loses money, neighborhood has another blighten property and more loss on the tax revenue side. It’s interesting because I see that happen here in a community called Maryvale. There is no real care given to the REO property, it is priced low — but in this case, the investors  are scooping them up and then reselling to potential homeowners (minority) at a much higher price. In all most all cases, they are facilitating this with a hard money loan.

I have heard of multiple scenarios where the hard money loan is 2 to 3 times the price that the investor purchased the property and the loan is pretty much set up for the homeowner to fail payments in the following years. It is very sad. So if the Owner Occupant would have been willing to purchase the home for 60k, why was the investor able to grab it for 15-20 or 30k? There is a loan with US Bank that I am exploring called the American Dream Loan – a blog for another day – if this loan product does what I think it can do, we will be able to facilitate the owner occupant, skipping the investor and his hard money loan and purchasing with a product that benefits all.

Back to the issue of pricing and undervaluing…once again, I believe this lies largely with the listing Broker. As a listing Broker, the bank does not always agree with our pricing strategy and may list higher or lower than our recommendation.That is where it becomes our responsibility to get away from a “turn and burn” mentality and really look at the data, the community and the trends so that we can facilitate the recovery and not delay it. We need to provide accurate data to the banks and plead our case when we believe the bank is missing the mark on pricing.