Competing with your own Comps
Spent bottle ideas
This is one of the reasons a bank would go to the trouble of fixing up a home getting it ready to live in before putting it on the market. Unlike an individual owner a bank might have several properties in the same subdivision or community. If they dump an REO disaster on the market to get rid of it quickly for a wholesale price it will show up in comp reports later for any other homes they will need to sell in that same area.
This has been one of my beefs for years. We would never compare a flood damaged cars value to a resale car in good condition. But that’s not true of a house. Therefore, a home that has had the plumbing destroyed, the electrical ripped from the walls, the AC unit, Furnace, and water heater removed and the ceiling fans and light fixtures literally ripped from the ceilings will be considered as equal to a well maintained home in the resale market.
We know of a home that recently sold in good condition. But it wouldn’t appraise. The seller had to take $18,000 less than the agreed sale price because it wouldn’t appraise. This is what can and does happen to REO homes. Therefore, it makes sense for a bank to invest in bringing a property back to occupancy level before selling it. The higher the sale price the better the comps for the next property they will be selling.
Shadow Inventory Dump Defies Logic
Is there a Shadow inventory? Yes. How big is it? No one knows.
But there is no reason why the banks would dump all there REO homes on the market at once. That makes no sense except to sell papers and talking heads having something to talk about on the Sunday news shows.
Well, there is one reason according to the “theory of shadow inventory” It is as lame as the shadow inventory conspiracy theory itself.
This is another what I call the “Spent Bottle Ideas”. Have a few beers come up with ways to sell papers and panic. The idea = They will be forced to sell them all at once. Yeah, that’s going to happen.
Dave,
Don’t you think the banks are holding onto the shadow inventory because they have already written them off their books? If they sell them now (after they’ve already written them off as a loss), they will have to show the sales of those properties as profit.
It makes sense of them to dispose of the shadow inventory in small batches for two reasons: 1) to not flood the market with inventory, causing them to be the bad guys- responsible for further price declines, and 2) to not have to show too much profit in any one quarter.
What do you think?
I’m not sure they are holding onto any inventory longer than they have to in order to get it ready for the market.
Putting a property on the market doesn’t mean it is sold. Since banks don’t have the same rules of acceptance of an offer as regular sellers, they can hold up a response to an offer or extend the closing date out as far as they want. This lets them control when a sale will go “on the books”.
Getting the inventory pushed through as quickly as possible is necessary for them as well. They don’t know how much more is coming in. They can estimate based on loans in trouble but there is no good reason to hold them “off market” except to keep from “dumping”.
Dave