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» POINT— COUNTERPOINT According to the January 2013 Home Price Index published by CoreLogic, prices nationwide increased 9.7 percent on a year-over-year basis. This represents the biggest increase since April 2006 and is the 11th consecutive monthly increase at the national level that CoreLogic has recorded. Dave Williams, CoreLogic's VP of property valuation, said although "we have seen some improvements overall in REO sales prices," REO's regression isn't over. "What our data is showing is that while the entire volume of homes and values is increasing, we are not seeing anywhere near that kind of increase on the REO side," Williams said. "Over the last three months or so, REO prices have leveled out considerably. " Williams stresses that it's always important to look closely at the details and the composition of numbers and prices. He says there are still LEGISLATIVE REVIEW Price Gains Remain Patchy TECH FOCUS The REO market is in the midst of a fundamental shift, with properties receiving multiple competing offers, buyers jumping in cash in-hand, and turnover times shrinking. "Prices on REOs are increasing based on a decrease in supply," said Rod Wylie, SVP of REO at Vericrest Financial. Wylie says a six-month supply represents a "balanced market." With inventory in many areas severely diminished, the market is shifting in favor of sellers, he notes. In urban and suburban markets, Wylie says Vericrest is seeing strength in prices and offers for its REOs. "If a property is priced right, we're seeing multiple offers and a quick turnover," he said. "In some cases, offers are well above list price." In addition to competitive pricing, Wylie says property condition and whether it is financeable also drive sales prices because these factors can expand the buyer pool to both owner-occupants and investors. Generally, Vericrest reports properties above the $150,000 price point are yielding multiple offers well above list price primarily from owner-occupant prospects. Wylie says major metropolitan areas and key Sunbelt cities in California, Arizona, Nevada, Florida, and Texas are seeing the most interest in REO properties. Vericrest has observed an annual increase of about 4 percent in the average sales price of its REOs. At the same time, the mortgage servicer has seen almost a 20 percent reduction in the number of days REOs are listed before they're snatched up by eager buyers. Wylie says lagging appraisal values, however, are one factor that can upset sales some very significant REO discounts occurring in some markets, averaging upwards of 50 percent. "What is changing is the composition and frequency of those," he explained. "Our data shows that in the area of Southern California— i.e., Los Angeles and Long Beach—REO price discounts have been fairly unchanged over the last one-and-a-half to two years," ranging between 45 and 50 percent. What has changed, he explains, is the ratio of REO sales to total sales. "REO transactions were 25 percent or more of total volume," Williams explained. "That number has now fallen to 13 or 14 percent of total sales." Chicago has one of the highest REO discounts in the country—57 to 58 percent— according to Williams. The frequency of REO sales to total transactions there is upwards of 20 percent, while areas such as Nassau-Suffolk, New York, have seen REO transactions drop down below 2 percent of total transactions, he points out. "My clients are coming to me, asking for what they refer to as fair market value," Williams said. "We provide to them what is a market-driven fair market value for that property within a specific geographical area. However, we are not asked to provide the final REO price; the client does that. They can offer additional discounts as they perceive the need." CoreLogic gives clients a defensible sales price using all the data available in the marketplace, including the expertise of a local Realtor or an appraiser. One area that seems to generate increasing interest among the company's clients is repairs. "When we give a client a value, we give them an 'as-is' value and another value that could be realized after repairs are performed," Williams said. He notes requests are increasing from REO clients for a detailed assessment of the contributory value of repairs in addition to an estimate of the actual cost of repairs. "These estimates are becoming more critical for REOs," Williams said. "Owners of these REO properties are willing to list the properties at higher prices if they can substantiate this repair cost-versus-value approach." After reviewing the repair estimates, REO owners can determine whether it makes more financial sense to repair and market the property at a higher price point or resort to a short sale. Williams believes the focus on repairs is benefitting REO prices. "Prices have actually flattened out a bit, although going up in some areas," he said. "However, they certainly have improved from where they were at the beginning of 2012." MARKET PULSEBEST PRACTICES Supply and Demand 101 transactions. Restricted supply is causing buyers to bid up, he explains, but "it doesn't mean the property will appraise for that amount," and financing may come up short of the buyer's offer. Vericrest is looking to remove the appraisal contingency from the equation so if the property appraisal comes in below the final sales price, the buyer can still purchase the home if they are willing to make up the difference between the sales price offered and the appraisal value and financing amount. Another trend Wylie's noticed is an increase in all-cash purchases, among both investors and owner-occupants. As a point of comparison, in 2012, 57 percent of offers received by Vericrest were cash offers. In 2013 year-to-date, that ratio has jumped to 62 percent. "We're seeing that play out in Florida and other areas across the Sunbelt," Wylie explained. He's also noticed a developing trend among institutional investors that have been actively acquiring properties for rental—they are now putting them on the market for sale. "Obviously, if the market is strengthening from a value perspective, they want to realize their profits now," Wylie said. He predicts that although REO prices and sales are increasing in some areas, rural areas will continue to lag because of a smaller number of prospective buyers and limited interest from institutional investors to move into those markets. "The demand is already somewhat low in those places," he said. "There is not the same dynamic or balance between supply and demand in rural areas." COVER STORY the red tape encumbrances of REO and short sales transactions, Stephens says. "As a result, we are finding that buyers are willing to pay several thousand dollars more for a conventional non-REO/short sale property to avoid a negative experience," Stephens said. Regarding the recovery of REO values, Stephens points to varying developments across the country. Texas did not experience the extreme market swings as states like Arizona, California, Florida, and Nevada, for example— all states where homes lost 50 percent of their value from 2006 to 2011. "Texas values only went down 5, 6, or 7 percent and have already recovered," Stephens said. He cites studies from Texas A&M University showing the Lone Star State has led the country for more than five years in population growth and corporate relocations. "Unlike most of the country, Texas has been very insulated, and values there are already back to the 2008 level," according to Stephens. VISIT US ONLINE @ DSNEWS.COM 57

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