Real estate broker John Corliss knew the four-bedroom home he’d listed in north Aurora would be a hot property. It was bank-owned, more commonly known as a “real estate owned,” or REO, property listed at $66,000.
Within 48 hours of putting the home on the market, Corliss received four investor bids clustered around the asking price. Within a week, it was under contract by an investor with an all-cash bid.
Bidding wars arise frequently in the REO market, especially for homes priced below $200,000, Denver brokers say. Many REO-listing agents report having seen low-priced properties attract 20 or more offers.
More than in past down cycles, lenders are easing their repossessed foreclosures back onto the market rather than loosing a flood, according to Michael Clarkson of Mile High Home Hunter Realty. The second part of the strategy is to “price them low and dirty to get people to come in and bid,” he said.
Banks take back properties reluctantly. “It costs them a megaton” in legal fees, repairs, resale costs and lost lending capital, said Clarkson.
In 2008, Denver’s public trustee reported 14,533 completed foreclosures in the six-county metro area. By comparison, the total number of single-family homes and condos listed in March was 20,628, according to MetroList, the area’s Multiple Listing Service.
The holdback strategy seems to be working for lenders, said Ed Cluff, an investor who has purchased “several hundred” REO properties since 1979. “I’ve seen a lot of price escalation, particularly in north Aurora, Thornton and Montbello.”
The uptrend has been marked since last fall.
For properties priced below $200,000, the average time on market is 2.6 months, according to MetroList. That’s half of what it was just 13 months ago and less than half the time on market for homes priced between $200,000 and $400,000.
Experienced investors aren’t necessarily happy about the price inflation.
“Newbies are overpaying for REO properties. We find it much harder to find interesting wholesale deals,” said Mark McFarland, a Highlands Ranch investor who has bought and sold about 200 REOs since 2004.
Some investors operate by flooding the market with simultaneous offers, bidding on hundreds of properties sight unseen, he said.
“It muddies the waters for the banks trying to sort through all those offers,” he said.
But many say the uptrend is temporary, driven mostly by banks holding their REO properties rather than selling them and holding off on new foreclosures.
When those effects wear off, REO prices will fall, according to Craig Hindes, a broker with Coldwell Banker in Westminster. “A lot of inexperienced people will be stuck with properties they paid too much for.”
