REO Auctions Should See Uptick Soon
June 15, 2011
Lenders are starting to get the picture that they can’t keep REO properties in their portfolio forever, according to a new analysis from PropertyAuction.com. The practice the company has dubbed "extend and pretend" — which refers to banks "extending" the holding period of a property in their portfolio while "pretending" that the value is still what it used to be when they made the loan — seems to no longer be applicable.
Federal regulators are now putting tremendous pressure on banks to dispose of bad loans and properties that they've held for an excessive length of time. “According to RealtyTrac Senior Vice President Rick Sharga, major banks currently hold roughly 1 million REOs ...,” Real Estate Insider News reports. “Only 30 percent have actually made it onto the market ... that means 70 percent of the homes the banks have already foreclosed on are sitting vacant. These homes are all expected to hit the market in the next few months.”
Enter the real estate auction: Banks are increasingly interested in this kind of transaction, particularly the definitive timing of the sale, which allows them to appease regulators who are scrutinizing all aspects of their REO portfolios.
According to PropertyAuction.com president Ori Klein, this seems to be happening across the board with all property types. “What we saw in the 2010 residential sector with banks unloading large portfolios of properties at real estate auctions is now also hitting the commercial sector,” Klein reports. In commercial real estate, holding costs on commercial properties for banks are at an all-time high. Taxes, maintenance and a general downturn in the marketplace are all factors contributing to the loss of equity that banks are experiencing in their REO portfolios every day.
The push to sell these properties has resulted in banks turning to auctioneers to assist with satisfying regulators. Land is on top of the list for auctions these days, along with vacant commercial buildings; functionally obsolete commercial structures seem to be hitting the auction block at an especially rapid pace. Owners and investors are turning to auctions while taking advantage of the incentives being offered by local governments and federal programs.
This summer’s market should be exceptionally interesting. As a previous report by NuWire Investor states, “The amount of REO inventory held by lenders is expected to peak in August 2011 at [approximately] 545,000 properties, according to analysts at Barclays Capital.” Consequently, auction companies and auctioneers are expecting to have a busy season.
Source: PropertyAuction.com (June 13, 2011)
Updated: June 20, 2019