Friday, May 14, 2021
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Changing The Negative: Bank Owned Properties and the Rehab Trend

All of us know, Brokers and Contractors, that the negative connotations associated with Bank Owned (REO) has forced many of the public to take a walk immediately from a possible purchase of foreclosed property.  Many REO Properties, though, have only cosmetic damages; that is sometimes the case until Contractors arrive with a handful of Line Items dispatched from cold and isolated Asset Managers.  What do I mean by this?  Let me walk you down the pike a minute.  It is so bad, in fact, that many banks request that the listing agents use the owner’s name which was on the mortgage instead of putting bank owned if possible.

I could not tell you how many properties I have arrived upon which have a broken window.  Broken windows are considered safety hazards and must be immediately addressed by the process of boarding up.  What we do is break out the entire window and then use plywood, two by fours and carriage bolts to completely secure the opening.BoardedWindow  This process is both ignorant and actually decreases the property valuation.

Here’s the deal:  The Nationals whom issue the order know fully well that many of the financial institutions are going to drag their heels on approving the replacement of a window.  Now, there is the process of reglazing; the antiquated idea that all windows today are single pane and a pane of glass can be popped in for pennies, but today most windows are double pane and sealed at the factory.  So, reglazing is not an option unless the National is really trying to stick it to the Client if it is a double pane window.  The price of a cup of coffee pays more than per united inch (length plus width) pricing!  Boarding an opening is an immediate cash cow at the levels they bill the Clients for.

The new mentality, though, is that the boarding of a window not only removes curb appeal, it additionally drops the valuation of the home!  So, some of the financial institutions have awoken from their autopilot slumber forced upon them from the Too Big To Fail Nationals.  Article after article across the internet discuss how it seems to make far more sense to put in a $250 window with a $100 of labor to add $1000 of valuation versus boarding at $200 which removes $5000 worth of valuation.

Foreclosurepedia agrees with the New Mentality.  If the Banks are able to ever shake off the mantle of autopilot and begin to engage Contractors in a One-on-One basis; if they are able to actively pursue Guilds and Groups, they are going to find that the properties that Nationals once relegated to beyond salvage and HUD designated will become both viable profit points with minimal work and additionally they are going to see ONE HUNDRED PERCENT of their dollars going to the jobs!

Here’s the dirty little secret that we are going to cover in upcoming articles:  The price which the Contractor actually receives for ANY job is generally less than thirty five percent of what is actually paid to the National!  The Banking Industry should really take note on this!  Ladies and gentleman, as bankers do you find it wise to spend more than SIXTY FIVE PERCENT in overhead for your own work?  Perhaps a trip down the ledger might be in order.  After all the actuaries are simply sharpening their pencils since the Settlements came in.

Paul Williams
Linux addict buried deep in the mountains of East Tennessee.



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