Market Data Analysis Maximizes Value.

The quality of a given real estate market whether appreciating, stable, or declining has a direct impact on the variance between fair market value and REO or institutional value for properties in that market. With defaults and foreclosures on the rise nationwide, its important lenders have the best valuation information possible to facilitate better default and REO property management decision-making. By understanding market conditions as they relate to the properties in its portfolio, the lender stands a much better chance of maximizing the price for REO properties and identifying markets that require closer attention.

In appreciating markets, a minimal variance between fair market and institutional (REO) value tends to exist. In stable and declining neighborhoods these values can be significantly different which leads to a bifurcated market. As prices decline (due to numerous factors) and as the number of REO properties increases, the discount rate between true arms-length transactions and institutional sales tends to increase. Knowing the anticipated discount rate on institutionally owned properties in a market gives lenders the ability to act quickly and decisively.

The difference between a 10% and 70% valuation discount on an institutional property can amount to a loss often unnecessary of thousands of dollars per property. Applying a standard discount on every institutionally owned property in a portfolio is not granular enough and can lead to extended marketing times that in turn lead to greater carrying costs. Being able to accurately project the valuation discount sweet spot and understanding price forecast trends for a neighborhood can make for quicker and less costly REO disposals.

Data Access is Key

Data currently available to lenders and servicers from their technology partners can provide a clear picture sometimes down to a ZIP code level of where entire portfolios and individual properties fit within their respective markets. By tracking sales of both open market and institutional properties, data become available on prices for types of sales, overall market trends and the average length of time-to-sale.

Without such data, lenders are left to base their REO listings on one or two opinions of price. These opinions can be quite accurate, but they can also be biased by numerous outside influences. Having access to a wide range of unbiased market information gives the lender an accurate projection of institutional (REO) value on a property based upon hard and fast statistics.

Detailed market data allow the lender to perform much stronger due diligence on broker price opinions or appraiser-based valuations. Data from trusted technology providers will have been well tested for accuracy and provided at a detailed enough level to accurately forecast discount rates and institutional values and give the lender a baseline from which to work. If, for example, the data shows a 22% variance in institutional values for a particular market, and the BPO shows a 40% discount from fair market value, that BPO would immediately be suspect. Conversely, if data show a ...