REO vs. short sale.... should I.....

Would it be a good idea to submit a worksheet that shows the calculated estimate costs to the lender is they take it as and REO vs as a short sale. Might this be a little arrogant or risky?

Even though they may just want to take it to auction, is this a good tool to use? More than enough homes in my area are going REO because people are just not interested in buying them as high as they are being offered. Especially ones in need of work.

Anyone have a template? I have a short one but it I don’t think it asks for enough info.

The worksheet is key. We submit it will every package from the beginning. Although, the grunt loss mitigator that gets your file first probably won’t know what to do with it. You’ll have to explain it.

Make sure your calcs show the bottom line advantage to short sale over REO - even if the difference is $10. Their auditors can’t ignore math. Include every rotten disgusting REO listing in the area in your CMA. Make sure you hilight or circle the listings that say REO, so they don’t miss it. If your listing needs work, get a repair estimate that will make the lender nauseous.

I submit the calculation also. I just submitted 2 last night.

What do you include in the REO calculation.

Holding costs (6months)
Depreciation (1% per month)
Realtor Commissions
Eviction costs

What am I missing?

The items you are missing is the cost of trustee or attorney (this varies by bank). Make sure you include property taxes in your holding costs. The average cost, minus holding is $40K - $50K.

What does holding costs amount to? A “mortgage payment” they could be receiving? Since the mortgage hasn’t been paid in 4 months by the time foreclosure proceedings start and 7 months by the time the auction takes place, is this loss accounted for in any way?

Calculating the net is the hardest part, but you can make some assumptions.

  1. Capital cost: This is the weighted average of the cost of borrowing and equity, expressed as an interest rate. The bank’s costs in the past have been estimated at 10-12% assuming it will take at least 12 months to sell the REO. The weird part is because of all the bank write offs and Fed infusion of credit, the 10-12% cost of capital is questionable. If the loan is held by servicer or bank, the cost of capital is high as they are less able to sell the loan on wall street. If loan is held by MI/investor, they have relatively low cost of capital since they have technically already paid the “claim” and own the note.

  2. Holding Costs: Monthly actuals of prop taxes, HOA dues, utilities, lawn maintenance and other recurring costs for maintaining property during holding period.

  3. Depreciation: Extemely subjective. If property is in a high crime area and prone to vandalism, point this out to the lender.

  4. Selling or marketing costs: This is RE commissions, marketing, repairs and transfer taxes.

If anyone needs a Reo vs Short sale sheet that does all the numbers for you just pm me with your email address.