As of September 30, 2011 the FDIC reported over $50 Billion in Other Real Estate Owned (OREO) on the books of the 7,436 financial institutions it insures. That almost incomprehensible number is nearly five times more than the amount reported only four years ago. This figure includes a whopping 1.3 Million residential OREO properties for sale according to RealtyTrac. Banks have suddenly found themselves in the role of selling real estate instead of making loans to purchase real estate. As you can imagine, turning bankers into marketing experts overnight is not as easy as one might think. Banks have traditionally turned to the expertise of local real estate agents and attorneys that they have established relationships with to help them market and sell their OREO property. With the expansion of internet, and the explosion of OREO property on the books of banks, banks have expanded their OREO marketing strategies to include new online marketing services to capture a broader base of buyers and investors reaching across the globe.
After several years of unwanted experience, banks are now realizing the true cost of holding OREO property on their books. Although the cost of maintaining an OREO property varies by geographic location, the holding cost for a bank can be as high at 10% of the property value on an annual basis. This may seem high, however when you consider the many expenses a bank incurs during the process such as real estate taxes, heating, cooling, lawn care, snow removal, weekly or monthly property visits, appraisals, legal fees and additional bank staff, it is easy to see how the expenses add up to astronomical numbers. Given that the total value of OREO properties is $50 Billion plus in the United States, Banks are spending as much as $5 Billion annually to maintain their current OREO portfolios.
With such overwhelming expenses associated with maintaining OREO properties, it is not hard to understand why many banks are targeting the reduction of OREO properties as their number one priority for 2012. In some cases, OREO properties make up more than 10% of bank capital or equity. This causes a significant drain on bank earnings and on their ability to lend money that ultimately helps our economy grow. Banks with large OREO portfolios recognize that addressing this OREO problem is key to staying in business and to stimulating our stagnant national economy.
For this reason, banks are now more motivated to try new and creative ways to market their OREO properties. Some of the more efficient, effective and economical ways to market involve the internet in some type or form. Given the exponential increase in the use of the internet in recent years, it is not a surprise that 88% of US home buyers utilized the internet during their search to purchase real estate in 2011 according to the National Association of Realtors. Banks are paying attention to statistics like these and so is a growing cottage industry of online websites catering to OREO properties. Internet services available to buyers and sellers of OREO property vary widely, including some free and many fee based individual real estate agent websites, auction websites, specialized OREO listing services and even bank owned property lists on a banks own website.
In any case, an increased online OREO marketing effort, especially those that expand the marketplace for the bank, can provide an excellent Return on Investment for a bank. For example, a bank with $10 Million in OREO property could spend as much as $1,000,000 a year maintaining the portfolio. For as little as a few hundred dollars a month, a bank can expand its OREO marketing reach to a national and even international marketplace with the right online tool and marketing strategy.
With almost 40% of home sales in 2011 considered "distressed sales", it is evident that buyers and investors of OREO properties are active in the marketplace. Savvy investors and buyers are constantly looking for new ways to capitalize on the sometimes 20-40% discounts that bank owned property and repossessed assets can offer. Banks are sometimes willing to sell at these unadvertised stellar discounts due to the cost savings associated with not having to maintain the properties for an additional one, two or even three years. These deals can take some work to find as these somewhat ‘secret’ lists held at banks are not always available to the public and sometimes a buyer or investor will need to contact the bank directly to search them out. Nonetheless, finding the right online marketing strategy and website can be an effective, efficient and economical solution for connecting buyers and sellers of OREO property and reducing the burden of OREO property in the portfolios of banks across the country.
Article author Kim Machotka is an entrepreneur from Madison, Wisconsin and President and Founder of BankMarketplace.com, an online service that markets OREO properties and other repossessed assets for Banks and Credit Unions. Searching OREO property on the site is free to the public and offers direct access to bank owned property and repossessed assets including vehicles, real estate, equipment, recreational vehicles and more