Servicers are seeing a growing number of rural properties in their portfolios these days. As the volume of rural properties on their books increases, it creates challenges, in that they are mostly nonperforming properties that are difficult to value, market and sell. The main challenge is their isolation, which leads to an insufficient number of listings and sales, which, in turn, leads to a lack of information for valuation, marketing and disposition purposes.

In March 2014, Fannie Mae issued a lender letter acknowledging the difficulty of performing appraisals in small towns and rural communities - from identifying comparables to finding experienced appraisers who understand the distinctive characteristics of these properties and the neighborhoods they are located in.

Yet the valuation of these real estate owned (REO) properties is of the utmost importance. Servicers seeing an increase in rural REO properties in their portfolios must pay extra attention to the asset management or appraisal management companies (AMCs) they work with to ensure that the agents and appraisers responsible for assessing and selling these properties are not only experienced, but are using the best strategies to value and market them.


Selecting specialized pros

Often, servicers are accustomed to holding a large volume of suburban or urban properties in their portfolios and using automated processes to manage the workload efficiently. However, speed is not the key for servicers when marketing and selling rural properties. Automated valuation tools are not enough to perform the job. Instead, servicers need AMC partners that provide a personal touch and ensure an expert real estate professional evaluates every single property. Appraisers should have experience in this niche and understand the complexities and nuances of the particular rural communities in which they work. In small communities, there are often specific zoning laws and considerations based on factors such as septic systems, private wells or land use, of which only an experienced and local appraiser would be aware.

Finding and carefully vetting these expert appraisers at the onset, as well as identifying the most skilled agents to sell the properties, is no easy task. Servicers and their AMC partners must verify what experience, coursework and certifications each appraiser has achieved.

Servicers must also ensure that the agents they work with have local awareness - for example, they should know if a certain area has adequate multiple listing service coverage to list a particular property and get it in front of the intended buyers.

For extremely rural properties, servicers and asset management companies rely heavily on agents to know what sources or publications are available in the area to reach prospective buyers, as well as who those buyers are.

Additionally, it is valuable for agents to be able to identify and even provide recommendations for a property that might have alternate uses. For instance, if the home is on a large tract of land, the land could potentially be leased for hunting during the season, thus giving the homeowner a small source of revenue. Only a local agent with strong familiarity with the area will be able to accurately make that call.



Valuing without comparables

Rural property appraisals almost always pose the challenge of lacking comparables and, therefore, cannot be conducted in the same way as a typical suburban appraisal. When assessing a rural property either to value or to market and sell, agents and appraisers alike begin analyzing its market value by isolating any dominant features. They must initially determine what makes a certain home unique.

For example, does it include excess land? In these cases, appraisers need to identify other homes with large parcels of land, even if it requires them to extend their search to a nearby community. This is the main difference and challenge for appraisers in small towns; often, determining the value of a subject site requires them to exceed the normal guidelines of a suburban market.

As mentioned, valuing rural REO properties is a difficult task, yet it is of the utmost importance to servicers: Accurate valuation is an essential first step and the foundation for successfully marketing any REO property. A strong valuation allows servicers to create a defensible market value for the property, which, in turn, enables agents to better know the potential limitations they will have finding a prospective buyer.


Tips for agents and appraisers

Servicers should be aware of the extra steps appraisers and agents can take to ease the process of valuing and marketing rural properties. Property surveys are becoming a great tool to help agents develop a marketing strategy. Enlisting a surveyor is an added step in the process, yet provides the agents with a definite, accurate showing of the legal encompassed area to be sold.

This is especially important for rural REO properties, as often, much re-plotting previously took place. This has, at times, skewed the information used by land asset management companies to determine how much land is possessed, thus creating significant legal issues. Typically, it is the appraiser who determines these discrepancies - but hiring a surveyor can prevent these problems.

Agents should, of course, inspect these REO properties themselves to better understand their condition. This should include examinations of the well and septic system. Knowing the state of the property can help agents communicate to prospective buyers exactly what they are purchasing. Knowing these facts up front helps to avoid hiccups down the road that will inevitably create larger marketing times.


Extended marketing a given

Servicers’ biggest frustration with rural REO properties is their extended marketing times. Achieving a 90-day cycle for marketing, selling and closing is rare and almost always comes at a cost. Unless servicers are willing to severely reduce a property’s price, they should expect a typical 200- or 250-day marketing cycle for these properties.

For a rural property to be under contract, sold and closed in 90 days will require an extremely low value representing an opportunity a buyer simply cannot pass up. Depending on their eligibility, many rural properties have financing restrictions and will not likely receive financing through Fannie or Freddie; instead, they may require regional lending institutions, further extending their marketing times.

Agents should also be accustomed to the normal marketing cycles in a rural community. In many ways, they need to possess a completely different skill set than an agent working in a suburban or urban community, who is focused on buyers seeking good school systems, homes close to work and safe neighborhoods. Rural agents must be able to communicate to the servicer exactly what the local market looks like and understand that a unique property will require a unique buyer, and in many cases, a 300-day marketing time is not unusual. For many agents, this has become a professional challenge, and some have been forced to work in both rural and suburban areas to make a living. The same goes for appraisers; in rural markets with fewer properties and less turnover, they are limited in their assignments and more today are seeking additional work in urban areas.

Servicers are increasingly concerned by holding a rising number of nonperforming, rural properties on their books for extended periods of time, for which they are receiving no income. They are asking themselves, “How much of a reduction are we willing to accept to move these properties? Who are the buyers?”

To manage this growing segment of their portfolios, servicers are finding themselves depending more than ever on their AMC partners and the appraisers and agents on the front lines. This means taking AMC and agent selection to the next level. To effectively market and sell rural REO properties, especially with new regulations now in effect, servicers need AMC and agent partners with specialized skills. By taking the time necessary to find and vet the right professionals to work with, servicers can make the best decisions for their clients, as well as the country’s small towns and communities. s


Keith Guenther is CEO and founder of USRES and RES.NET. USRES provides financial support services for valuating and liquidating real estate assets, while RES.NET is a platform of specialized technology portals designed for different aspects and participants in the real estate industry. He can be reached at keith.guenther@usres.com.

REO Marketing & Disposition

Servicers Seeing More Rural Properties On Their Books

By Keith Guenther

But because of their locations, getting proper valuations for these properties can be a challenge.




































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