In an article yesterday in the Palm Beach (Florida) Post, "Agents advised to keep 'bank-owned' quiet" , it was reported that Wells Fargo's REO division, Premier Asset Services, which sells REO properties owned by Wells Fargo and other banks, specifically instructs real estate agents not to disclose in listings that its properties are bank-owned. Other banks have apparently adopted similar policies. Apparently, under this policy, even when there is a category in the Multiple Listing Service for bank owned property, the agent will choose another category, and the owner is listed as "Owner of Record", rather than the name of the bank.
When asked about the policy, a Premier Asset Services vice president-- a real VP, not a robosigner pretending to be VP-- acknowledged that this was indeed the company's listing policy in jurisdictions where such a disclosure is not specifically required by rule. If a local MLS requires the disclosure that the property is bank-owned, they abide by the rule, according to the VP. Otherwise, they prefer not to disclose.
The VP said that bank-owned properties suffer from a "negative connotation" and that Wells Fargo "want[s] to change the perception" that bank-owned properties are always damaged goods. He says that they want people to come out and see the properties without these pre-conceived notions. They want to be seen as "no different than the neighbor who is selling their home," according to the VP.
I bet they do! Distressed properties sell at a 29% discount to non-distressed properties, according to the latest data from RealtyTrac. That probably makes Wells Fargo very sad!
The thing is this, though: this negative perception did not just magically appear out of thin air and fall unfairly on the banks. It's not just the houses that have a bad reputation; it's the banks themselves, thanks to the corner cutting in foreclosure and the uncertainty in title out of foreclosure which results from it. There is the perception, based firmly in reality, that you're safer buying a property from a regular homeowner.
Banks hiding information from potential buyers to benefit themselves is not going to fix that perception. Concealing that a property is bank-owned from potential buyers just furthers the banks' bad reputation that contributes to the steep discount that bank-owned properties already suffer compared to what the non-distressed market commands.
Wells Fargo says that they have recently instituted an aggressive policy of fixing up their properties before selling them. All fine and good, and maybe over time they can fix the perception that their properties are run down and have maintenance problems. But banks need to recognize that they need to repair their own reputations as well. This will require time and a sustained commitment to doing the right things.
Oh, and by the way-- to the credit of regional MLS that serves the Palm Beach area, this little strategy has been put to a halt. As of Tuesday (tomorrow), agents in the Palm Beach area will now be specifically required to disclose that a property is bank-owned. Hopefully, other MLSs around the country who do not require this will follow suit.
As a side note, this reminds me of the fairly recent California court case in which the real estate agent failed to disclose to the buyer that the sale would actually be a short sale, subject to rejection by the seller's lenders. [See Realtors' Duty to Disclose in a Short Sale, Source of Title Blog, 11/27/2010] The court ruled that the agent had a duty to disclose the short sale. It's not quite the same issue as here-- in fact, failing to disclose a short sale is probably far more serious on an individual basis than what happened here-- but there are some similarities, in that it seems that a lot of people in the real estate industry have the mentality that it is fair to hide material information from buyers unless there is a black-letter rule somewhere that specifically requires it to be disclosed.