by Bill Knapp
After all efforts to collect payments, modify the loan and/or selling the property short have failed, a property usually ends up as bank owned, aka “real estate owned,” or an REO. An REO is not a short sale and not a foreclosure, but it is the final step of the foreclosure process after the sheriff sale has been completed.
A new or experienced agent who would like to begin selling REO properties must be prepared to make a large investment into this fast-paced and well-paid niche market. To start, an agent needs state-of-the-art technology and the ability to take digital photos and create and convert word, excel and pdf documents. The agent should become proficient in navigating the various bank owned and industry websites that are out there. The REO agent is the eyes and ears of the financial institution and must be able to effectively communicate the property and market conditions of the previously foreclosed asset. A good accounting program is also essential for tracking income, expenses and reimbursements.
In addition to investing money into the software and hardware required to meet the client’s expectations, a salesperson should also be prepared to spend numerous “virtual” hours scouring the Internet and signing up for the multitude of various BPOs and REO websites that are available there. Most lenders, servicers and outsourcers have a process for agents to sign up online. The agent should have a copy of their license, their company’s E & O policy and W-9, and a personal resume as these will need to be uploaded to the various websites. Many of the more reputable organizations will also require a minimum of two years of real estate sales experience to consider a new agent and some will also request three references from established REO firms. Some of the best websites require monthly or annual fees. After registering with the banks and third-party asset management companies, reliable transportation will be required to visit the properties and complete the assignments.
Proper training in BPO preparation and REO asset management is essential. The Internet offers many excellent and affordable training programs. Be wary and learn to distinguish between the multitudes of scam artists looking to profit from the popularity of REO training offering fast riches or easy money. One way to learn the difference is by regularly attending a few the various REO conferences and trade shows that are offered throughout the year and across the nation. Be prepared to pay for registration, travel, meals and hotel accommodations to attend these invaluable conferences, which are well represented by banks looking to add new REO agents in areas where they are underrepresented.
After completing sometimes hundreds of BPOs properly, you may begin to receive REO listing assignments. The bank will require you to check and report back on occupancy within 24 hours. They will need you to gather the occupant’s contact information and negotiate “Cash for Keys” if occupied. If uncooperative, the bank will expect you to represent them at the eviction. Sometimes, the listings may not be in the nicest areas or be in the best condition. Keep your own safety as a No. 1 priority and be aware of your surroundings at all times. Many of the servicers have their own property preservation companies, but some will request that you have the property rekeyed and secured.
A good relationship with a local REO preservation company is essential. Often the bank will request the agent obtain bids for repairs and routine maintenance. Maintain an operating budget for client expenses like trashing out properties, winterizations, utility expenses and even large projects like mold remediation, new kitchens and repairs. A good REO agent should have some idea of repair costs and a trades background is also an asset to the aspiring REO agent. Most banks also expect the REO agent to pay the electric, gas and water bills on their properties through closing. The client will reimburse the agent after the expense reimbursement request is properly submitted in a timely manner.
After listing, the clients expect monthly status reports (MSRs) every 30 days and a new BPO every 60 days if the property has not closed. The banks expect the REO agent to help negotiate rigorously in order to obtain the highest and best offers. Some clients do not allow dual agency. Once under contract, the REO agent is often responsible for paying off municipal liens, final water bills and the purchase of transfer stamps where required. Be prepared to work closely with attorneys and title companies to close the deal on time or obtain contract extensions if necessary. Strong professional relationships can be built with asset managers, attorneys and title agents.
Selling REOs is a lot of work, far more than with a traditional sale. The banks and asset management companies will usually pay a reduced commission or charge referral fees for the business. The clients’ websites will track your accuracy in predicting the final selling process and grade you on timeliness in completing the assigned tasks. They also have “Do Not Use” lists for agents who have not met their requirements in the past or committed unforgivable errors in judgment.
The up side is that the banks have a lot of inventory to sell and may assign the agent as many as 20 listings at a time from one client. The REOs are priced to sell and the sellers are motivated. If not under contract quickly, the clients will usually reduce the price monthly till the property sells. Once a property is sold, and if the agent continues to maintain the clients’ high standards, another property will usually be assigned. When a client is satisfied that you know what you are doing, the quantity and quality of the REO listings may improve.
For those without the reserves, experience or tenacity to build their own REO business, consider obtaining a salaried position with an experienced REO agent who will train you. Buyers’ agents may also want to contact a busy REO agent who does not have the time to work with all of the buyers that the listings are generating.
Bill Knapp is the broker/owner of Lake Shore Drive Realty, Inc. in Gurnee. He can be reached at firstname.lastname@example.org.