RISMEDIA, June 13, 2009-According to the National Association of Realtors, between 40% and 45% of homes sold in the month of February were distressed properties-foreclosures, short sales and bank-owned properties (otherwise known as REOs). In some of the areas hardest hit by the foreclosure tsunami, the percentages are much higher. Agents in the central valley of California report that the overwhelming majority of sales-in some cases, as much as 80%-are distressed properties, and mostly REOs. So if you’re not working with distressed properties, you’re going to be at a tremendous competitive disadvantage.
And more REOs are coming to market. The first quarter of 2009 set a new record for foreclosure activity, with over 803,000 U.S. households receiving a foreclosure notice. Current estimates call for over 3.1 million households in some stage of foreclosure this year, with up to half of these ultimately going back to the banks.
Not surprisingly, there’s a growing interest in securing REO listings from the lenders and loan servicers among brokers and agents. The recent REOMAC conference in Palm Desert, California, drew over 3,800 attendees, mostly agents looking for an entrée into the REO business. But before you throw your hat in the ring, there are a few things you should consider about what it takes to be a successful REO agent.
BPO Expertise-REO agents need to be experts at BPOs (broker price opinions). The lender will expect your BPO to be within 3% to 5% of the ultimate sales price. A good BPO takes several hours to produce, and may take hours to defend against other BPOs and appraisals that the lender may order in addition.
Property Management-Someone has to get the house cleaned up and “trashed out.” Someone has to get the locks re-keyed, the windows boarded up, the utilities turned on, the snow shoveled and the yard maintained. That someone is you…for every property you’re assigned by the lender.
Financing-On average, it costs between $1,500 to $2,000 to get a property ready to put on the market. This isn’t for major repairs, just clean-up and maintenance. This money, along with ongoing utility bills and incidental costs, comes out of your pocket and is reimbursed by the lender. So, if you’re fortunate enough to get 20 REO assignments, you’ll need access to $30,000 to $40,000 in cash or credit lines to get the properties ready for sale. As long as what you’re spending is within the amounts allowed by the banks, and if you submit your invoices on time, you’ll be fully reimbursed. But your funds will be tied up, and there are horror stories aplenty about agents who have missed billing deadlines and lost tens of thousands of dollars.
Being an REO agent isn’t a good idea for the Lone Ranger-you’ll need Tonto and a whole posse of deputies. But if you have adequate support and can master some of the special skills required, there are going to be lots of opportunities over the next few years.
Rick Sharga is senior vice president at RealtyTrac.
For more information, please visit www.realtytrac.com.