One impression that those wanting to break into the business have is that REOs are low hanging fruit, listings that are just handed to agents like free money. But it doesn’t take long to discover how wrong this view is. Long before an agent gets a listing they get an assignment. An assignment can require a lot of work on behalf of the agent before it becomes a listing.
Tasks of an REO agent
REO agents are some of the hardest working people you will find. Here’s what they do to earn their commissions.
- Take an assignment. Notice that “list the property” is halfway down the list of tasks. At first a property is an assignment, not a listing. There is a considerable amount of work to be done before it achieves that lofty status.
- Do an occupancy check. Knock on the door and determine if the is property vacant. Determine if the occupants are the owners or renters, because different laws apply to each. Do they intend to move or will this escalate into an eviction? Exhaust all options. Determine whether a cash-for-keys agreement can be negotiated
- Submit a BPO. This is a mandatory skill for an REO agent. Other independent brokers may also prepare BPOs for the lender as an additional confirmation of value.
- Arrange cash for keys (C4K). Oftentimes a lender will offer cash for keys to help the occupant with moving costs and insure that they leave the property in good condition and free of their personal effects. This amount can range from a few hundred dollars to several thousand. Some lenders send a check to the occupants for cash for keys. Others have the agent front the money and then reimburse them.
Tales from the Trenches: Cash reserves
When I first got involved in the REO world, I was at a conference and hearing all these agents talking about having 80 properties in escrow and saw dollar signs. As I listened closer, I realized dollar signs were involved, but not the ones I had pictured. One agent said that the $60K to $80K that she had in out of pocket expenses. This includes cash for keys, property preservation, special lock boxes for vendors, and utility payments. She advised me to have funds on reserve before becoming an REO broker. Another agent said she finally landed an REO account and got 30 properties. Then she realized that meant 30 signs and 30 lockboxes. She had to take out a loan to cover the expense until the deals closed.
If you don’t get your expenses submitted on time according to their schedule, you run the risk of not getting reimbursed.
- Pursue an eviction. Most lenders have their own eviction services, but you may have to appear in court if the occupants answer the complaint.
- Managing property preservation.You will solicit bids from the contractors doing the repair work, and you may also be paying them and then applying for reimbursement.
- Turn on utilities. A local contact is required to turn on utilities. Guess who that is? And guess who submits the bill for reimbursement?
- Remedy code violations. Placing your sign on the property is often a trigger for the code enforcement officers to schedule an inspection, or at least it can feel that way to many REO agents.
- Curative title work. There could be a cloud on the title, a transfer of loan servicing, or the property could be included in a bulk sale transfer. The property may have pending legal action (lis pendens) or some other issue that needs to be resolved before the lender can sell the property. I know of one agent who waited for a year to list the property because of title work. During that time he had to inspect the property on a weekly basis and keep the yard in reasonable condition.
- Wait for a list price. Once your BPO and others are submitted, you wait for the lender to set a sale price. In the meantime, you make sure the property is not being vandalized, that the lawn is cut, etc.
- List the property. Once the price is set, you list the property.
- Do weekly inspections and submit monthly marketing reports. The lender wants to be kept in the loop on the status of the property and what efforts are under way to sell it. They will send you tasks and requests for updated reports. Failure to respond or complete the tasks may have a negative impact on your report card and affect future assignments.
- Deal with vandalism and squatters. Transients, vandals or local kids might find an empty house to great a temptation. Ongoing inspections keep these problems to a minimum, but making friends with the neighbors will also help curb unwanted tenants. If it looks like someone has moved into your listing, it is best to avoid confrontation and alert the local authorities. Let the police handle the trespassers.
- Upload offers. Most lenders have an online transaction system for you to enter all the details of the offer for the asset manager to review. When offers come in, it is not as easy as just sending them over to the asset manager.
- Meet closing goals. Your pipeline of properties creates closing goals for you to meet. The typical delays of the business, such as the buyer having problems with financing, are irrelevant to your goals. You are being graded on your performance.
- Maintain a good report card. Timeliness in submitting bills, BPOs, and marketing reports, meeting closing goals and the like are all noted on your report card. The good news is that you have a clear and measurable metric that determines your standing and therefore how many listings you get. The bad news is that you have a clear and measurable . . . You get the idea.
- Pay referral fees. Although you get a commission for each sale you close, some lenders require you to pay back a referral fee.
- Realize that the assignment can be pulled at any time. If you don’t meet your closing goal on a property, it can be pulled and passed on to another agent. Or it can be transferred to an auction house. Or it can be sold in a bulk transaction, regardless of your performance. Other agents in your area are being trained to go after reassignments.
Tales from the Trenches: Is it worth it?
At this point you maybe be thinking, “Holy cow! How can anyone make any money at this game?” I wondered the same thing when I was learning the ropes. I asked that question from a top-producing REO broker. She said, “It wasn’t until I had my team in place and all my systems for handling the volume established that it all came together. We’re dependent on volume, which means it’s not necessarily a business for the Lone Ranger.”
Meet the Neighbors
Mitigate loss. There is no better security for your REO listings than a nosy neighbor. Introducing yourself to the neighbors and providing easy contact information not only helps avoid potential problems with squatters or vandalism, but is also a great referral builder. Keep in mind that the neighbors may be angry at first. Oftentimes the property has been sitting vacant before the foreclosure and they have had to deal with this for a long time. You can usually win them over just by providing a contact number where they can reach you to report issues.
Earn potential listings. REOs have a distinctive look about them – notes posted in the windows, weeds growing the driveway. Buyers cruising a neighborhood where they may want to live see these clues as a possible purchase opportunity. Most ask the neighbors what the story is. Here’s your chance to use REO properties to attract buyers. Give a few extra cards to the immediate neighbors so they can easily refer this business to you.