Business is booming for Ralph Barone, a New Jersey real estate broker, thanks to the housing market decline.
Barone owns New Jersey REO Asset Management and Realty — the largest brokerage company in the state focused on bank-owned foreclosure properties, also known as real estate-owned or REO homes.
Real estate agents and brokers who are experienced in handling REO properties are well-positioned to weather the market downturn, and membership organizations that serve REO brokers say they have seen rising interest as the number of foreclosures has climbed nationwide. Real estate professionals can choose from several groups, each with its own set of qualifications, events, publications, directories and dues. Barone is a member of two major REO membership organizations: the National REO Brokers Association and REOMAC.
Foreclosure data provider RealtyTrac reported last month that foreclosure filings rose 115 percent in August compared to August 2006, and rose 36 percent from July 2007 to August 2007. Foreclosure filings rose in all but three states in August compared to the same month last year. The rate of foreclosure filings per household was highest in Nevada in August, followed by California, Florida, Georgia and Ohio.
Foreclosures have become the “flavor of the month,” said Mike Krein, president of the 9-year-old National REO Brokers Association (NRBA), a group with about 800 members. There are “so many new people in the REO business now,” he said, and also noted a rise in national media attention on foreclosures.
The REO business is not for everyone, and NRBA has a long waiting list and screens applicants based on experience, he said. “We have about 2,200 people on waiting lists. Over the years we’ve probably turned down about 4,000 (applicants). Our standards are tougher than any of our clients.” NRBA checks licensing history, references and insurance policies for its members, for example, he said. “It’s very hard to get in if you don’t have experience. Ninety percent of them already have a great deal of experience before they apply”
In addition to real estate brokers and agents, there are some lawyers and appraisers in the NRBA, said Krein, who is also a broker for Henderson, Nev.-based Nevada Real Estate Services Inc., a company that specializes in REO properties. The group provides banks and default services companies with an updated membership list every three months and seeks to link its members with these companies.
Networking is an integral part of the REO business, as agents and brokers seek to forge relationships that will lead to business opportunities in listing REO properties for sale. Agents entering the REO business typically start out by performing value estimates — called broker’s price opinions, or BPOs — for banks on REO properties, and later may be called upon to serve as listing agents.
“REO isn’t for everybody,” Krein said. “Most agents just don’t have the technical skills.” REO agents and brokers must serve as the eyes and ears for the banks, he said, and must “understand that deadlines and timelines are there for a reason. This is not retail real estate. It’s not for the faint of heart.”
REO specialists must be ready to put money into the properties, he said, and he suggests that REO specialists put aside $100,000 as a reserve.
Krein estimated that 30-40 percent of all REO business goes through its members. Because its members are already experienced, the association focuses more on teaching members how to open offices and expand their business than it does on REO business basics, he said, though there is an insider’s guide to REO that members receive when they sign up.
Members also receive other training, information and newsletters, and the NRBA hosts one major conference and several smaller conferences each year.
Barone, who serves as a board member for NRBA and a separate REO organization called REOMAC, said joining NRBA “was one of the best decisions I ever made. It has put me in touch with brokers who do what I do all over the country so that we can draw on each others’ experiences. It has helped me, education-wise, to stay in touch with what’s going on in the industry, and it’s great networking.” The group’s major annual conference is “done by brokers for brokers,” he said. The group also offers a certification for members who complete an examination.
There are geographic requirements for membership, he noted, so that there can be one member per 100,000 population in a given area.
It can be difficult for agents and brokers to break into the REO business, he said. Barone also serves as a board member for another major REO membership group called REOMAC, and he suggested that REOMAC’s conferences might be a good place to start for entry-level REO specialists. “Anyone can attend REOMAC. It’s all about networking — meeting different asset managers for different lenders,” he said. While NRBA is focused on REO agents and brokers, REOMAC has a broader base of members working in the REO industry.
That group has about 1,100 members — up about 150 members since last year, said Joseph Davis, account executive for the organization. Members include REO brokers and agents, default services providers, and loss mitigation officers and directors. The group holds two major conferences each year — the group’s fall conference is planned in Hollywood, Fla., from Oct. 10-12, and the group also holds a spring conference in Indian Wells, Calif.
REOMAC launched in California in 1985 as a forum for lenders with REO assets to discuss best practices, and later expanded nationwide and diversified its membership. The group publishes a bimonthly newsletter, the REOMAC Update, and focuses on education and networking, Davis said. The group has a waiting list for real estate agents and brokers and seeks to balance its membership among different categories of REO professionals. Agent and broker REOMAC applicants are asked to provide license information, a reference letter from a REOMAC lender member, and two letters from financial institutions in the business of REO disposition.
While Barone said that he has seen growing interest from agents and brokers seeking to work with REO properties, these days there are plenty of foreclosures to go around. “As the foreclosures go up I’m doing better — there’s more (business) out there.”
Agents and brokers who seek REO listings may get a rude awakening, he said. “The REO arena is very paper-intensive, and everything is deadlines, everything is time-sensitive. It requires a lot more follow-up than you would typically find in the retail industry.”
The REO market has changed as fewer properties are purchased by investors at auctions, he said — many borrowers are so heavily in debt that there is too little equity in foreclosure auction homes to attract investors. That means banks in his market area are buying back about four out of every five properties, he said, and the inventory of REO properties available for agents and brokers to sell has swelled as a result.
The Five Star Conference, put on by Default Servicing News magazine (DS News), is a popular annual REO event. The fourth annual Five Star Conference, held last month in Dallas, drew about 2,200 attendees, and that number has been rising. DS News also maintains a directory of REO professionals at REORedbook.com.
Paul Luciano, a broker for Utopia Real Estate in Flushing, N.Y., who is a co-founder of REOConnection, said that group now has about 300 members, mostly REO brokers and agents. Formed in 1996 as a New York-focused organization, the now-national group had required five years of experience for membership, though if there is a market without members the group will consider accepting brokers with less experience, Luciano said. “Basically we get them up to speed so they can perform the tasks of an effective REO broker.” The group also offers a newsletter and sends e-mail to members about various REO-related events.
The REOBroker.com network is a group of REO brokers with an average of over 12 years of experience in marketing REO properties. That group, founded in 1994 as The California Council of REO Brokers, was later known as the National Council of REO Brokers. That group has about 180 members listed in its online directory. “To be considered for REOBroker.com membership, each agent must meet strict criteria. This includes providing three asset manager references for their recommendation followed by approval of the majority of the group.”
Barone said that it’s difficult to keep track of all of the various REO industry events. “If I try to attend every conference out there I’d probably go broke,” he joked.
Joyce Essex, a Beverly Hills Realtor who has worked with REO properties since the previous housing market downturn in the early 1990s, has joined many of the organizations and networking groups available to REO professionals.
“I know all of the REO brokers who do a lot of business across the nation. We’ve all been going to the same events. I see them more than I see my family,” said Essex. She said she views REOMAC as one of the most established organizations for REO specialists.
Because she has built up long-term relationships with companies in the REO industry, Essex said she isn’t worried about losing business to newcomers. “There is plenty to go around.” Building up trust is vital in the REO business, she said, as bank officials in some cases never visit the bank-owned properties.
“They’ve got to trust you. A lot of it is based on trust — knowing that we have the knowledge. When new people come into the business they don’t realize that you will have 100 files with your name on utilities, gas and electrical (services). And then you have to have your workmen and the gardeners and the pool men. You have to have all of these property management (details) set up,” she said. Essex, who works with her husband Danny Harvey, said that they grew their own staff of REO professionals from four to 15 in the past year, and they work with a roster of 20 bank clients.
Technology has dramatically changed the REO business, she said, enabling REO agents and brokers to become more efficient and handle a higher volume of REO properties. “We could never handle the assets we’re handling if it was not for technology,” she said, adding, “Banks are more sophisticated about what is going on with the market. Buyers are more educated.”
She recalled the days when a BPO required an agent to snap a Polaroid picture pasted to a typed report that had to be mailed out to the bank. Now, the process is entirely digital.
Barone said that the Internet is definitely integral to REO business. “The need to keep on top of what’s going on has been greater. I personally subscribe to half a dozen news services. It has become more critical to stay on top of things because things are changing so quickly.”
“It’s much more sophisticated now,” agreed Steve Rottler, a Realtor for Denver-based RE/MAX Southeast who has specialized in REO properties since 1986. “So much is done electronically, both via e-mail and via Web sites.”
But at its core the REO business is about relationships, he said, and he relies on trust that he has built up with clients over the years.
“Dealing with large corporations (for REO business) is a lot different than dealing with individual buyers and sellers — the regular brokerage business I think requires a different skill set. I work in both worlds,” he said.
Rottler, REOMAC member since 2004 who had worked to join the organization for several years, said participation in that organization “adds some credibility — it’s not easy to become a member. It shows some additional commitment and knowledge of the industry, and I believe it also offers some good networking opportunities as well.”
He got his feet wet in the REO industry by calling several companies “for many months before one finally gave me an opportunity,” he said. “I used whatever contacts I could muster to try to talk to people in the REO departments and see if they needed a dedicated broker.”
Krein, NRBA president, said that experience is the best education for REO work. “There is no magic bullet — there is no simple course that’s going to teach you this business.”
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