SAN FRANCISCO — With the vast majority of bank-owned properties not yet listed for sale, there is plenty of opportunity left for real estate agents and brokers to break into or delve deeper into distressed properties, according to panelists at the Real Estate Connect conference in San Francisco.
Estimates of real estate-owned properties (REOs) held off the market by lenders after repossession — sometimes called "shadow inventory" — varied somewhat among the panelists. Foreclosure data site RealtyTrac estimates there are about 600,000 REO properties total nationwide and about 85 percent of these are currently off the market. RealtyTrac vice president Daren Blomquist noted that only about 22 percent of Fannie Mae REOs are on the market.
"There will be REOs coming on the market but they’re going to trickle into the market, not flood," said Rick Sharga, executive vice president of communications at Carrington Mortgage Holdings and formerly senior vice president of RealtyTrac.
Data aggregator Lender Processing Services has estimated that REO inventory will peak in 2015. With REOs expected to increase during the next two or three years — if not longer — real estate professionals looking to succeed in selling REOs should cater both to the investors looking to buy the properties and the asset managers who control which agents list the properties, panelists said.
At the beginning of the downturn institutional investors such as hedge funds were buying properties in bulk with little regard to the condition or location of the homes. Now they’re "cherry-picking" communities and therefore opening the door to working with real estate agents, panelists said.
"One of the fallacies (in our industry) is that there’s not a role for the agent in this and there really is," Sharga said. "Investors want to be able to select the types of properties that fit with their business models. The reality is that most investors out looking are looking basically one at a time. Smarter investors are looking with local real estate professionals in the markets that they’re interested in to make sure they’re getting what they’re paying for."
The real estate industry has a "dysfunctional relationship" with investors, said Greg Rand, founder and CEO of OwnAmerica, which provides training, technology and tools to service the residential investor.
Instead of framing a property, including an REO, as a discounted product or a "bargain," Rand said, "we have to change the expectations by basically defining real estate as a retirement plan-style investment, a college fund-style investment."
That means talking about data points such as a property’s positive cash flow and the demographics of the surrounding area, he added.
Sharga agreed. What got the housing market into trouble before was thinking of real estate as a way to "get rich quick," he said.
"Stop talking about investments. This is a place to park your car, not to park your investment dollars. It’s a place to start your family," Sharga said.
The panelists advised agents to educate themselves on the needs of investors.
"Understand the investor mentality to keep the customer happy," Sharga said.
How should agents find or attract investors? The panelists suggested holding an investor open house, showing your knowledge of real estate as an asset class on social media, and searching for investors and investor groups online.
Conference panelists offered several tips for breaking into the REO business and impressing asset managers.
1. Don’t count yourself out. Some asset managers do have agents that they regularly work with and stick with them if they’re doing a good job, said Windy Keefe, business development manager of REO Network, a directory where asset managers go to find experienced REO brokers to list their properties. But some asset managers may also be looking for someone new for a variety of reasons, she said. For example, requirements about how far away an REO broker can be from a particular property can change.
Agents and brokers should be aware that there are different legal requirements, commissions structures, and costs involved with selling REOs, said Marc Carpenter, CEO of Allison James Estate & Homes Elite. In addition, while an agent working with nondistressed real estate can pick and choose the price ranges and neighborhoods they will work in, asset managers tend to frown on agents turning down listings. "You have to be willing to take assignments from the low end to the high end," he said.
On a related note, the panelists noted that safety can be more of an issue with REOs who may harbor squatters of different kinds, from very assertive occupants who want to get paid to move to drug addicts and prostitutes. Neither men nor women should hesitate to call the police and ask for an escort if they feel uncomfortable going into an REO alone, said Desiree Patno, national president of the National Association of Women REO Brokerages.
3. Pump up your REO profiles. In sites such as REO Network that allow REO brokers to post bios as reference to asset managers, there are some specific do’s and don’ts to pay attention to, Keefe said.
For example, bios posted on the site include a brokerage’s address and allow asset managers to search for brokers within a specific mileage. Keefe suggested that in big metropolitan areas, brokers with multiple offices choose to post an address where they will be less likely to have competition. In Burlingame, for example, rather than in San Francisco.
It’s also a good idea for brokers to specify that they do service REOs and name some of the companies they have listed properties for — but not too many, Keefe said. Brokers should also include how they market REOs. They want to see if you’re doing something more than putting the property on the MLS and putting up a sign, Keefe said. She suggested highlighting open houses and virtual walk-throughs as well as compelling statistics such as the broker’s BPO-to-sale price ratio. Brokers should also note the cities they service and put up a friendly, professional photo of themselves, she added.
Don’t be afraid to ask asset managers for a recommendation, Keefe said. Some will say no, but most will say yes, even if it’s anonymous.
Some don’ts: Avoid misspellings. Don’t make your bio one long paragraph that feels like homework to read. Don’t include a phone number that is never picked up. And, while a video resume may seem like a way to stand out, it’s a waste of time, Rosales said, because a lot of asset managers don’t have speakers on their computers and even if they did, they want the straightforward, "meat and potatoes" kind of information.
4. Put your name out there. Asset managers do check out agents on social media, Rosales said.
"This business is about building relationships and if you can’t go to a conference, get your name out there using social media," Keefe said.
Asset management companies also have Facebook pages and they do sometimes post when they need agents, she added.
5. Don’t be too pushy. Calling, faxing, and emailing an asset manager daily can be annoying, Rosales said. He’s even heard of someone who followed an asset manager to the bathroom and slipped a resume under the door, he said. Instead, he urged agents to aim to touch base with asset managers every couple of weeks and be sincere and casual in their interactions.
Keefe suggested agents and brokers find out how a particular asset manager prefers to communicate, whether through text message, email, or phone call. Additional tips: Remove any spam filters and answer your phone.
"Sometimes I’ll test people to see if they answer the phone. A lot of them don’t," Keefe said. "And many times their voicemail is that generic one. Your voicemail should have at least your name."
"You’ve got to give that perception that you’re always available. Try very hard not to have your voicemail full. I hear asset managers say that they want to pull a listing when a voicemail is full," she added.
6. Educate yourself about REOs. "If you’re in real estate, you have to be A to Z now. You have to know everything," so that you can advise your clients, Patno said.
And "you have to stay abreast of the compliance issues out there," she added. "Read every single news story on FHFA (the Federal Housing Finance Agency), CFPB (the Consumer Financial Protection Bureau), banking regulations. Join a trade association that goes out there and does that (news gathering) for you."
7. Have a team at the ready. Carpenter’s REO division includes numerous specialists, including an eviction coordinator, an offers coordinator, a field service coordinator, a property manager, and an appraiser for broker price opinions (BPOs). The division closed more than 400 REO listings last year, not including the buyer side of the deals, he said.
"The most successful (REO brokers) either have a team or are able to get a team as the need arises," Rosales said. "You don’t have to have it to start off. Just keep in mind that should you want to get in with companies that want to send you volume, you will not be as successful if you don’t have a team."
8. Make yourself indispensable. Serve asset managers’ needs exactly the way they want to be served, Carpenter said. This means finding out how you can help them get their next bonus, coming ready with solutions when problems arise, and in general being "the easiest person to work with," Keefe said.
Asset managers are quick to pull a listing when an agent or broker messes something up, she said.
"Make sure your tasks are on time — really they should be early. You will also be graded on your days on market. Your BPO-to-sales price (ratio) will also be looked at" as well as your professionalism with the staff, Keefe said.