Future is Certain, REO to Rent to Become Stable Market Segment
A recent article by Amilda Dymi published on 9/12/2013 @ 2:24pm ET titled “The Single-Family REO Asset Class is Here to Stay” brings up a very interesting set of questions for the REO industry.
Amilda’s article sources are Jade Rahmani of Keefe Bruyette & Woods believes foreclosure to rent properties are growing and perhaps are already considered a growing segment of the REO market which will be with us for the long haul.
Jade reports that the next 12-24 months will see growth in this market so, as a REO agent, I stop and ask myself, what does that mean to my REO listing inventory? Well, I can safely assume we will see more of the same. More specifically, we will see more and more REO agent portfolios shrink and in many cases, become non-existent. This will further weed out the REO agent specialization and further teaches agents that keeping their ear to the pulse of the industry and being able to change focus will remain paramount to the success of high producing agents.
Before 2007, agents were all a buzz with certifications, designations, training courses, etc.. to sale new homes, stage homes, learn about new home green features, etc… After 2007, agents started seeing classes, certifications, designations, training courses for REO and foreclosures. In 2009, we saw a huge emphasis on foreclosure prevention, avoid foreclosure, modify, refinance, etc… 2012’ish, we saw the huge push for short sales and all kinds of seminars, certifications, designations, training courses, seminars, etc… were on every corner. Now, with this whole REO-Rent segment, guess what we are seeing, all kinds of courses, certifications, designations, seminars on how to be a REO Property Manager.
The big push of this “new” type of segment is due to positive cash flow. The truth of the matter is, unemployment is forecasted be high for the foreseeable future and with high unemployment, comes high distressed homeowners. These homeowners will be forced into the rental market, one way or another and if they can stay in the home and just rent it….at least the asset is performing and in most cases, the bank can still get a positive cash flow, even if it’s considerably less if the occupant was paying their mortgage. In other words, it’s not going anywhere, anytime soon and per the article, it’s going to grow like gang busters the next 12-24 months.
So, what do we REO Agents do? We endure, as we always have. The only thing now is, we need to ensure we are diversifying our own business to ensure we continue to endure. We all know NAR has done little to nothing to address our REO woes and therefore, it’s on us to ensure our business survives and if God willing, thrives and the name of that game is diversification.
Yeah, that means we are likely going to be jumping on and off the “education” wagon for all kinds of new certifications, designations, etc… but, we also should be looking closely at our revenue streams and ensuring that REO…in all it’s forms….isn’t the sole majority of our income. Truth be told, in this political climate, it’s just too risky.
Comments
Thank you Jesse! Nice to know that some people understand that I am credible and not a "sky is falling" type. I think you too have had the experience where many agents did not believe we would be here today when you were warning them 3 or even 4 years ago.
You were and still are so right . This has been happening for a long time now.
Still, there are so many agents who tell me they do REO work because it is in the volume that they make money. WHAT ???? I can not begin to understand how using 10 times the gas, time and expense is better or anymore profitable. I must be missing " the concept here."
Hey Michael,
Many years ago, about 2 to be specific, I had mentioned how agents were going to be expected to do more and more for less and less. I remember specifically referring to a Vendor Manager discussion I had with a HUGE REO / BPO company that told me, they were going to be dropping BPO prices down to $45.00. I blogged this discussion changing names for the protection of the identity of my sources and well, what was said became what is now....pretty much, industry standard. I remember that discussion like it was yesterday because, this vendor manager went on to explain that the main reason why they were able to drop prices is because the competition for BPO work was so fierce. He / She went on to say, that was why they were also broadening their REO agent inventory because the "old school" agents were moaning and groaning about how much more work was involved with the same pay. This manager and I started talking about how agents were going to have to either do what they were told or go find work else where. He / she even told me that back in 2010 / 2011, they DNU'd more agents than they took applications for. We talked about property management and at that time, he recommended that I go and get some certifications on property management and move my business that way. Barbara hit the nail on the head, she is right on so many accounts. So, my question, look forward is, how long does this last and truth be told, if you are going to work for a bank, you better be prepared to work your tail off for less and less pay. The reason is, the banks are bombarded by applicants who are ready, willing, able and even determined to do the work for less and less. Sure, at some point, currants will shift and the banks will bottom out but, that hasn't happened yet. At a recent conference....at very recent conference, I was part of a discussion where agents were sitting around a table and actually discussing figures and numbers about how low they were willing to go and it was shocking! In my mind, it was like watching a group of agents pimping themselves out to the next Jon....it was sad to watch. I sat back and thought to myself, how did it get to this, how did we get here. Is this the free market at work or is something else happening?
Fact is, some agents out there will do REO work....and, all that is required for literally pennies on the dollar.'
Fact is, those low budget, low cost agents are like the Walmarts of the REO world. (FYI: I shop at walmart)
Fact is, banks are ok and even grateful for a "walmart" agent. One that keeps cost low, even if it means lower quality.
Fact is, banks have set into their equations what it means to work with a "walmart" agent and as such, have or are building in mitigation tools, training, platforms, etc... to ensure a minimum quality standard.
Fact is, if the "old school" agents aren't willing to play the banks game....get out of REO and go do something else. For example, short sales....which I LOVE doing.
Fact is, a good REO agent, with experience and knowledge doesn't have to be an agent anymore.....go be your own INVESTOR! Screw working for someone else. Hell, use your IRA money if you need to and if you don't know how, ask me.....or Michael Collins for that matter.....we can show you the light!
All in all, Barbara Scarbrough is right on. She is absolutely filled with wisdom in her post below and her words should be considered with sincerity because, she is right!
Great article Jesus. Can you comment on Barbara's points? In your opinion, are REO agents going to be required to be Property Managers for the listings in most cases? Do you foresee this being at no additional income to the agent?
Jesus, what is a Bpo auto acceptor ?
FM (among others) already has a rental program in place. Guess who the property manager is? Yep you guessed it , the Realtor. With all maintenance being the Agent's responsibility. All bills paid by the agent for everything from lawn care to snow removal. All on the agent who then has to wait for reimbursement for maybe 3 months or more. To top it all off ONCE AGAIN the pay for all of the work is the all mighty 2.5 % commission. Yes that's right now you get to do property management on rentals with previous owners who are already mad at the asset owners, weren't making payments and WERE foreclosed on !! How do you think that is going to go??? Sound like an easy tenant to you? Best of all when the property does get listed...and sells, well then you get paid the 2.5% commission for EVEYTHING you have done. Again just to be clear when it sells and only when it sells is when you get the whopping 2.5 % for management, marketing, and all the other tasks and hats you must wear working on that REO rental. OK people we don't make this stuff up!! So here is another opportunity to just say no. Again the asset owners need agents, believe me Agents do not need them. We can refuse to be a part of this " NEW GAME" in the REO industry or we can do a lot for very little. As Jesse suggests we can diversify our own business and leave the low paying, heavy work load, high stress REO business behind. Let me jump to the front of the line and say no thank you to this NEW scheme to make a profit or cut losses via the abuse of the REO agents. NO THANK YOU!!
Hey Margaret,
You have some really good points and let me explain an little further.
1. How do they pay rent if they can't pay a mortgage? It's a dramatically....DRAMATICALLY, reduced rate. For example, a recent one I had seen went from $1,300.00 to $500.00 and the rent was equal to a interest only loan.
2. What about upkeep and maintenance? Who cares about that.....gosh Margaret...it's always about the details with you....lol. On a more serious note, upkeep and maintenance isn't that big of a deal. Granted, these properties will have a property manager which is tasked for general upkeep and maintenance, it's real task is to just keep code violations at bay.
If the occupants/owners can't pay the mortgage what makes the banks think they will pay their rent? What about the upkeep and maintenance of the property? I have seen many homes in disarray due to unhappy "occupants".