The Secrets Of Buying Foreclosed Properties – Part 2
Working with Your Realtor®
The foreclosure business is very confusing until you understand how real estate agents, Realtors®, and Realtors® who work with REO properties in particular, work together and make a living. The best REO agents are true professionals in every sense of the word. They are bound by, and live by, their state’s Canon of Ethics and the Realtor® Code of Ethics. We suggest every investor familiarize themselves with the Realtor® Code of Ethics at www.realtor.org.
Sales Agents Vs. Realtors®
Every Realtor® is a licensed sales agent or broker in their state. However, not every sales agent is a Realtor®. Licensed sales agents and brokers may list and sell property for other people and be paid for their services. Unaffiliated sales agents and brokers do not have access to the training and support that Realtors do. More importantly, sales agents who are not Realtors do not have access to the Multiple Listing Service(s) (MLS). This is why Realtors matter.
Facts You Need To Know
First, a couple of facts that may or may not be obvious to you. Real estate agents are independent contractors. Their income is entirely based on the commission they earn. They also pay a portion if not all of their own expenses. They only get paid when a property closes.
When a Realtor lists a property, whether, for a private individual or an asset management company representing a financial institution, the Realtor’s brokerage has a contract to market the property in return for a commission. The commission is split into two parts, the list side and the sell side. Because Realtors cooperate amongst themselves even though they are competitors, hiring a Realtor to list a property extends a financial incentive to every other Realtor in the community to sell the property.
Managing and marketing REO properties is far more intensive than listing and selling properties for private owners. There tends to be a larger personal investment in time and capital because many times the listing agent or brokerage must pay upfront for maintenance and repair costs, and then seek reimbursement from the asset management company. REO listings also require weekly or biweekly inspections and condition reports and Monthly Marketing Reports or MMR’s.
Lot’s Of People Have To Get Paid
There are additional entities involved in the process as well. While a listing agent works directly for a seller, more often than not an REO listing agent works for an asset management company which works for an institutional investor. This adds a layer of complexity, and often frustration to the process.
See below:
1. Bank or Institutional Investor
One who owns the property.
2. Asset Management Company
One hired by the bank or institutional investor to manage and sell the property.
3. Listing Agent
The local professional hired by the asset management company.
4. Selling Agent
The local professional representing the buyer. (Sometimes this person is also the listing agent.
5. The Buyer
As you can see, the REO listing agent is right in the middle of multiple competing forces with conflicting agendas and goals. Everyone in this process is either looking to make a living, or at the very least, mitigate their losses. The number of participants in the process means that the time it takes an asset manager to respond to offers and counteroffers can vary from not only company to company but property to property. Sadly, listing agents can influence the timeline to some degree but they have no control over a seller’s response time to an offer or counteroffer.
How REO Agents Get Paid
REO commissions are always structured so that all involved are encouraged with financial incentives to find a buyer. REO listing agents generally are required to pay a referral fee back to the asset management company out of the list side commission for the privilege of marketing the property. There is never a referral fee out of the sell side commission. This results in the sell side commission often being as much as 50% more than the list side. The game is structured so that the listing agent will almost always be motivated to sell a property to his or her own clients first.
It is easily the same amount of work, and often less work for the listing agent to sell to their own client as opposed to another agent’s client. Having both sides of the deal means the agent can work with someone he knows will close quickly and not waste his or her time. Perhaps most importantly, when he has both sides of the transaction, he has a better chance of exceeding the expectations of the asset management company that hired him. The better he looks to the asset management company, the more listings he will receive in the future.
