It concerns me the the number of agents abandoning long term focus on their locally developed spheres of influence to grab for REO’s and short sales.  Though the real estate market is down in some parts of the country and REO’s and short sales are abundant in many ares, a business person running and managing a well through out business model should not grab for an unproven product over working the structure and order they have established for long term success.

I can’t control the process or outcome:

REO’s and short sales are not new they have always existed in the market.  The only difference is now in some parts of the country they are much more abundant than ever before.  In my personal business practice I never chose to work with foreclosures.  My reason being, I couldn’t control the process or the outcome. My business model has always been based on honesty, integrity, straight talk and full disclosure to clients, customers, buyers and sellers regarding the true facts of the transaction we anticipate or have entered into. With REO’s or short sales the agent working with or representing the buyer or seller has very little if any control over the process or the price.  The bank is in complete control and the agent working with either the buyer or seller must make that clear to the party they represent or work with.

Buyers think they can get a Deal or a steal:

Unfortunately the general conception of the buyers in the REO and short sale markets today is, “I can get a steal on the purchase price”.  And, in many instances they can, but only if you are willing to donate your time, for free on the maybe chance that one of those mud balls will stick to the wall.  Meaning, you will spend endless amounts of your time showing the buyers property, preparing “low ball” offers hoping that one of them will stick.  If it does you are looking at, in most instances, 4-6 months or longer for the bank to stumble through the transaction and at any point during the time anything can happen that will cause the transaction to fall through.  Meaning that you don’t get paid for all of the time you have put into the transaction. Or, if the transaction does get to closing the  bank will require that you reduce the amount of your commission to make the transaction work to the point you don’t make enough to justify the time invested.

Sellers are in a bind and want a short sale:

The seller may be willing to sell the property on a short sale when they discuss with you their need to sell their home because they are unable to make the payments.  Many agents are thrilled to get the listing and have their name on a sign so they grab the listing and start marketing as a short sale.  The problem being the bank doesn’t know what the seller and the agent are doing.  The price agreed upon to market the property may or may not be agreeable to the bank if an offer is made. Also, the seller will continue to be contacted by the foreclosure division of the bank because the payments are in arrears and the foreclosure division isn’t interested in the possibility of a short sale they just want the back payments or foreclosure will ensue.

Here again an agent representing the seller may well be investing time and money to market a property that cannot or will not sell in a reasonable time frame, if at all.  The agent representing the seller has donated not only time to this transaction but cash to market the property with no guarantee of a return on investment.  A short sale means the bank agrees to accept a figure in many instances less than the mortgage amount owed on the property.  Depending on the circumstances of the individual bank they may choose moving through the foreclosure process rather than agreeing to sell short of the amount of the actual mortgage owed.  Or, if the bank does agree to the price of the short sale they may require the seller to pay the difference between the sales price and commission and the total amount owed on the mortgage.  Getting to this point of negotiation could have taken you 4-5 months and if the sellers refuse to except the debtoffered by the bank the sale fails and the bank forcloses. On the other side the buyer may become disconcerted with the long, drawn out process and cancel the sale.  In either instance the commission is lost to both the listing and buyers agents.  Yet again both agents have donated 4-5 months to a “maybe” situation and neither one will be paid for their time and effort.

Are REO and short sales a wise business niche?:

Most real estate agents work independently.  My answer is “No”, if you are the only individual in your real estate practice.  In this case I say stay focused on the business model you have established.  Work your sphere of influence and concentrate on your repeat and referral business. Regardless of the economy there are always going to be people who are not under duress to sell their homes wanting to make a move.  There are also buyers wanting and needing to make a move and want a property that is in “move in ready” condition at a fair market price.  They are not looking for the steal or deal, like the investors or buyers who will buy if they can get a steal or deal.  They are looking for a home to move into within 30 days at a fair market price that will appreciate in value when ready to be sold in the future.  This is the business you should concentrate on if you work along.

My answer would be ” a studied yes” if you have an assistant and a buyer agent or a team working for you.   Adding an REO and short sales devision to your real estate business could be practical depending on the availability of REO’s and short sales in your market area. Here again, this decision must be made with consideration of the time, energy and effort that this niche business demands with no guarantee of return on investment.

Before jumping for REO and short sale opportunities consider – Your Time is your “Money”:

My experience in training agents over the years is many are like a chicken, they wake up each morning with no food on their plate.  They go out into the world and pluck up whatever food is on the ground as they find it.  Unfortunately through lack of planning and forethought those agents take what ever buyer or seller is offered to them with no through as to whether this relationship will generate income and income that will be made within a reasonable time frame.

How dumb is this?:

Real estate is the only business I know of that operates with the promise that,  I will work with/for you for free and if I don’t sell your home or find the home you want to buy I will walk away and not get paid.

Every agent should operate on a business model that qualifies each buyer or seller based on their ability to generate income for the agent in a reasonable time.  If the buyer or seller fails the test they go on your contact list so you stay in touch and build your relationship and brand with them for possible future business.  The listings you take and the buyers you work with need to be vetted so that you are not only building business but generating income.  After all, your time, knowledge and experience is all that you have to sell.  You set the value in order to generate income for your efforts.  There are no free lunch’s in my business model.  I don’t give away my business time unless I know I am going to get a return on the investment and I don’t advise anyone I train to do otherwise.