Why REO Should Be A Priority For Every Brokerage — And How To Access It

I spent most of my real estate career managing and selling foreclosures, listing and selling over 25,000 single-family foreclosures before I stopped counting. During this time I formed the National REO Brokers Association (NRBA), the largest broker network and trade group in this industry segment, where I still serve as president. I believe having an REO department is an absolute must for every real estate brokerage. It may be a small market niche and only 3-5% of any overall market right now, but it is once again increasing and can easily be leveraged for additional revenue streams at better than a 5-1 ratio.

REO or “real estate owned” is a line item on a bank’s balance sheet that represents properties now owned by the bank — it’s just another term for properties acquired through foreclosure or sometimes “deed in lieu.” REO is a phenomenal revenue center on its own, but when utilizing that volume of typically below-market priced listings for advertising and lead generation, the leverage opportunities for building large, productive agent populations becomes amazing. It’s also much easier when compared to other methods of recruiting productive, profitable agents.

If you are not getting enough REO listings, odds are you are out of touch and not marketing to and/or registering with enough REO clients. Granted, some markets are always busier than others, but the fact remains that there is always REO — even if it isn’t coming to you. I can attest to this: There are currently between 150 and 160 approved REO firms that can give you listing assignments in our database.

With the housing markets once again over-inflated and due for another correction, many real estate professionals are now realizing that as the markets soften, there will be a major increase in REO listings available for brokers and agents, and they have come to realize the need to be involved. The corrections are beginning regionally, with REO already increasing much faster than expected in many markets.

Who Controls REO Listings?

Understanding who controls REO listings is imperative. Many assume “the banks” do, but nothing could be further from the truth. The banks may be the ones making the loans, but they are no longer the ones foreclosing on those loans or disposing of the assets.

There has been a major shift in REO volume away from banks and government-sponsored enterprises (Fannie Mae, Freddie Mac, etc.), with most REO now with hedge funds and private equity groups. Due to changes in federal regulation and with most banks now being under oversight from the Office of the Comptroller of the Currency (OCC), holding nonperforming loans (NPLs) on books is now much costlier than it had been previously and severely limits their ability to make new loans and generate additional revenue.

For that reason, along with increased legal and media risk, most banks are now selling off mortgage loans that no longer perform to third-party entities at substantial discounts. It is the hedge funds, private equity groups and even large Wall Street firms that are now the owners of these NPLs that are the actual sources of foreclosures. How they dispose of these properties varies greatly: Some use outsourcers, and some manage direct.

So, who are the REO clients that brokerages get these listings from, and how many are there? This is one of the questions I get asked most often by agents and brokers who realize that the next wave of REO listings is just around the corner.

Anyone who reads any of the major mortgage and real estate trade publications can see the scale and scope of these NPL sales weekly. Movement within REO servicing, management and pools sales is making the inventory very fluid, so you never know who will have what next. Therefore, you must fish with a large net and apply to and get in with everyone.

In other words, you must apply to every known REO client and outsourcer (an REO management company that disposes/lists foreclosed properties on behalf of the actual investor/owner/firm) and be approved in their vendor database to receive these listings. Because the inventory is moving around so quickly, you must get approved with all of them in order to ensure your fair share of listings.

You must also be listed in the vetted online directories that clients and outsourcers use. Most let you sign up, but since there is no experience or approval process for those providing free access, they are rarely used by clients that can give you REO listings. It’s also important to know that new clients and firms appear every day, especially those buying REO and NPL pools, so tracking them all is a full-time job.

Many REO brokers around the country are still carrying over 300 listings at a time and closing over 1,000 per year. You must do the homework. You can also manually search for REO on LinkedIn and Google to locate clients to solicit and apply to.

The fact is, many markets are topped out, and a correction is coming. Along with this correction will be an increase in REO, and I truly believe these listings are the most valuable for any real estate brokerage — they typically sell easily, can be priced at or even below market and give you ability to generate additional leads and income for your office.

Regardless of how you may feel about this segment of the real estate business, no one can fight a market. We all must adapt and generate revenue where we can. As the market changes once again, this segment will become very profitable and should be captured. The rewards are certainly worth it.


Originally published in Forbes October 16, 2018 >