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REO listings – not always a good thing

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Miniature house with lock and key

Most agents have a goal of obtaining REO listings – this is the main reason why agents perform BPOs, trash-outs, cash-for-keys, and all those “pesky” tasks which pay very little money. The big money is in the REO listing – RIGHT?

Not so fast…

Sometimes, the REO listing can be more of a hassle than it’s worth. If you are eager to just accept any ol’ REO listing, you might find yourself disappointed. Let’s take a look at an example:

Let’s say your market is like mine, houses routinely sell for under $100,000. Now let’s say an asset manager calls you up and says, “Ok Mr./Mrs. agent, I have a new listing for you.” You instantly perk up and see dollar signs (commission). “Tell me more,” you say. Then you get the details: “This house will not qualify for traditional financing, it needs too much work. We need all cash offers only.”

Ok, you perform your initial BPO you determine that the property is worth $60,000 in it’s “as-is” condition. There are some repairs (about $15,000) and the “repaired” value is $90,000. Now you immediately have a potential problem: cash buyers are much easier to find for a really cheap property in the $10-20k range, but now we’re talking $60,000. That’s a decent chunk of change in this economy.

You go through your established list of potential buyers in that area, you show the property to several prospects and nobody makes an offer. You submit a Listing Price Reduction to your Asset Manager, asking for a price reduction to $55,000. That oughta sell it, you think. Get that listing “refreshed” in your MLS system. Listing price reductions get attention.

More months go by. More buyers go through the property, but still you receive no offers. You’re struggling to keep any sort of activity going with this property. Worse yet, your expenses are piling up:

  • Gas money driving to & from the property
  • Advertising/marketing the property
  • Maintaining the property

9 months in, you have the listing price now reduced to $45,000. You finally find a buyer at a price of $40,000. You submit the offer to the bank and they accept!

What did you earn?

NOW – What is your commission on this sale? Normally the bank or REO Asset Management Company will pay about a 6% commission. If your broker listed and sold the property, they would receive a $2,400 commission on this $40,000 sale. If you are an agent under your broker, your pay would depend on your commission structure but for argument’s sake, let’s say you get a 50/50 split on commissions. So your broker makes $1,200 and you make $1,200 out of the $2,400 commission earned by your broker.

If it took you 9 months to sell, it’s reasonable to say that you put in at least 2 full work weeks (80 hours) trying to sell the property – whether through evicting tenants, cleaning up the place, marketing, networking, inspecting, showing, or any other phase. The actual amount of hours is probably more than this, but for the sake of this example we will use that figure. That means you made $15 per hour for those 80 hours. Or, broken down into months, you made about $133.33 a month for the 9 months it took to sell the property.

In many cases, however, you made HALF of all these numbers because there was another agent/broker involved. If you had to split the commissions with another broker, your broker would only receive a 3% commission and you (as an agent) would receive only 1.5% of that. So in this example, you would make $600. Hardly anything to get excited about, for a 9-month grind.

Factoring in the fact that some brokers have a huge monthly advertising budget, it’s quite possible that the broker actually LOST money on such a small commission.

So although most agents are clamoring for REO listings, and rightfully so, it’s not always going to work out well. There’s going to be some “stinkers” thrown in along with your “home runs”. If you’re new to REO listings, you would be wise to team up with a veteran who can show you the ropes. You’ll have to network to find the right person but once you do, they will be invaluable to your career.


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