REQUIRED READING: Searching for and selecting qualified agents to manage nonperforming real estate assets in specific markets is critical to the overall success of real estate owned (REO) property management and disposition. REO listing agents are the asset managers' virtual eyes and ears in the field, and the broker-selection process has long been a challenge.
Whether the asset managers work for a lender, servicer, government-sponsored enterprise (GSE) or asset management outsource company, when dealing directly with agents, the challenge increases in expanding markets. The challenge is intensified further in rural markets, where real estate agents are few and far between and might also literally be the justice of the peace, local minister, postal carrier, etc.
Prior to the last major foreclosure cycle of the early and mid-1990s, asset managers generally sought local real estate agents who had experience in relocation or had worked with the Resolution Trust Corp. to help dispose of bank-owned properties held by failed savings and loans. This is because the REO process is more complex than traditional real estate and requires specific knowledge and expertise, some of which was gained by working in these two areas.
At that time, there were very few default servicing industry trade associations or REO-related Realtor organizations from which to draw experienced REO agents. The task of finding these talented real estate professionals led asset managers to seek them out through word of mouth or through the local boards or associations of Realtors. This was a hit-and-miss process, and vetting was time-consuming. Over time, however, through trial and error – especially in markets with higher concentrations of bank-owned properties – networks of qualified REO listing agents were developed.
In 1985, the REO Managers Association of California (REOMAC) was formed by REO managers and asset managers who wanted an organization of their own in which they could share best practices and resolve difficult issues relating to title; foreclosures; code enforcement; city, county and state regulations; and other issues that could impede the marketing and disposition of REOs. The members also exchanged information about real estate agents who were doing a good job and those who were not. This improved the agent-selection process.
REOMAC has since expanded to become a nationwide default servicing industry association, further improving the ability of asset managers to locate qualified REO listing agents throughout the U.S. Although not every real estate market has representation, the networking effect has greatly expanded the knowledge of who was out there in the marketplace and doing a good job.
Previous experience and performance record trump all other qualifications for becoming an REO agent, but asset managers also factor in other considerations.
For example, they are interested in brokers' cash reserves, which are often necessary because of the reimbursable expenses involved with REO re-keying, trash-outs, maintenance, repairs and, when economically viable, refurbishment. However, with a shift by some lenders and servicers to using national field-services companies to perform many or all of the aforementioned services, rather than relying on the listing agents to do so, the agent's cash reserves naturally become less relevant. It should be noted that in order to eliminate any overlap of these services, lenders and servicers must clearly communicate which entity is responsible for performing each service.
Pertinent professional designations are not necessarily required, but they are notable. Similarly, certifications may be very important to some asset managers. Others are not as concerned with certifications obtained from specific organizations, but factor in the agent's willingness to invest in becoming certified and participate in continuing education. Trade association affiliations may be viewed positively, because attainting the qualifications necessary to become a member of these associations saves the asset managers the time and effort to fully vet a candidate on their own. Additionally, the extent of one's active participation as an officer, committee member, chairperson or board member of a trade association might add to the qualifications of one agent over another in the eyes of an experienced asset manager.
Asset managers home in on the number of REOs that brokers have listed and sold. Such a metric may be more important in markets with high concentrations of REOs, but less so in markets with few foreclosures. It is the overall experience of agents that matters most in both cases. This demonstrates a thorough working knowledge of the complexities of the REO process, including determination of occupancy status, value reconciliation (which is one of the most important elements), success with cash-for-keys programs, contract negotiations and proactive problem solving.
Lender/servicer expectations can vary with respect to how aggressively they want agents to approach occupants for cash-for-keys programs. But it is nearly universal that they all want interior access and possession of the REO asset as soon as possible and expect the agents to make every effort to have the occupants accept the payment in exchange for leaving the property in "broom-clean" condition sooner rather than later (typically within 30 days of signing the agreement). Agents' success rates with cash-for-keys can be a major consideration in being selected.
With respect to sales-contract negotiation, asset managers follow the guidelines and policies of their respective organization as to how much authority an agent has (or does not have) as a delegated representative of the lender or servicer. It is rare for any lender or servicer, large or small, to empower agents to directly approve contracts on its behalf without proper approval from whatever management levels are required. It is a matter of tolerance for each institution, and some smaller banks may delegate such
authority if deemed appropriate.
Asset management outsource companies, on the other hand, are often empowered to approve contracts on behalf of their clients within certain guidelines and delegated authority levels to help streamline the process. Timely communications, accuracy, diligence and attention to details with respect to contracts will influence an asset manager's decision of whether to work again with certain agents. Additional qualifications for selecting REO agents include, but are not necessarily limited to, the following:
- Knowledge. When applicable, intimate knowledge of, or at least familiarity with, investor and GSE guidelines are required.
- Staffing and organizational structure. In areas where there are large numbers of REOs, asset managers often want to know how many people work as a team under a particular broker or agent and what their respective responsibilities are; others are only concerned with the qualifications of the listing agents themselves.
- Geographic coverage/office location. Although there are varying opinions on just how far and wide a geographic area should be for a given agent (some lenders and servicers are very specific, limiting the area to as little as a five-mile radius), each lender/ servicer generally dictates what is acceptable. The more-experienced asset managers often make exceptions as necessary to ensure that they have the best available agent involved with their properties. Often, the wider the coverage, the more attractive the candidate may be, especially if an REO broker has multiple offices.
It is clear that, recently, asset managers have found it easier to search for, vet and select qualified REO agents to help them move their specific REO inventories. The most important qualifications to consider, of course, are experience and overall performance on a consistent basis. In order to master the balance between minimizing holding time and maximizing net return on assets – which is the true measure of performance in the REO arena – the selection and management of the most qualified agents available are of critical importance.
Lynn Effinger is senior vice president of Olympus Asset Management, which was founded in 1997. A former REO manager, Effinger can be reached at leffinger@
olympusasset.com.
