Blanche, just over a year ago you interviewed me regarding the opportunities for real estate agents and brokers to specialize in the area of residential real estate (handling bank owned properties -- REO homes) which has become my 37 year career. While there is no time to lose in trying to get in on this business, I can safely say that it's not too late. Not a day goes by in the financial press and in regular newspapers that we are not reminded that the "Tsunami of foreclosures" (my title) will likely bring the country to the precipice of a national recession.

So, if you are an enterprising and forward looking real estate agent or broker of any duration in the business and wish to tackle a new area of residential real estate specialization (the world of bank owned properties, aka "foreclosures and REO ( real estate owned)" by all means get started today.

My long interview on the prerequisites and requirements of this specialized business (Realty Times, December 6, 2006) is still, in my view, the most comprehensive widely distributed information on the subject. Every answer I provided to Blanche's focused questions is equally true today. I refer interested readers to that interview.

What we all know now is that the breadth and depth of the "subprime" episode of risky lending will last far further into the future than originally forecast, justifying the expenditure of time and effort to learn the business and offer the scope and quality of services that Lenders and/or third party outsource companies require of their REO brokers.

Indeed, in some markets, without resorting to handling "bank owned" homes, real estate agents and brokers may have to leave the business to seek a more steady, albeit perhaps, less lucrative living. The days of sitting on a new home subdivision and taking orders or "floor time" with lots of leads are certainly over in most markets across the country.

But if you love the residential real estate business and want to remain in it to see the former halcyon days return, I suggest you carefully consider representing America's lenders in the sale of the tidal wave of foreclosed homes that is certainly on its way.

While you are attempting to obtain your own REO listings, become knowledgeable of the REO inventory and sell some of these homes. Former Federal Reserve President, Alan Greenspan was being interviewed on 60 MINUTES last year and has said that he will comment that he missed the significance of the continued and Ill conceived lending mantra which just got shut down: "Buy the house you want … not the one you can afford"!

Now, former chief Banker Greenspan is a very smart man and he acknowledged his failure to focus. Many of us real estate old timers, working in the field and close to our markets saw the inevitability of a gigantic cycle of bad loans and foreclosed homes. As engaged participants in our markets, many of us seasoned brokers know the skinny and the powerful driver that homes sales is to our national economy.

I started my residential brokerage over 2 and a half years ago; one that is 100% an REO brokers office. And I have made my share of small business mistakes. Having formerly run real estate divisions of the likes of Fannie Mae and top tier banks I usually had a staff of 200-300 folks and rather limitless financial backing. Not so when you have your own company!

While the decision to open and invest my retirement in a business, I know as well as anyone in the country would remain unchanged, I would have been more prudent in expenditures related to my office, furniture and the like. And more realistic on how long it takes to get to the first closing, break-even and profitability.

And I don't see it as a decision to abandon a regular retail (listing and selling) brokerage. Some of the facts of the new economic order are the following: foreclosures are here to be a piece of the national residential real estate market even in best of economic times; foreclosures are part of every economic strata; and buyers are aware of these properties and often ask for them.

Many local US real estate markets are now largely driven by a glut of standing new and foreclosed homes with an ever increasing pipeline of abandoned/secured homes that will refill and overfill the supply chain well past 2010. Developing a facility and or specialty in the professional handling of "bank-owned" properties may be a "survival" skill.

Some of my fondest friends in the residential real estate is the Number #1 Coldwell Banker agent in the country. Joyce Essex and Danny Harvey operate in the rarified environs made famous by Zip Code 90210 as appended to a hit TV Show named after that city. Joyce and Danny's signs dominate their territory.

For the many years that I have known Joyce, even when nary a foreclosure could be found in the Great Golden State of California, she continued to attend the REO industry's conferences and confabs and kept active with the lenders she had so capably represented in the early 1990's when California had it's own unique real estate bubble.

The land of movie producers, starlets, glitz and advertising can suffer the same economic misfortune that haunts the rust belt: (Detroit, Indianapolis are prime examples). I am sure, although I've never asked Joyce and Danny, they didn't start in high end real estate with the expectation of selling lender owned properties. Danny had an executive management position with Wilshire Financial and Joyce had already been through one big REO cycles well as creating a formidable market presence.

They are fabulously sailing through this "Perfect Storm." No doubt they are so successful because Joyce and Danny are meticulous and the premier example of professional, forward thinking brokers and masters of change. What remains remarkable to me is how accessible, friendly and down-to-earth Joyce and Danny are -- in spite of their well-earned success and prominence. Their lender clients value their market knowledge, expertise and ethical friendly representation. .

On other levels and in different markets, I have good friends who are brokers in Detroit -- Rick Conflitti -- average sales price for REO's of approximately $20,000 -- and Paul and Debi Raymond, a bright and enterprising husband and wife team in Flint, Michigan where the average REO sale price is closer to $55,000. Add to that list: Jeff Peargin and Hector Benavides in Atlanta, Georgia (Jeff and Hector formerly worked for Homecomings Financial), Atlanta, Reggie McMullin who worked for me as an Asset Manager in Dallas in the early 90's, Logan Waller in Dallas, Texas and a 20 year downstream REO broker in Dallas Texas and Little Rock, Arkansas. broker of Ann Ball in Little Rock, Arkansas. These veterans of the REO business have mastered not only the nuances and professional expectations of the business but the financial differences due to asset mix and average net commission in the areas they service.

These brokers, like Joyce and Danny are flexible and know, based on years of experience and common sense, that real estate is above all else a cyclical business. And as with all of history, real estate cycles, can and do, often repeat themselves. If you are building a career in the real estate business and you aspire to continue in the business through 2030, chances are good that at least one or more market downturns may exacerbate foreclosures. Knowledge is Power so my advice is to learn all that you can.

No doubt it will be difficult to compete against Joyce and Danny, but others like Ann Ball and myself are looking to a three to five year plan where we are no longer involved in the REO business. Some lucky agents and brokers who have just conferred on themselves the title of an "REO broker or specialist" are getting, and will continue to get, some business by being at the right place at the right time. I know many brokers who 12 months ago didn't even know the most basic information about REO properties and now have inventories of over 100 bank owned properties.

At a recent REO Industry Conference in Dallas, Texas I took up a seat next to, and re-introduced myself to, a Houston area REO Broker, Jackie Cooper, who I first signed up as Fannie Mae REO broker 21 years ago. Jackie still represents Fannie Mae in the areas she services! That's some kind of a return on investment and a testament to her service.

I have always guided my professional life with the old saying, "Nothing succeeds like success" which confirms that hard work is the basis of most success. "Luck" is frosting on the proverbial business cake. In recent years I have enlarged my quotable professional conventional wisdom to include the wise words of Patrick Stone, former President of Fidelity National Financial, a Fortune 250 Company, a former boss and a good mentor,who liked to remind me and others, as one of over 220 Division Presidents that "Hope is not a strategy".

If you decide to pursue "bank owned" properties do it with "gusto" and a true relish for the assignment.And be prepared to deal with many dead ends which start and end by noting that you must have prior experience. Develop a list of the formerly most active lenders in your area and follow the foreclosure notices.

Tracking down a single foreclosure in your farm area and wending your way to the ultimate lien holder (where their capital is at risk) is an arduous but enlightening journey. Try to find a mentor in your area who will take you under his/her wings. Truth be known there is plenty of business for many more brokers. Some old hands may feel threatened.

Don't expect them to give you their client list. And carefully understand the expectations that your lender clients will have. Read my year old interview and understand you will likely have to change some of the comfortable ways of your current business life and organization.

And don't get easily discouraged. If developing new REO business was easy or the subject of "Getting REO Business for Dummies", many of your competitors would have already done it. Having a counter balance to weather the normal residential declines is a kind of self-insurance to ensure survival and financial success. The cyclical nature of residential real estate is like a lightening strike in a forest -- the decline of regular sales and the increase of REO sales will purge the industry of the uncommitted or the half hearted! Change, while troublesome, always brings opportunity!

Published: May 22, 2008

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