If you own or manage REO properties that are going to market or on the market, there are a few basics I would like to share with you. These tips are not Mike Morgan's subjective thoughts. The tips are hard lessons many REO owners and asset managers have learned through experience. Those that skip this stuff generally sell for less and incur higher expenses.
CONSULTING SERVICES -The tips below are free, but I also offer my services nationwide to help asset managers spot fraud and negligence when it comes to how real estate agents are servicing your properties. I provide hands-on training for asset managers, as well as spotter services, mystery shopping and just about anything you need to streamline your operations and make sure the agents you retain are doing the best job possible.
FREE CONFERENCE CALLS and ONLINE MEETING - If you are not ready to retain us to assist you, we invite you to join our monthly conference call and online meeting. You will have the opportunity to ask questions or just sit back and let us show you some of the things to start looking for. If you are interested in joining an online meeting, please email me for dial-in and login information. Mike@MorganREO.com
1 - REO Agent Background Check - It takes less than three minutes to check an agent's license. Log into the state licensing website and punch in the agent's license number. If you haven't done that, you're really playing with fire. We just completed a deal with an agent that had several license suspensions. The lender lost tens of thousands of dollars. First, the agent listed the house to low. In fact, my client offered full price within and hour of the listing hitting the MLS. Then we had the lovely pleasure of dealing with an agent that was less than reputable and more than willing to cut corners. It was very uncomfortable, but the asset manager at the bank didn't seem to care. On a $300,000 deal, the bank easily left $65,000 on the table. So spend 5 minutes to run the license check.
2 - REO Agent Experience - Only hire experienced agents and brokers. I realize this is next to impossible to control, but there are a few basics. Only hire agents that have earned a GRI and CRS designation. GRI is Graduate Realtor Institute. CRS is a Certified Residential Specialist. Why these designations? These two require real class time, real exams, and you don't earn them overnight. GRI is a three part program given through the year in one week segments. And that's three weeks of 8 - 5 training. CRS requires a variety or courses plus actual transactions. If you're dealing with agents that don't have these two designations, you're not dealing with the cream of the crop.
3 - $250 Registration Fee - If you really want to separate the part-timers from the serious Brokers and Agents, charge us all a $250 registration fee. This serves two purposes. First, if you can't afford the fee, you don't belong in this business. Second, it provides you with a fund to hire a small staff to investigate each agent's license and credentials.
4 - BPOs and Pricing to Sell - Let's face it, when you pay $75 for a BPO, you get what you pay for. And after seeing some of the BPOs you are paying for, you might was well use them for doodling. You have two choices. One, you pay $350 for an appriasal and you establish what you want in the appraisal. The second choice depends upon finding the right agent to work with. If you have found a group like ours, you can bet their BPO is within 5% of the property's value. However, what the value is on a BPO and what today's market value is, are two different things. You're still looking at sold comps that might be 30 days or worse. We advise our clients to set the listing price at our 30 Day Price . . . and then be prepared to go to the market price.
One Week Plan - If after one week, the home is not receiving showing calls from agents, you need to drop the price. We might suggest a drop of one to ten percent, depending upon market conditions. I realize one week is not much time, but if you are not getting calls, you are not even in the ballpark for offers. So drop it . . . NOW and hard.
Weekly Follow-Up - You're not done. If your showing call level is low or zero, you need to start a weekly price drop of 1-2% until you find the market. Once showing calls start coming in, you're in the vicinity, but you're not in the Selling Range. But at this point we recommend a two-week hold. If you don't get any offers, start dropping 1% a week.
RESULTS - If you follow this plan, you cut your Days on Market (DOM) in half. Your DOM needs to be under 30 days to contract in this market and under 60 days to close. If you're
not at that point, you're wasting time and piles of money.
5 - MLS and Realtor.com - From what we have seen 100% of the lenders and REO consolidators take this for granted. You need to have a spot check policy in place for listings. Are the pictures in the listing? Did the agent write selling copy or is this critical feature blank? Are the dimensions correct? Basically, check the listing. It takes all of two minutes. But . . . . you can't stop there. You also need to check Realtor.com to make sure your agent has enhanced your listing on Realtor.com. If they have not, you listing looks like ka ka. FACT - most agents don't pay for the enhanced feature, and even when they do, they don't know how to use it.
6 - MLS Broker Listing v. MLS Public Listing - This one is pretty neat. I was on the phone with a Fannie Mae attorney discussing a rogue real estate agent and their listings. The attorney had a different version of the listing than I had. I was working off of the Broker version, while the agent had only submitted the Public version to the asset manager. Here's the catch. The Broker version is what other real estate agents see on the MLS. The Public version is only seen on Realtor.com . . . and then only a very few data points are actually transferred from the MLS to Realtor.com. On this particular listing, several errors were made that did not show on the Public version. But these errors kept the listing hidden from other real estate agents. It's a scam to make sure a property doesn't sell, so the asset manager will continue to drop the price. Eventually, when it is below market, the real estate agent will have a friend buy it, and they will flip it for a profit. Sneaky? You haven't seen it all. This is just one of a dozen ruses.
7 - MLS Systems - They ARE Different - This is a critical area that we have yet to find a single asset manager on top of. For example, in Florida, there are several MLS systems. Instead of banding together to form a statewide system, local greed has taken over and we have several systems that do NOT interface, despite what you will hear from the "experts." In fact, if you believe the experts, spend one minute with me on the phone and let me show you a live demo of how the MLS systems fail to integrate.
And here's the problem. You give an REO to an agent in Broward County for a listing in Martin County. First of all, you shouldn't be doing that, but we've seen listings given to real estate agents 150 miles from the subject property. In any event, while both MLS systems may use the MLxchange foundation, it is like a Frenchman trying to talk to a Russian. Sure they can understand some things, but there are dozens of data points that either do not transfer over or transfer incorrectly. You see, each Board of Realtors thinks they know best about what data to pull, how and why.
WARNING: If you are assigning an REO listing, make sure the real estate agent confirms in writing that they are a member of the MLS Board in the county where the property is. They can list from their own board if there is reciprocity, but then we are back to the French trying to talk to the Spaniards. Just for a few basics, Areas don't match, square footage doesn't match, Remarks and Comments don't match, etc.
At Morgan Florida, we belong to multiple MLS Boards so your listing is listed so ALL the agent and consumers can find it.
8 - MLS Overlaps - You didn't really think I was going to let you off that easy when it comes to MLS issues. Overlaps . . . are common and they WILL cost you money. Here's and example. In St. Lucie County, the local Board of Realtors uses the Regional MLS System. But right next to St. Lucie County is Martin County and they use a different MLS system. At Morgan Florida we belong to both systems so you actually get two listings. This is critical, since the information is displayed and shared differently. If you assign a listing an office that only offers you one MLS System, your property listing is only going to be displayed properly to about half of the agents in that market.
The real problem for Asset Managers is not know where the overlaps are. With 67 counties in Florida, you can see how complicated this problem gets. And that's just one more reason why it's worth a bit of our consulting time to help you avoid the traps.
9 - Flippers Are Back - Yes, they are back, but it is at your expense this time. The rogue agents that know how to hide listings, do it so they can buy the properties through friends and family. How do you catch them? Hire someone like me. Or run searches on a number of your listings 90 days after the initial sale. See if the property sold, and if so look at who the parties were and then dig a tad deeper, and look at who the agent was. But there are other ways to flip your properties. The trick is catching the rogues and keeping agents from turning to the dark side.
10 - Lock Boxes - If you agent is still using the old fashioned $20 Home Depot box, be very wary. You can pop these boxes open quite easily. And once the combination is out there, it is out there. We only use the newest model of GE Supra boxes for agent access. These are electronic and only accessible by licensed agents. In fact, they must update their Supra Key daily. These boxes also provide us with a list of who went in, how long they were in, and when they left. Once again, if you're still dealing with agents using the $20 Home Depot combo boxes or the old fashioned Supra boxes, find someone else. The risk is just not worth it, and there are hundreds of thousands of real estate agents out of work that use the new GE Supra boxes. More on lock boxes below.
Contractor access. Most of the contractors we deal with have affiliate membership in our local real estate boards. The best of these, have GE Supra lock box access. For those that don't have GE Supra access, we intall a $20 Home Depot key box in a hidden area at the house, and we change the combination every week.
11 - Missing Keys -I love this one. On the cheap $20 combo boxes, anyone can steal the key, and the listing agent will have no clue who did it. Stealing keys? You better believe it. I overheard a slimy conversation between two "agents" at a breakfast meeting. They were laughing about pulling keys out of boxes to no one else can show the property until the listing agent drives out with a new key. Why? I guess sometimes other agents might have it in for someone. In this case, it was because it was an out of town agent's listing. The listing agent would have to drive more than two hours to replace the key. These two clowns knew the listing agent would not drive up. So it was one less home on the market in their eyes. But I've heard the same story from listing agents with a hot listing. Someone showing the property steals the key so no one else can see it and outbid their offer.
Solution - If you require GE Supra lockboxes, this never happens because we know who is going in and who is going out of the house. But if you allow part-time agents to slap $20 lock boxes on your properties, you better believe you are losing time and money.
12 - Mystery Shopping -I will throw this one in here, even though it should probably be in the top 3. If you're not mystery shopping your listings, you have no idea what is going on. I don't care if you only do it once a month and only mystery shop a small percentage of your agents. You are going to be shocked if this is the first time you are mystery shopping. Call the agent using the information on the official MLS listing. See how long it takes for them to get back to you. Talk to them about the listing. Get showing instructions, and talk a little bit more. That's basic mystery shopping, but you really need to do it in the field or hire a team like ours who provide the service through the State of Florida. If you are an Asset Manager, it will make a huge difference in your numbers. If you are a bank, you better be doing this.
13 - Showing Reports - You can rely on the real estate agent to provide you with a report, or you can ask them for their GE Supra lock box print out once a week, monthly or whenever you want it. With the $20 Home Depot lock box, not only do you risk vandals popping the box, but you can't get a showing report. With the GE Supra lock boxes, the showing agents use a computerized system to gain access, and this registers the time the entered and the time they leave the property. All you need to do is ask your listing agent for the report . . . if they even know how to run it. In fact, they can have the file emailed to you automatically!
14 - Cash for Keys - If you are looking to maximze the sale price, you need to get your REO property on the market FAST. In most Florida markets we are experiencing 1-3% declines per month, and with the inventory build-up, it does not look like this is going to get any better. Most of our clients offer $500 - $1,000 for Keys, but our very sharpest clients offer 1-2% of the listing price . . . and here's why. For most tenants, it comes as a shock that their house has been foreclosed and their lease is worthless. The not only resist, but they often damage the home. Moving forward with eviction proceedings will cost you $2,500 - $5,000 in legal fees, as well as 30-90 days in lost selling time. Even if we just use the low end of the legal fees and the low end of the lost time, you are talking about $2,500 and at least a 1% loss in the value of the home for a total loss to you of $5,000 on an average $250,000 home. At the high end, the eviction process could cost you $30,000 overall. My clients that offered the 1% right up front are $25,000 ahead of the game.
15 - Appliances - It is tough enough for buyers to come up with a down payment and closing fees. Why make it that much tougher by stripping out the appliances or not replacing missing appliances. I can't tell you how many times we see this. It kills deals. When a buyer barely has enough for the down payment and closing costs, where are they going to come up with another $3,000 for appliances. We closed on an REO that had no appliances. I had a full price buyer for this house, but they were too tight on the deal, so I put another buyer in. They offered $15,000 less and the bank took it. The bank would not put appliances in for the first buyer, nor would they put an appliance credit in the contract. Instead, they gave my alternate buyer a $15,000 discount. Talk about penny wise and dollar foolish. Instead of giving in on the $3,000, the bank took a $15,000 hit.
16 - Property Condition - Wow. I could talk about this one for days. I am often amazed at the condition REO properties come to market. I'm not sure if it is the fact that so many inexperienced agents are running this stuff, or that they asset managers simply don't care. There are a number of basics that need to be done. If you are not willing to spend a dollar for a return of two, then you might as well skip the listing process and put the property into an auction pool. I've brought clients to some REO properties, where they were turned off before even walking inside. Other clients love these dumpy properties because they realize the asset manager is asleep at the desk, so they can lowball the purchase price. And most of the time they are right!
17 - Utilities - You better have the electric on in Florida and the AC unit set at 80 or below. If not, your house is going to mold up, and you will have thousands of dollars in remediation. I can't tell you how many agents don't turn on the electric. And worse, the guys that don't turn on the water. Buyers walking through a house will use the toilets. Do you have any idea how bad a house in the is heat can smell when there is no water to flush the toilet? I can tell you that no other buyers will walk through the house until it is cleaned up. And I can tell you that there are agents out there that don't care. They will not turn on the water and they will not clean up the stink. Even when they do, there is another issue with the water. The toilets and tubs have seals that will fail if water is not run. We run the water for two minutes every month in all of our listings in all of the sinks and tubs. We flush the toilets several times. If these houses are not serviced, they will not sell for what they should sell for, and it will take longer to sell them. It is not good enough to do a drive-by, and I can tell you that is a joke for most agents. We have been at houses with broken windows and garbage on the property. If the agent was doing a weekly drive-by this stuff should not be happening.
18 - Title and Closing Costs - This is sad. Very sad. Lenders and their REO consolidators want buyers to use their title companies AND for the buyers to pay all closing costs. First, the title companies you select are rip-offs. Yes, I said. The fees they charge for processing are all higher than traditional fees at most title companies. Second, if you're trying to get this property off your books, why make it so darn difficult for buyers. You know they don't have extra cash. And when you hit them with title companies that are incompetent and expensive, it is a double insult. SOLUTION - raise the price a little bit and pay closing costs. Advertise that . . . because it is a huge selling point.
19 - Get Creative - I know, you're a bank. But that doesn't mean you can't be creative in selling REOs. Why make it so difficult for today's buyers? Your only alternative is an auction at 20-50% lower prices. So I suggest you think about credits for appliances, carpet, painting, repairs or . . . sensible creative financing.
20 - Stop Paying for Nothing - In today's market, there is very little a listing agent can do, other than the MLS. Newspaper ads don't work. Radio and TV are a joke for selling homes. Banners, signs, balloons and all the rest might sound good, but if you want the truth . . . it is all about the MLS. If it is done properly, that is all you need. Unfortunately, for you, more than 75% of the REO listings we see are not done correctly. So when I say stop paying for nothing, cut your listing fees to flat fees and offer flat fees to the selling agents. Your property is going to sell if it is priced right and listed properly. My company offers a menu of services, not just the old fashioned, traditional way of doing things. You know what they say . . . "Keep doing what you have been doing, and you get what you always got."
21 - Date Verification - In Florida, listings need to be checked weekly. And if you believe your agents are checking all of your listings weekly, you probably still believe in the Tooth Fairy. Take the example we used about the agent in Miami with a listing 120 miles away. Do you really think they checked that listing weekly? Not a chance, and the listing showed it. We've taken a small piece from the spy movies, and we request POL (Proof of Life) on listing checks, but we call it Proof Of Date (POD) and we ask agents to pick up a copy of USA Today and send us a photo of the paper held up next to the address of the house. It's a little bit more work, but it works. There are other ways to verify visits, but that will cost you a day of our consulting time :)
22 - more tips coming
Or call me . . . Mike Morgan at 888-227-5217
or email me at Mike@MorganFlorida.org