We spoke with Steve Pagano, Broker/Owner of Pagano Properties, about his suggestions for working with buyer’s agents and directly with the banks. Pagano also tells us how to succeed when expanding your business into new markets.
How to Best Work with Lenders and Buyer Agents
For REO listing agents, it is sometimes said the difference between a successful and unsuccessful offer is the quality of the paperwork submitted by the buyer’s agent. In order for us to achieve the highest price and best terms for our clients, it falls to the listing broker to ensure that the offers submitted are complete and can effectively be presented to the client.
One of the first and most important rules is the mortgage product should always match the subject property. If there are any factors that might prevent the buyer from obtaining an FHA or VA loan, you may want to disclose this in the broker remarks section of the MLS listing. Do not include this in the consumer remarks section, as that may be out of compliance with your MLS.
Some REO properties may be able to be financed conventionally. In recent years, more listings have been sold while occupied, with either tenants or the former owners occupying the property. Disclosing the terms that the seller is willing to accept will save you time in the long run.
Full Disclosure
If the subject property has been winterized, and/or the electrical service shut off, more than likely the seller will require a 203k rehab loan—or cash buyer. Disclosing this information early better prepares the buyer’s agent and mortgage broker when presenting their offer. As you probably know, the seller may opt to not turn on the utilities for appraisal or property inspection. It also saves valuable time for the listing agent, so that they can be more effective when presenting offers to their clients.
It is also a good practice, when possible, to upload any disclosures that are relevant to the property directly on the MLS. If your upcoming listing has a potential discoloration issue, you should be uploading a mold disclosure and hold harmless form, and have copies returned to your office for both your clients’ and your brokerage’s protection. This is not required in every state but is a good common-sense practice and will reduce your potential liability.
Get Everything in Writing
When working as a buyer’s agent on an REO property, be sure to use actual dates when submitting your offer. While TBD or ASAP may be an accurate representation of your buyer’s intent, the offer submittal process for most lender portals will require actual closing dates. It is also very relevant to the offer process if there are any buyer contingencies. To that end, if the buyer is looking for a seller’s concession, please enter that amount in whole dollars and not percentages. You will be doing the listing agent a huge favor, and it is the best way to present your offer to a bank.
One last comment on submitting paperwork—this is your opportunity to present yourself to the other agent in the best possible light on behalf of your client. My company receives between five and 10 illegible offers every week. Make your best case for an accepted offer by presenting everything the listing broker will need to submit the offer to the seller in clean and clear copies, not dark or wrinkled scans. If you can’t read it, neither can the client. Cash offers should have bank statements dated within the last 30 days and be for the full amount of the purchase price.
What You Can Do Differently to Make an REO More Profitable
Everyone has a different perspective on this based on their previous experiences and comfort level with risk. There are also other considerations, as the texture of the market is constantly changing, and what worked for many brokers just a few years ago now represents an outdated business model.
Approximately 95 percent of my company business is driven by default markets, and primarily REO properties. While national REO inventory has been on the decline for 19 consecutive quarters, according to Core-Logic, many brokers have had to reevaluate their business strategies.
With the recent boom in the retail sector, some brokers may decide to increase their retail business. Good brokers are always looking to engage and recruit talented new agents to grow their business. Though some of my friends increased their BPO workloads and appraisal work, I decided to take a different approach with my business.
Mind the Cycles
Because my preference is working in default rather than retail, it was the most logical choice for me to duplicate my business in a new market. I would take the same approach to the service for new clients in a new location. After much research and investigation—as well as the study of the market and metrics that make up any market—I decided to expand to Hawaii. There are a number of reasons this has been a great business opportunity for me, and I am happy to share some of the things that I have found valuable in expanding my business.
First of all, REO is cyclical. While the overall market trends are very healthy, the time to expand your REO business is now, not in the middle of the next wave of REO. Even the most experienced brokers can expect a 12 to 18 month, or more, pre-cycle in which your business will grow. If you are looking to expand your business to the nearest county, or state, don’t assume the predictability that made you successful in the first place. Be open-minded to learn the nuances of your new market, because as the famous real estate proverb states, “All real estate is local.”
Do Your Research
I had to spend much time researching the markets I was considering, speaking with other brokers, and gaining insight into what worked and what didn’t. And even this is not enough to prepare you for what you’ll actually do. Preparation and research are key in expanding to a new market, as you will more than likely be making a significant investment in your business and infrastructure—expect this to take several months. What made you successful in your current market? Continue to do that, but also be bold and objective in your decision-making. Be willing to be flexible and adapt to new situations, as there will likely be hidden opportunities in them.
Lastly, and what I consider most valuable, is the outstanding team of professionals that I have working with me. Having a great team with a common vision to support your work and your clients’ expectations are the biggest keys to any successful broker business. As I continue to grow my businesses, my team is who I rely on and who I can trust to get the job done. If you are going to grow your business and investigate new opportunities, it’s going to be critical to have key players in place.
Regardless of which direction you decide to take, choose your opportunities based on predictable outcomes. And remember—no risk, no reward.