Disposition Is the Goal, Task Management Is Key
Fort Worth, TX-Dean Hooker, the owner of Florida-based asset management company, Southeast REO, has been in the business for over 18 years. He says working with REO properties today is a "completely different animal" than it used to be just a decade ago.
"Before, the bank gave us an asset. We went and took care of it and sold it," said Mr. Hooker at a recent default servicing conference here. "Today, the business is a lot more detailed with the REO task management systems we have now."
On the panel, "Setting Up An REO Shop," he said there are three different business models, including first, the agent who is working under the brokerage of the company he/she is licensed under; second, the broker who is the main REO agent and may have additional in-house agents; and third, a separate division with one figurehead and the entire company is an REO brokerage.
When getting started in the business, the first thing an agent needs to do is establish legal relationships. A lot of times single agents start out working at a brokerage and this can be the "scariest type of relationship." As a newbie working under a broker, the legal relationship between the agent and the broker might not yet be defined. This includes the way the listings are handled and the ownership of the listings.
"Your broker basically owns your listings. When you work an REO, define that relationship early on. As far as ownership of the company, you are going to have to at some point possibly break away.
"If things go bad there could be a lot of different problems down the line. The feelings between you and your broker could turn into bad feelings tomorrow. There cold be separation at some point. You have to protect yourself in the business. You need to have your legal relationship in writing. Good personal relationships are critical but they mean nothing if they're not on paper."
Unlike prior periods in REO, it's very expensive now to run an REO company, added Mr. Hooker. Be prepared for the costs. Approach the financial side of the REO business by not taking on too much.
"The biggest problem is worrying about the costs and capital. A lot of people go into partnerships with another agent. That business model is becoming a lot more popular in the current REO environment."
Sustain your company by taking care of carrying costs, he advises. For some properties in Florida, carrying costs can be $1,000 on average per property. In his inventory, Mr. Hooker has properties that are $4,000 or $5,000 per home. This includes fencing and pools and all types of utilities and deposits.
The banks are getting extremely aggressive in terms of costs. There is no more doing billing all at once right before closing. "They are enforcing 30-day billing and if you don't have your bills in within 30 days, you are going to be held responsible," he said.
"A lot of you with your billing systems have lost money through the systems. It even happens to an established business. Easily, through the years, even with our system, we have lost hundreds of thousands of dollars in billing. It's very common. The banks are playing the odds right now. The banks are not upset if you don't get your money back."
Asset managers are getting strict in this environment. "If you don't watch yourself you could be working for nothing."
There is nothing better in REO than to get a listing, according to Mr. Hooker. "There's a feeling that comes with a listing that's pretty sweet. But at the same time, a lot of times we overrun ourselves."
Agents have to have a strong, lead-in budget to handle the costs associated with the business. "Do not take on massive amounts of listings, especially when your goal is to have direct contact with the properties. Don't try to grow into a big mega-company."
During this transition period in REO, the industry has become task obsessed, which sometimes hinders teamwork.
"Outsourcers are all competing for the bank's business. They say, 'I can give you that BPO in six days.' Another outsourcer says they can do it in five. With the business, we are being outbid. The tasks are becoming due. I would not be surprised if we are not very close to having 24-hour BPOs soon," he said.
"Monthly reports are becoming weekly. A lot of this is due to the outsourcers. The systems are spectacular. They have changed the business and have made it easier for us to get the job done. At the same time, you finish a task and four more have to be done.