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A Broker’s Paradox – Dustin Brown
Six months ago, an established San Francisco REO broker closed down his operation, leaving the REO business for good. Around the same time, a Florida broker was forced to let go half his staff. And these aren’t isolated incidents—it’s happening nationwide.
At the June REO Expo in Fort Worth, TX, I spoke with brokers from across the country. Many of them had already made similar cuts. Even the brokers who hadn’t cut staff knew brokers who had.
Which begs the question: what is happening to REO brokers?
Two factors seem to be affecting them the most. First is the decision by some of the biggest lenders, in an effort to cut costs, to slash broker commissions on REO properties by as much as 1/3. Facing such drastic cuts, many brokers find themselves actually taking a loss on each property sold.
Couple that with the continuing effects of the robo-signing fiasco, where kinks created in the pipeline months ago mean that in some places properties are not being foreclosed on at all. Nationwide, available inventory continues to trickle out at a fraction of its potential rate.
As if conditions were not bad enough, prices in most areas of the country either remain stagnant or continue to decline. The end result is that more brokers are competing for fewer properties for less money.
Somewhere, something has got to give.
One California broker I spoke to on condition of anonymity told me how dire things have gotten, and what some brokers are doing to sruvive. Since the start of Q1, his REO volume is down 50%. To compensate, he has both cut staff and branched out in his business.
“Where our old business was about half and half REO/short sales, now we’re about 1/3 REO, 1/3 short sale, and 1/3 standard retail,” he said, and it’s a practice that’s becoming more common with brokers who are just trying to stay in the game.
Some brokers, however, recognize opportunity in this uncomfortable state of affairs. Darren Brown , an REO broker based in Fair Oaks, CAtold me how he and his staff are adapting to the current market conditions.
“Some staff have had to be laid off, but the remaining staff are a lot more versatile. We’re doing a lot more cross-training,” he explained. “With volume down, my people are able to perform more than one task, which helps keep overhead low.”
As an example: while volume is still low, there are fewer BPO’s to do, which means that staff who used to focus solely on BPO’s now have time to do field inspections on existing inventory.
In this way, Brown and his staff are able to continue their focus on REO and short sales. “We’re still pushing forward [in REO], trying to absorb the inventory left behind by brokers leaving the business.”
Sherry Rahnama –a Fairfax, VA based broker–has a similar strategy. Although overall volume in her area has decreased, her business hasn’t been nearly as affected as others, with asset managers continuing to assign her steady listings.
“I think that’s because of the level of service we provide them,” she says. Rather than branch out, she continues to focus heavily on REO.
“Where other brokers might only be capable of taking one or two listings at a time, we provide the services that asset managers need. If they need a rush BPO, we’re able to do it the same day.”
Some day, the REO market will normalize. The pipeline will straighten out, and prices will reach equilibrium.
No one knows when that day will come, but one thing is certain:
The brokers who emerge on the other side of this mess will be the ones with the ability to adapt to current conditions and the foresight to realize that dedication now will yield huge dividends in the future.
