Primary market
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Generating Wealth by Understanding the Complexities of Bank REOs
[Note: To follow is an excerpt of a radio show interview conducted by Peter L. Mosca, host of Income Property Investment Talk dot com, with Scott Griffith, President ERA Griffith Realty and co-founder of Rescue LLC, a real estate consulting firm that helps banks stabilize and develop a plan for the disposition of REO properties. Griffith details the ‘dos and don’ts’ for success and talks about his experiences over the years developing his REO business. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/120909.] Mosca: Is right now an excellent opportunity to get into real estate? Griffith: Yes, this is a time to be making an investment. Clearly the prices have reached a low point, not to say they won’t go lower but there certainly are many opportunities available at this time. Mosca: Has anything changed since you were on the panel on Distressed Assets that I moderated at the NAR Conference in San Diego? Griffith: What I’ve learned in the last month or so is that banks as sitting here in their last quarter of the year trying to evaluate whether they need to take write offs on their books with the REO properties, prior to the end of the year to change their balance sheets or if their going to sit on them. More and more banks wish to show some sense of stabilization or profitability and many are taking the position of keeping them on their books until after the first of the year. Even though we’re looking at three weeks left of the year, there are some opportunities that may still be right there for someone to grab if they are able to perform immediately, but there may also be a lot more activity after the first of the year as the banks say “OK” its time to finally get these off our books this coming year. Mosca: Some people say we’re going to get bombarded by commercial REO coming to the market and then other people say that is not going to happen. What do you think? Griffith: The economists are quite split on it but there’s a lot of indication that there’s going to be a lot of loan renewals coming due this coming year, a huge percentage actually, and that those are going to trade a lot of REO property. At the same time the FDIC recently said that owners could renew commercial loans without going through a reappraisal and then telling the people that they need to bring money to the renewal process. Mosca: Scott let me just back track a minute and go to the beginning level with this particular market and ask you to identify or define what an REO is versus a foreclosure. What is the difference between the two? Griffith: A property in foreclosure is at the early stages of the financial institution or whoever is foreclosing taking it back. That is the process of foreclosure. At the final part where the title has passed to the person foreclosing, it becomes real estate owned and frankly what we’ve found in financial institutions is that they’re looked at two totally different ways. Once they are on their books they are looking to try to dispose of them as quickly as possible and they feel rewarded for getting them off their books. While they are in the foreclosure process, they are trying to get back the money that they have already loaned out and they are not as interested maybe in negotiating the price. Once they’ve agreed on a price, they want it off their books as quickly as possible to demonstrate they’re doing everything they can to get it off their books. We’ve even found that because banks typically use separate staffs for the two, the people who are working on the short sale process, if they’ve accepted the number of prices below what their lien was for, those people’s jobs are in jeopardy. The person, who gets it in REO, as long as they can get it off the books, is a hero. So they end up being more stable in their jobs. It’s a fascinating world. Mosca: Is that why the process is so slow? Griffith: Clearly, an organized bank is handling a lot of REO property. They have a specific methodology that they want to follow and they want everybody to follow. If they tell you what they are and if you choose to try to short cut it or your buyer wants to do it a slightly different way, they will reject them outright. They are bankers first and they’re trying to get rid of property second. They have processes they want to follow. There’s a second aspect of their decision process that relates to the value they believe the property is worth because of appraisals or what they’re carrying on their books. Just because you feel you have a grasp on the market, doesn’t mean that they’re going to agree with your market price even when you believe you’re right. Mosca: Is it a good idea for brokers and agents to talk to the lending industry and start doing BPOs as a way to increase not only your exposure but eventually lead to securing some property listings? Griffith: Yes, I agree with that. I think that to be able to start to get some of the REO business the banks and the financial institutions are going to look for leaders in the real estate community that they feel can demonstrate knowledge. The best way to do that would be to get in there and demonstrate your knowledge in the first area by showing how you establish value. Now BPOs are not a very lucrative business for REALTORS but it will lead you to be able to develop one, a relationship with that organization hopefully, and then secondly, maybe be able to help allow you to demonstrate some of your professional expertise. When it comes time you’ll be on the top of the list to be discussed for the possible sale of those properties. Mosca: If you continue to do well with one particular institution, would it then lead to doing them for others? Griffith: It’s a logical segway to be able to say, “ Here’s my resume.” It’s like all businesses, its an ability to build a resume but you have to start somewhere and maybe the best place to start is demonstrating your knowledge through your ability to establish value through BPOs. The best way is to produce. Banks want to see regular reporting. They want to see the activity. Of course, they’d like to have results. Everyone wants results but being informative and keeping them informed is crucial to having you be front of mind and also demonstrating that your doing the work that you promised to do. They have systems for grading you and keeping track of exactly what you’re doing. Some will then take it to the next step and grade you as to your price, to the price that you listed and the timetable. There have been stories of people losing business because of one or two bad properties that just took forever. The professional who has a well-refined system in place is going to do the best. This is all about having good systems and good reporting and good follow up. Without those you’re going to get one chance and it’s much like restaurant business. There are many opportunities for other people. One bad meal can put you out of business. You have to be very careful. Mosca: Systems, reporting and follow up. Is there anything on the market right now or are these internal systems that you develop on your own? Griffith: There are industry providers out there but most experienced professionals have systems set up. The whole process that makes this work is communication. You need to talk to the people your working for and find out what they are looking for and how they want reporting. You have to refine your skills and the best way to refine your skills is from others and with others, and sharing. We all do better when we share information. For the professional looking for how to get into this market, there are a lot of opportunities for all aspects of the REO. Its not just the bank all of a sudden decides that they’re going to list the property. There’s managing the property, there’s stabilizing the property when the bank gets it back, there’s all sorts of other areas of opportunity, which open up as you get into this market. Bankers are truly bankers and they typically don’t have these. They have to hire all these services to get done. It gives the professional more areas to be able to meet face to face with the bank and represent them. Mosca: So, ancillary work for banks and lending institutions is a way to increase business? Griffith: Absolutely. The more services you can provide, whether you’re partnered with somebody or whether you’re going to do it yourself, the more marketable you’ll be for a new relationship with a bank or financial institution of this REO property because they have enough things to think about without having to think about all the minutia for every single property and every single property requires all sorts of management aspects. Mosca: I’m guessing that if I’m an investor and I have those particular skills, this might be something that I can get into as well? Griffith: Absolutely, it is the direction to go because for many in certain areas it’s a very challenging market. You’ve got to be looking at how many other options you can create. And again, don’t rule out the option of partnering. Somebody may be much more skilled at it but if you can agree that you’ll work together, why not create that coalition and work together. Mosca: Scott a couple of times throughout the program I mentioned a company called Rescue LLC. I think at this particular time the way the conversation is flowing and what we’re talking about in terms of increasing or looking to increase your business or maybe setting up a side business, it might be a good idea for you to give us what I call a past, present, and future look about Rescue LLC. Why did you start it, where is it today, and what arePages: [1] 2