Every week, we ask a real estate professional for their Short List, a collection of tips and recommendations on an essential topic in real estate. This week, we talked with Chris Michaud, the owner of Acceptance Group LLC and ChrisMichaud360, on the three advantages – and disadvantages – to selling foreclosures.
With an improving real estate market, many agents think the foreclosure business has disappeared. A closer examination, however, might reveal a market segment worth pursuing. Many agents who work with foreclosures also work with short sales, and while those distressed property market segments are not identical, they do utilize similar negotiation and lender interaction skills.
Below, I’ll make the case why you may still wish to participate in these market segments.
3 Advantages of Selling Foreclosures
The three main advantages of dealing with foreclosure sales are that:
- There is always some segment of the market that is in foreclosure, in good times and not so good times.
- Banks set realistic values based on appraisals unlike many typical sellers.
- Once you have a track record with a bank and you service them well, they are likely to keep coming back to you to sell distressed properties for them.
- BONUS Reason: You are likely to attract well financed investors who are always looking for good agents to provide them with inventory. If they are successful in purchasing, they often will resell them with you.
3 Disadvantages of Selling Foreclosures
The three main disadvantages of dealing with foreclosure sales are that:
- Title issues are common. The buyer’s attorney should do a title search immediately after the contract is signed to determine if there are any title issues and to minimize delays.
- Get used to using your money for expenses on REO properties and pay close attention to billing and reimbursement procedures. Failure to do so is costly because you may not get reimbursed.
- Lenders and their servicers often require you to do repetitive mundane tasks that don’t always make a lot of sense, but they must be done.
- BONUS Reason: Some servicers offer extremely low listing fees. You need to know whether you can afford to accept their offer. Go with vendors who will pay you appropriately.
While this is a relatively small market segment, depending on the specific locales you serve, you may be able to realistically derive as much as 20 to 30 percent of your business in these market segments. It is probably not worth spending a lot of time with distressed properties if you only anticipate doing less than 20 percent of your business in these markets.
The economics involved include assigned tasks and workflow requirements that are more frequent than in most traditional sales. If you are doing less than 20 percent of your volume in distressed property sales, it will be difficult to be profitable. For those who can keep and maintain a level of five to 10 active properties in this category, it may become a profit center for you.
Chris Michaud is the owner of Acceptance Group LLC and ChrisMichaud360, which offers real estate, consulting and educational services to private and industry clients. He is the co-author of a soon to be released book (in early 2015) about the ill-fated government policies that affected the financial and real estate markets, which were designed more for social purposes and political gain rather than economic growth and sustainability.
Chris is an accomplished real estate investing expert, and has served clients for more than 30 years throughout most of New England with real estate consulting services, brokerage, training and development. He has owned, operated or managed several major real estate franchises, including ERA, Coldwell Banker, Century 21 and World Properties International.