There is no escaping the reality that the recent NAR/Sitzer/Burnett settlements is already changing the real estate world as we know it. Amongst the most substantial terms of that agreement is a blanket ban on the requirement that agents subscribe to MLSs to offer or accept compensation for their work.
There has been quite a bit of discussion already about how this will impact the traditional residential purchase. But what about the case of the transaction in which a bank-owned or real estate-owned property (REO) is being sold? According to ATTOM, we are already seeing quite an uptick in default and foreclosure activity, and we will likely see even more REO business in the coming years when one considers the continuing trends of low housing inventory and a competitive marketplace. Clearly, however, listing and selling an REO property features quite a bit more administrative and regulatory navigation than the traditional home sale.
So what does the NAR settlement mean for real estate professionals dealing with REO properties?
Dramatic change is what it means. It means sellers’ agents and brokers should prepare to deal directly with the buyer of an REO property whenever possible going forward.
Increasingly in post-foreclosure transactions, this is already being initiated by the buyer. Buyers are skipping the process of obtaining an agent and directly approaching the seller’s listing agents or brokers. Accordingly, it’s time for sellers’ agents and brokers to prepare to deal directly with buyers.
The new reality is REO buyers directly approaching seller agents and brokers.
Many buyers simply don’t want to pay, or can’t afford to pay, the commission of a buyer’s agent. Under current guidelines, a buyer cannot finance the buyer’s agent commission into their mortgage, either. This is driving buyers, especially REO buyers, to initiate contact with seller agents or brokers. In turn, REO-focused real estate professionals should be adapting as quickly as possible.
Internet-based real estate resources such as Zillow, Homes.com, or Redfin have only helped amplify and accelerate this trend. Buyers are now contacting the listing agent to see the property, making their use of a buyer’s agent less important to them. As a result, we’ll likely see more consumer — focused verbiage in the listing itself, such as “buyer-friendly.”
Brokers, especially those dealing in the default and real estate owned (REO) business, should strongly consider becoming HUD certified housing counselors or, at the least, undertake the training in order to improve skills helping distressed, low income, or first-time homeowners.
In fact, the National REO Broker Association even requires its members to commit to this training.
Oftentimes, especially in a default or foreclosure situation, potential buyers or existing homeowners alike don’t really have a lot of expertise upon which to rely. And not every real estate professional understands the default or REO process. The HUD Housing Counseling Program offers counseling services to homebuyers, homeowners, low-to-moderate income renters and homeless, with its primary objectives including the improvement of financial literacy, expansion of homeownership opportunities, improvement of access to affordable housing and preservation of homeownership.
This trend, if anything, will bring a sorely needed opportunity for first-time homebuyers and underserved communities to gain better access to the housing market, especially at a time when the market is squeezing out such populations.
Consider, for example, the growing requirement of “First-Look” programs, which, in essence, prohibit investors from bidding on REO properties for the first 30 days.
Only buyers with the intention of becoming owner occupants may, in many cases, make offers on these homes.
Specially trained real estate professionals — those familiar with the complexities of an REO purchase and complex regulatory and investment landscapes, and also trained in the numerous new programs available to first time buyers, such as grant, down payment assistance and zero down loan programs — can truly empower first time homebuyers to access and purchase these “First Look” properties. Their involvement also ensures that REO and other institutional sellers will stay compliant with the new regulations currently being imposed upon them.
In short, the buyer’s growing desire to go directly to listing agents and professionals creates a wonderful opportunity to get underserved buyer segments into affordable, accessible housing by providing resources they need to become homeowners.
The new reality likely reflects a previously existing truth.
This new approach will likely be welcomed by many REO brokerages and real estate professionals. More than a few REO brokers with whom I’ve spoken would actually prefer that the buyer come to them directly. They advise that, far too often, especially when dealing with a buyer’s agent who’s not experienced with REO — related transactions, the listing agent often ends up being forced to manage many of the buyer’s side agent’s duties. The National REO Brokers Association, which represents real estate professionals and brokers primarily focused on selling REO properties, advises that its members find errors — many that prevent a first time homebuyer’s offer from being accepted — on over 50% of the contracts they received from buyer’s agents on REO properties. In other words, many of them are already dealing directly with the buyer anyways, yet still handing over a buyer’s agent commission regardless.
Brokerages specializing in REO transactions are already required to be proactive, knowledgeable about default and REO compliance matters as well as familiar with a wide range of resources for disadvantaged or first time home buyers. They spend countless hours educating and counseling consumers attempting to wend their way through an already-challenging landscape. In many ways, a shift in the current commission model will likely be advantageous to the REO professional, rather than cumbersome.
The world of real estate is already changing in response to the NAR/Burnett settlements. In the already complex universe of default and REO, brokers and agents will need to pivot and adapt by enhancing their direct-to-buyer interaction skills. This isn’t an anticipatory reaction. It’s adapting to a reality that’s already being driven by REO buyers. That trend will only accelerate as the settlement agreement takes effect. Therefore, it’s time for REO professionals to further build their buyer-side skills and knowledge.
Although this change may have been formalized in a court of law, the transformation of the real estate space is not the result of a purely legal matter. Instead, they mirror a change in consumer behavior that had already begun. Now, it’s time for all of us to adapt.
Michael Krein serves as Managing Partner for House Karma, a first-of-its-kind digital ecosystem to educate and enable underserved communities to achieve their dreams of homeownership. He is also President of the National REO Brokers Association (NRBA), which has partnered with House Karma. Reach Michael at [email protected].
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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