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Would you front over $4,000 for inspections on one of your listings?

By Liz Lockhart

Real Estate Broker/Owner with Riverbend Realty, Cape Girardeau, MO 2004008944

March 16, 2013 08:06 AM

Would you front over $4,000 for inspections on one of your listings?

That's right: Would YOU front over $4,000 for an INSPECTION? I can hear you saying, "Of course not. That's not the agent's responsibility!" Welcome to the world of REO, where it IS THE AGENT'S RESPONSIBILITY, along with repairs ranging from minor plumbing problems to replacing a roof.

This particular inspection is a methamphetamine inspection; and it is required because I, rightfully, reported that the house had been the site of four suspicious fires. We also talked to police, the fire department, and researched the local newspaper's account. Unfortunately, though the police believed meth was involved, somehow the incident report was lost and no prosecution took place. That still leaves me with a possible meth house.

Discovering the truth about this house is also complicated by the fact that the owner had started repairs. Windows and walls damaged by the fire and the fire fighters have been replaced in the affected room, though construction debris and dust remain. The latest fire was a flash fire with flames shooting out of the windows.

Burning window In fact, the newspaper had a dramatic photo of the flames shooting out of one of the windows. The fire department, however, is maybe three blocks away, and they got there quickly enough to put out the raging fire before it did structural damage.

I do not know if meth residue survives a fire and the water used to put it out. I don't know if the construction dust contains residue. I don't know if the smoke and steam from the fire spread meth residue to other rooms. I don’t even know if there actually was meth in the house. Testing will answer those questions, but it is expensive.

I am required to pay the vendor (after having gotten bids) and then to seek reimbursement from the REO owner. Such is the nature of business for an REO agent. Replacing a roof is more expensive, so this isn't so bad after all. Remediation will be another matter…

How Do I Get into REO? is a blog I did in December. Charita Cadenhead commented on that blog earlier today, saying that it gives insight into the life of an REO agent; so head on over there (just click on the blog title), if you want more information on being an REO agent.

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Dr. Paula McDonald

Beam & Branch Realty - Granbury, TX

Granbury, TX 936-203-0279

Wow, that sounds like a complicated deal. The Meth lab aspect is really a frightening thing.

Mar 16, 2013 08:11 AM

Liz Lockhart

Riverbend Realty, Cape Girardeau, MO - Cape Girardeau, MO

GRI, Cape Girardeau Real Estate

Paula~The testing and remediation are actually quite interesting AND complicated. Maybe that's a blog topic for me...

Mar 16, 2013 08:21 AM

Inna Ivchenko

Barcode Properties - Encino, CA

Realtor® • GRI • HAFA • PSC Calabasas CA

Well, I'm not an REO agent ( I really wish I was!), but seems you guys always received those money back and these days REOs are sold very fast full price or above( at least, in my area). 4,000 is a lot, but you know you'll be repaid( unlike when you are marketing a regular listing, pay for advertising, photographer, market, holding open houses, negotiating......many more and you can not be guaranteed that you'll sell the listing and be paid.

Mar 16, 2013 08:23 AM

Mark Loewenberg

KW of the Palm Beaches - Palm Beach Gardens, FL

KW 561-214-0370

that is an expensive test, ouch.. for the reo game I would most likely pay a moderate / normal fee for inspections, but that may be too rich for my blood unless this was an 50m listing

Mar 16, 2013 08:30 AM

Liz Lockhart

Riverbend Realty, Cape Girardeau, MO - Cape Girardeau, MO

GRI, Cape Girardeau Real Estate

Inna~Yes, I am confident that I will be repaid, because this is a Fannie Mae listing; and we went through all of the proper steps and channels to get the testing approved. Fannie Mae is very reliable when it comes to reimbursements, something I cannot say about all REO owners. There are many REO owners for whom I would not front money. One vendor, for instance, approved my expenditure of over $1000 worth of emergency lawn care to avoid a police summons (not just a fine, a summons because the lawn had gone untended for so long). I was never repaid, because the person who authorized the expense was NOT AUTHORIZED to authorize it--a fact I had no way of knowing.

Of course, an REO agent has all of the other expenses you mentioned, just as any other agent has.

Mar 16, 2013 08:41 AM

Liz Lockhart

Riverbend Realty, Cape Girardeau, MO - Cape Girardeau, MO

GRI, Cape Girardeau Real Estate

Mark~Not a $50m listing at all...probably going to sell for less than 100k. It's the troubled houses that end up causing the most trouble...

Mar 16, 2013 08:43 AM

Liz Lockhart

Riverbend Realty, Cape Girardeau, MO - Cape Girardeau, MO

GRI, Cape Girardeau Real Estate

Inna~Sorry, but I just cannot stop thinking of your comment. Just because you get reimbursed does not mean that fronting the money in the first place is cost free. That's money that is hanging out there in the universe interest free. In other words, I'm losing money on my money the entire time between spending it and getting it back. I'm not complaining, just explaining for the benefit of agents who are intrigued by the REO world.

REO agents often lose money on reimbursements, and you need to know that if you are seriously wanting to get into REO. It happens in spite of our best efforts to track, report, and invoice each expense. Some just slip through the cracks. It happens most often when expenses pop up right before closing and then the vendor fails to get an invoice to us in a timely fashion. It also happens when the utility company transfers a final balance to another property. I could go on and on. Each time we lose money, of course, we try to tighten accounting policies to keep that particular thing from happening again, but it seems that the universe is always finding new ways to suck up our money. The fact is that you will lose much more money when you first get into REO, just because you will have to make all of the mistakes that you cannot even conceive of right now.

And last of all, many, and I mean MANY, REO companies utilize an invoicing website that charges the REO agent a non-recoverable fee each time an invoice is submitted. That's right! The REO agent loses money each time s/he submits an invoice.

Again, I also discussed this topic in How Do I Get into REO? .

Mar 16, 2013 09:00 AM

Fred Griffin Florida Real Estate

Fred Griffin Real Estate - Tallahassee, FL

Licensed Florida Real Estate Broker

Hi, Liz. Thanks for the warning! I will be careful before representing any REO's.

You say, "I am required to pay the vendor and then to seek reimbursement from the REO Owner." Where is that requirement? Is that in a Listing Agreement or Contract that you signed to represent the REO?

Mar 16, 2013 09:12 AM

Liz Lockhart

Riverbend Realty, Cape Girardeau, MO - Cape Girardeau, MO

GRI, Cape Girardeau Real Estate

Fred~Reimbursement policies are usually included in Master Listing Agreements, and they vary from vendor to vendor. Some very large expenses may be paid directly by the REO company and some are performed by national vendors who do bill the REO company directly.

From a practical standpoint, however, just try to get a plumber to go out for emergency repairs and then to bill a national vendor, especially since payment takes from one to six months. The next time you call the plumber, he will hang up on you. Emergency repairs are almost always the listing agent's responsibility to bid, contract, pay, and then apply for reimbursement.

Many repairs prior to marketing are also agent responsibility, as described above. In the last few months, we have paid for interior painting (probably the most frequent repair), flooring, a roof, a septic, and now the meth testing, in addition to the more routine items such as utility bills, lawn care, and minor repairs.

How Do I Get into REO?

Mar 16, 2013 09:22 AM

Anna "Banana" Kruchten

HomeSmart Real Estate - Phoenix, AZ

602-380-4886

Liz interesting to hear that REO's are still going strong in your area. We're thankful that we're on the other side of this mess.....or at least have made qreat strides. Most folks have no idea of what it takes - on many levels including expense to take on block of REO's. Not for the faint of heart.

Mar 16, 2013 12:11 PM

Liz Lockhart

Riverbend Realty, Cape Girardeau, MO - Cape Girardeau, MO

GRI, Cape Girardeau Real Estate

Anna~The REO business has really cooled in my area. Though I have about the same number of REO listings right now as last year, I do NOT have as many in the pre-list pipeline.

Mar 16, 2013 12:37 PM

Christine McDaniel

Christine McDaniel Realty, LLC - Avon, IN

Broker Associate

Liz, The top agents selling agents in dollar amount for our mls have been the REO agents. I hear agents say all the time that they want to get into the REO business for that reason. Personally, I don't have any interest in doing all you do. Those agents have no idea of the paperwork, break ins, dealing with damage, calling maintenance companies, locksmiths, multiple bpo's within a short time period, personal financing and waiting months to get reimbursed. I have alot of respect for those agents who work those.

Mar 18, 2013 12:54 PM

Liz Lockhart

Riverbend Realty, Cape Girardeau, MO - Cape Girardeau, MO

GRI, Cape Girardeau Real Estate

Christine~Thank you, thank you, thank you! I'm not always one of the top-selling agents in dollars, but I always am among them in sides...workin' hard for the money...

Mar 18, 2013 01:25 PM