As a listing broker, getting new leads is always a priority. However, REO and HUD listings (bank-owned properties) are a completely different ballgame than your average listing. If you manage to become a bank’s preferred listing broker, HUD and REO listings can be a lucrative and steady source of new inventory. Besides, it is an excellent way to attract investors and potential buyers who may be interested in purchasing a foreclosed home for a bargain.

However, it is not as simple as calling the owner and convincing them that you are the best guy (or gal) for the job. So, how can you become a HUD or REO listing broker? Here are the steps to follow to get access to these critical listings.

Apply to become an approved broker for government-owned properties

Two leading government agencies are involved with distressed properties: the Department of Housing and Urban Development (HUD) and Fannie Mae. If you want to be considered as a listing broker for HUD properties, you will need to apply to be approved on their websites.

They will contact you afterward if they are interested in your candidacy. They will then inform you of the procedure to follow if they need an agent in your area.

To become a Fannie Mae HomePath listing agent, apply here.

To submit an application to become a listing broker for HUD properties, apply here.

Contact your local banks and credit unions for REO listings

Bank-owned properties and REO listings are often managed directly by the lending institutions that now own them. Your best bet is usually to apply directly as they each have a different process for assigning a listing agent to a foreclosed property.

National banks may be challenging to convince since they already have an established network of trusted agents. Besides, many of them only do business with asset management companies to handle the volume of foreclosed properties they deal with. However, local institutions are sometimes easier to connect with.

Connect with Asset Management Companies who handle REO properties

Larger banks and lenders outsource typically outsource their foreclosure listings to asset management companies, who are in charge of assigning the properties to listing brokers, among other tasks.

In order to obtain listings from these companies, you will need to apply individually. There are hundreds to choose from, and their requirements in terms of experience but also their reputation in the business vary. They will typically require you to complete an extensive amount of BPOs for them before assigning you the first listing.

Complete Broker Price Opinions (BPOs)

Whether you are applying with a government agency, a lending institution, or an asset management company, you will likely have to do many BPOs before getting your first listing. In fact, Broker Price Opinions are a necessary rite of passage to show your experience and establish a relationship with the institution.

The more BPOs you do and the higher the quality of your work, the more likely you are to get a listing. Although they typically don’t pay much, don’t neglect them.

REO listings often come in waves, on an as-needed basis. Unfortunately, a good part of getting started as a listing broker for foreclosure listings comes down to luck and being in the right place at the right time.

Everyone loves a good bargain. The truth is, homes are expensive. Just like people look for deals on retail products like jackets and flat screens, people love saving money on houses. One of the quickest ways to score a great deal on a home purchase is by taking advantage of the foreclosure market. Investing in real estate can be very rewarding, especially when you can land a huge discount on your investment. Purchasing a foreclosed home is a much easier process than buying a home from a regular seller. If you’re looking for a quick buy, you’ll definitely want to look at foreclosed homes.

What is a foreclosure sale

Foreclosure occurs when a  homeowner fails to make payments on their house. Foreclosure is a legal process whereby the owner of the home forfeits the legal rights to the home. Once an owner has defaulted on their payments the lender then takes control of the home and attempts to gain back as much as possible. From there the home goes to a foreclosure auction. If it does not sell at auction, then the lending institution takes ownership of it and it becomes a real estate owned property, or an REO. In that scenario the home may be listed on an MLS or multiple listing services. As a result of the  need to sell the home being foreclosed, the lender will list the price the house for a lot less than it is actually worth. This is where buyers can score big savings. For homes being sold at auction, the lender typically opens the bid at whatever is remaining on the loan. 

Find a broker and get pre-approved

Like with any home purchase, the very first thing you’ll want to do is get pre-approved by a lender. Once that is done, begin the process of searching for a broker who deals directly with banks that sell foreclosed homes. Another tip is to search online databases of foreclosed homes. Look at local real estate listings too as often there are filters that allow you to see only foreclosed homes. Look for the letters REO as that indicates a property that is under the ownership of a bank. Sites such as Hubzu is a good tool for finding foreclosed properties and posts current online auctions.

Find an agent experienced in foreclosed homes

Another way that foreclosure sales are easier is that they typically only require one agent during the process. Be prepared to move quickly as foreclosure sales move at a very fast pace. When looking for an agent to represent you during this process, look for the designations; Certified Distressed Property Expert (CDPE) and Short Sales and Foreclosure Resources (SSFR). It is possible to skip this step and work directly with a broker in order to save commission fees. Banks hire their own brokers to deal specifically with REO properties. However, most buyers feel more comfortable when they have an agent directly working on their behalf. 

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Look at comps before making an effort

Before making any offers make sure to have your agent run a comparative market analysis. This helps you understand the recent sale prices of comparable properties, or ‘comps.’ When doing a CMA, your agent will typically look through the last 180 days and looks for factors such as the pace of home sales and tax assessment history. 

If foreclosed homes in your area are selling quickly, be prepared to make the higher bid, remember, the price is likely already discounted. There’s no real way to tell what the bank’s bottom line will be, but usually foreclosure sales go very quickly. Remember, foreclosure prices are usually already discounted, weighing in significantly less than the actual value, so an offer that is too low may be seen as a non-started by the bank. 

Get an inspection and find someone to help with repairs

With foreclosure homes, there’s a good chance that you will have to do some repairs. In a foreclosure sale, the buyer pays for any and all repairs. Since the home is owned by the bank in this case, there is no other party to do the repairs. Foreclosures homes are sold ‘as is.’ You will definitely want a thorough inspection of the house to know exactly what you’re buying. The bank does not make any guarantees regarding the condition of a foreclosed home. 

Risk of buying a foreclosed homes at auction

One benefit to buying a house at a foreclosure auction is that there usually aren’t many bidders. With less people competing, the better your chances are of getting a great deal on the house. A downside to buying at a foreclosure auction is that in many cases the bank requires cash payments. Sometimes you may need to have the cash on hand before you even make a bid. Another downside is that there are no inspections for homes that go on auction. Almost all auctions require some form of earnest payment up front and often they are non-refundable. 

Getting a great deal buying foreclosed homes

As previously noted, if the foreclosed home does not sell at auction, it then becomes an REO property. This is where people can get big savings on a home (provided they understand it will likely need lots of repairs). The main reason why REOs are priced lower than regular listings is because they often need work, typically so much so that they don’t qualify for financing. That alone clears out 75% of potential buyers which again, lowers the price. This is where an investor can swoop in and purchase a home way below the market rate and the home’s actual value.

Making an offer

Once you have worked with your agent to find a foreclosure home to buy, the next step is to make an offer. This process is similar making an offer on regular listings but involves more paperwork. When making an offer keep in mind that banks have a few requirements. First, you’ll need a pre-qualification latter before they even consider an offer from you. In many cases you’ll also be required to submit a copy of your earnest money check. Sometimes the check will need to be certified funds.

Note that while banks typically want to unload foreclosed homes quickly, that does not mean that you should make a low offer or expect them to take anything. The price will already be discounted and like any regular seller, the bank will want to get as much money as possible. Like with any sale, the amount below the listed price that the bank will take depends on things such as how long it has been on the market.

Conclusion

When done right, buying foreclosed homes can be an enormously rewarding investment. All real estate investments take time and effort. Foreclosed homes are a great way to find properties at discounted prices. This can be an especially fruitful market for people looking to do flips. As a note to fix and flippers, though your investment may be less, you may still have to do a lot of repairs, so be prepared to invest a little more into the fix before the flip. Each state has their own laws about foreclosure sales and the process can be very tricky.