Editor’s note: The following Q&A interview with Pamela Dela Cruz, a broker-owner in Northern California, is featured as a part of the "To Be a Broker" editorial project that highlights broker challenges and strategies for success. Click here for more info.
Q: What is the biggest change you have made to the brokerage in the past year, and what prompted this change? How has this change impacted the bottom line, if at all? What has changed about your service offering in the past year?
A: We switched from working with short sales and bank-owned (REO) properties in 2008 to working only with REOs in 2009. Our business-to-business model allowed us to expand from one county to presently five counties, including: San Francisco, San Mateo, Solano, Contra Costa, and Alameda. We also gained additional REO lenders in 2009.
Our decision to change from short sales and REOs to REOs only in 2009 was prompted by the lack of approvals with short-sale transactions in 2007-08 (the rate of approval with lenders and buyers was only about 40 to 50 percent acceptance).
Even though there were qualified buyers and acceptable offers, the banks were not approving short sales quickly enough. There were multiple offers, but buyers would find other properties that got approvals more quickly. If accepted, the banks often took five to eight months to close, on average. With REOs, there are still multiple offers, but they get accepted within a week or so and can close within 30 days or less.
Our bottom line quadrupled in 2009. In 2009 alone, our office covered 95 percent REO listings and business has more than quadrupled in just over a year. We have had $15 million in sales volume in just 15 months. We focused on listings only for financial institutions. We never lost a sale with the REO properties.
Our focus on REOs allowed us to establish alliances with multiple banks throughout the U.S., including Wells Fargo, Downey Savings & Loan (now U.S. Bank), and Ocwen Loan Servicing LLC, among others. The list continues to grow. We work with local business vendors in home repair to prepare homes for market.
Our niche will remain with lenders involved with short sales and REOs for 2010 and 2011. We cover the San Francisco Bay Area for now, and our flat-fee offering to list properties in the multiple listing service will be available in the Greater Los Angeles and San Diego areas, and potentially throughout the state.
Q: Are brokers more or less relevant to sales associates in the current housing market than they were five years ago? Why or why not?
A: I am an independent, solo broker working with contractors and assistants. Our office handles listings only.
Q: Are brokers more or less relevant to consumers these days than they were five years ago? Why or why not?
A: We service financial institutions on foreclosures and short sales. For consumers, we offer an $890 flat fee MLS open listing, or if we represent the consumers directly on the full-service listings they can make an offer directly with our brokerage. We do not have buyer agents at this time.
Q: What changes, if any, have you observed in the structure of real estate commissions/compensation/fees in the past year, and what has caused those changes?
A: Commission varies if a third-party company is included. In dealing with REOs, there may be a third-party asset department involved with the transaction, with an overall commission of 5.75 percent to 6 percent.
Commissions may be split three different ways by the asset department, listing broker and selling broker. Banks, who are involved with their own short sale or REO inventory, may not reduce the commission, in which case the commission is split equally between listing broker and selling broker — usually at 6 percent. …CONTINUED
Q: What are the most vital services, in your opinion, that you provide?
A: Since our focus is to service financial institutions on REO and short-sale listings, prompt and courteous service is of utmost importance. We respond to every phone call with a live representative every day of the week and maintain a toll-free phone number.
For banks, we can provide property inspections and status reports within 24 hours. For short sales, we handle all of the negotiations and communications with the lenders. We don’t utilize third-party short-sale negotiators. That eliminates high total listing commissions.
We can do short-sale listings affordably for the homeowner for as low as 5 percent, which will not be charged to the seller but rather applied to the net loss of the property at closing. Although our office is located in Walnut Creek, we have access to shared offices in other locations, so meeting lenders, potential sellers/buyers and other Realtors is very easy to coordinate.
Our office doesn’t have agents, partly because I see so many agents hopping from one brokerage firm to the next. In time, I may add agents.
Q: What would your agents say are the most vital services that you provide to them? What would consumers say are the most vital services that you provide to them?
A: Low overhead and use of outsourcing. For the financial institutions we support, we outsource a variety of tasks, particularly marketing on the Internet and in print media. We utilize over a dozen third-party companies to market the listings. Some include videos on YouTube, Craigslist and Postlets.com.
We also have alliances with vendor specialists in multiple counties including locksmiths, plumbers, contractors, landscapers, painters, and handymen — all available on short notice. All of our invoicing/billing and escrow transaction coordination is performed in-house.
Q: What is the latest trend with home sales in your market area? Short-sale listings and sales? REO listings and sales? Purchases by first-time buyers? What is the latest trend with home prices? Offers?
A: We are seeing a reduction in REO listings and an increase in short sales. In the first and second quarters of 2009, REOs were approximately 65 percent of the market in cities such as Brentwood, Antioch, Pittsburg, Bay Point, Oakland, San Leandro, Hayward and Fremont. The third and fourth quarters proved to have reductions in REO properties.
(See more market statistics here for areas in the San Francisco Bay Area region, prepared by Dela Cruz and Robert M. Saltzman, a professor at San Francisco State University.)
There are more short-sale listings on the market than REOs in some areas. This, however, may be due to the combination of the length of time it takes to sell short sales, but also because of the foreclosure moratorium holding back many REO listings.
With the national homebuyer tax credit, there has been a significant increase in first-time homeownership.
Homes priced under $300,000, particularly REO listings, tend to get multiple offers, therefore increasing the closing price over list price. In one case, a property closed in July 2009 for $78,000, was placed back on the market for $98,000 in September 2009 (just two months later), and received multiple bids in the $124,000 range.
Q: What are buyers’ primary concerns these days? Has this changed in recent months?
A: I think buyers see that market prices are very competitive with multiple offers and offers getting accepted within a few days. This has driven many closing prices to be substantially higher than the list price. The deals are abundant and prices are increasing. There are many properties in Solano County, Contra Costa County and Alameda County under $100,000, but they are going very quickly. …CONTINUED
Unfortunately, the severe competition could be a driver for buyers and/or buyer agents to use false information when they submit offers. I observed a recent example with a property with 23 offers in Vallejo, Calif. … an agent submitted an offer indicating 20 percent down with a conventional loan. (It was) accepted but two days before close of escrow, (that offer) switched to an FHA loan with only 3.5 percent downpayment.
There were other offers, too, but there (remains a question of whether this was an effort to) make the offer attractive in order to get accepted.
Q: What are sellers’ primary concerns these days? Has this changed in recent months?
A: Foreclosure and bad credit are primary concerns. Sellers are nervous and carefully trying to cover all bases. They attempt loan modifications for a combination of reduced interest rates or a reduced principle balance. If this fails, they try short sales. They understand that if short sales don’t work and they have missed more than three months of payments and cannot reinstate the loan with an additional 90 or so days after that, then a foreclosure may be inevitable.
They fear that their credit scores will be impacted and that it would be impossible to apply for any type of loan — whether it be a credit card, auto loan, or even another property — for the next several years.
Q: Are the demographics of buyers or sellers changing? Explain.
A: There are many first-time homebuyers making offers on properties. If they have an FHA loan, it is difficult to compete with all-cash investors. However, 2010 and 2011 may prove to have a more level playing field between first-time homebuyers and investors, with incentives like tax credits … for the first-time buyers. Past homeowners who have sold or lost their homes and are ready to buy again are moving back to the more stable market areas.
Q: What types of properties are selling fastest in your market area and why?
A: Low-priced homes sell quickly. Many investors and first-time homebuyers are gobbling up properties for $100,000 and below like an after-Christmas ornament sale at Macy’s. All-cash offers are closing in under seven days (in some cases). Some of the buyers are making blind offers without even seeing the property. Only once they get accepted will the buyers view the home and accept or deny the offer after the inspection period.
Q: What types of properties are selling slowest and why?
A: High-end luxury homes are the slowest to sell currently unless it’s priced substantially below market. If it is an REO and priced substantially lower, there are multiple all-cash offers at this price range ($1 million and above). If you have a combination of a luxury home and are in a short-sale status, that will take even longer, requiring several months to close.
Q: What is the largest investment you have made in technology in the past year, and has it paid off?
A: A new color laser printer, high-definition digital camcorder, BlackBerry phone with e-mail/Internet, and Wireless Aircard for the laptop were four investments in technology. We have utilized YouTube for our lenders, to show them before-and-after conditions of REO properties.
It has given them the opportunity to get narrated viewings of properties from top to bottom without ever visiting the properties. Many lenders are located in other parts of the state, out of state, or out of the country and rely on this to determine conditions of the properties.
Next year we’ll spend money for a revamped business Web site with an e-commerce area for the flat-fee listings offering. …CONTINUED
Q: In which areas have you reduced costs in the past year, and what has been the business impact of those cuts?
A: We’ve reduced our advertising spending by about 65 percent in the past year. Once you are a contact for banks, the referral system works very quickly and marketing is word-of-mouth between various departments. In 2010 and 2011, it is imperative to place more advertising dollars targeting homeowners interested in the flat-fee listings and in short-sale listings.
Q: What is your forecast for the real estate market in 2010?
A: There will be more short sales and bargain buyers and sellers. The REO inventory is declining at a steady rate. I think there will be an increase in short-sale listings. There is a lot of education now about the process and consumers are becoming more aware of their options. If loan modification fails, a short sale is their next best option.
Q: What is the single biggest challenge that you face as a broker? What is the biggest worry these days about the state of the housing market and economy? About your brokerage?
A: Growth is the biggest challenge. I would like to accommodate the requests from lenders as quickly and efficiently as possible and not lose their loyalty if tasks are taking too long or properties aren’t selling fast enough. As they rely more heavily on our services, I need to have stable, reliable assistants and contractors to accommodate those needs.
Soon our services will also cover Los Angeles, San Diego and the surrounding areas with flat-fee listing services. A call center for order management is currently in place but will have increasing in responsibilities.
Q: Briefly describe a typical day for you, and what duties occupy the most and least time.
A: 7:30 a.m., wake up; 8:30 a.m., drink homemade drip coffee for inspiration; 9 a.m. to 1 p.m., answer about 50 to 100 e-mail messages and dozens of phone calls. Delegate marketing/administration tasks as necessary. Review contracts, process invoicing/billing. If necessary, deal with cash-for-keys negotiations with tenants or past homeowners. Work with sheriffs and lawyers on eviction coordination.
From 3 p.m. to 6 p.m., prospect for new clients or obtain appointments. Maybe have more coffee. Then work some more, if I’m not out relaxing.
Q: What is most misunderstood, by agents and/or by consumers, about the work that you perform?
A: Myth: Listing brokers don’t work. I think consumers believe brokers and agents simply list properties and then wait for an offer. There is a lot of research and time on the back end that is not seen by consumers. There are a lot of processes and preparation in listing REO properties. We are not just paper-pushers.
Q: Feel free to comment on any other aspect of your work as a broker that you think would be relevant and helpful for other brokers.
A: I love this career. With eight years in banking and eight years in the information technology industry, and now going into my fifth year in real estate, I’ve never found anything more challenging yet rewarding, personally and financially. In five years, I have met many interesting people and learned more about my community and the beautiful area I’ve lived in for over 33 years.
This career allows you to brainstorm an idea and with time and dedication see positive end results. I can see myself in this industry for many years to come. In a down market (my first two years in 2006 and 2007, which I call "The Lean Years"), there was a lot of trial and error.
However, I’ve lived through those times. For new and experienced brokers and agents alike: we should educate ourselves in the latest real estate issues and newest technologies. Don’t be afraid to switch something if it’s not working, but devote enough time into it to see results. It is important to hang in there, push forward, and see the exciting things ahead.
Pamela Dela Cruz is broker-owner for Pamela Dela Cruz & Associates, based in Walnut Creek, Calif.
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