Living with a two-tier market

I’m convinced that we have evolved into a 2-tier market that has stranded most Realtors in one tier of that market. Basically we have a market composed of a tier that is made up of foreclosed homes (short sales are just a pre-foreclosure class in this tier) that are in one price category and then a second tier that is made up of owner-occupied homes that are in a different and much higher price category. I guess that this wouldn’t be all bad, just a normal market pricing scenario in a free-market society; however, the way the real estate market has ended up working the foreclosed houses in particular have become concentrated in the hands of a few REO specialists, while the remaining Realtors in the market got squeezed into the owner-occupied tier, which is both shrinking in percentage of offerings and stretching out in time to sell.

Now to be fair, many Realtors avoided the REO market when it first started growing, preferring not get their hands dirty with foreclosed properties and all of the REO management responsibilities that may have come with them. And, in the beginning, there was quite a bit of confusion and frustration associated with foreclosed houses, mainly because the banks got overwhelmed and had no idea how to manage the process. The same may still be said about the short sale process today.

But, when foreclosures grew from a historic niche of less than 3% of the market to the present day of 25-50% of the market, depending upon where in the country you may be, all of a sudden it became critical that you be into handling foreclosed houses. Unfortunately many banks and lenders had chosen REO partners by then and, in our area at least, we saw the rise of the REO super teams – whole offices or teams dedicated to managing hundreds of foreclosed houses at a time. That has left little for the latecomers to this party and one cannot expect the banks to do anything to remedy that situation. In many cases the banks used the allure of a high volume of transactions to negotiate better listing commissions with these teams.

So now we have two tiers – the haves and the have-nots, in terms of REO listings - and along comes the worst recession since the great depression and the “regular market” (the owner-occupied market) tanks big-time as FUD freezes the move-up buyers who drive that market. The main things selling in many areas are REO homes. The non-REO real estate agents out there are certainly scrambling to get their share of that market by representing the buyers, many first time buyers; but they are finding that they must work much harder for much smaller payoffs. The result is easy to see in most areas – shrinking agencies, agents leaving the business or getting “day jobs”, and even big, brand name franchise operations are going bankrupt around here.

In our Detroit area market, we ended 2008 with 50% of the business being foreclosures, 16% short sales and 16% leases, with only 28% being “regular” owner-occupied sales. That’s a tough mix to make a living in, if you are a “regular” agent and not an REO listing agent. In my little 7-township patch of that market we have been running 70+% foreclosure sales since January 1, so things have moved in the wrong direction. So the wide, vast plain of opportunity that I surveyed before me when I got into this business has shrunk to a narrow ledge on the side of a very deep crevasse and I’m trying hard to hang on to that little piece. Of course all things are local, so this may not be the case in your market. Has your market developed the 2-tier model? What are you doing to adapt to the changing times?