In the time before the fall – the fall of 2008, that is – distressed sales were seen as a distinct niche, the kind of high-volume, low margin deals that could taint a broker’s reputation and that traditional agents and brokerages wouldn’t want to be involved with.

But these days, distressed sales are where the market is, and established players are starting to sit up and take notice. A peek at HomePath.com, FannieMae’s own REO listing site, reveals agents from Coldwell Banker, Century 21, and RE/MAX taking on distressed listings. Even upscale Hammond agents, better known for luxury deals, are getting in on the act.

And it’s not just agents.

Jack Conway Co. has opened a satellite office in Worcester in order to expand its market area and take on more REO listings from Fannie and Freddie. Discount brokerage Redfin announced last week it would now be taking on short sales in all its markets. And in neighboring Connecticut, Coldwell Banker Residential Brokerage has acquired Prestige Properties, a REO specialist, in order to beef up its distressed sales capabilities.

Opportunity To Be Succesful

It’s not surprising that more agents and brokerages are looking into this sector of the market, said Linda Kody, broker/owner of Kody & Co. in North Andover, and a longtime expert on distressed sales.

“Everyone keeps saying we’re in [the distressed] business for another ten years,” she said, so it makes sense to get involved now.

Adam Welling, the Boston area manager for Redfin, said the time is ripe to move into short sales in a big way.

“The word on the street is that the lenders are going to be more apt to deal with short sales, because foreclosure simply isn’t as appetizing to them as it used to be,” Welling told Banker & Tradesman. “So that was a lot of the motivation for us to start helping our clients out with those properties, because we think there’s more of an opportunity to be successful.”

But taking on distressed sales can involve a big commitment on the part of a brokerage. Especially when it comes to REO sales – where agents often wind up as de facto property managers whether or not they’re being paid to be – lenders worry that an agent with too many listings to handle will let a property slip through the cracks. That can lead to stripped houses, frozen pipes, and tens of thousands of additional losses on banks’ books.

Earlier this year, Fannie Mae began stepping up enforcement of a rule limiting brokers to 30 REO listings at one time (a move Keller Williams publicly objected to in July). Many lenders require that the broker have an office within 20 miles of the listing in order to secure representation rights.

“Banks are saying, ‘You have to have presence in the market that we list the property in,’” Kody explained.

Selling Short

Short sales, too, have their challenges. Despite months of rumors that short sales were about to surge, only in recent weeks has an uptick been noticeable – and that mostly in states with very high proportions of distressed property, including Arizona, California and Nevada.

It remains to be seen whether banks can effectively increase the pace of approvals on such deals. Locally, a recent Massachusetts Association of Realtors survey found that nearly half of agents who had done a short sale found it took between four and six months to close. Another 25 percent said their short sales took between six months and 12 months, and 7 percent reported that it took over a year to close such deals, on average.

One big reason for delays is that underwater homes are more likely to have second liens. With big bank’s balance books shaky, they have so far been reluctant to make substantial write downs on their second lien portfolios. But second liens typically take a big hit in any short sale – and that can mean a lengthy slugfest between differently positioned lenders before a sale is approved.

Many buyers, too, don’t realize the complexities of such sales when they make an offer, something that can be challenging for agents to deal with.

“That’s the biggest part of it, just getting the client to understand what they’re up against – that just because it’s marketed at this price doesn’t mean that anybody’s prepared to sell it at that price at this point,” Welling said.