Getting into the burgeoning REO business can be tantalizing for agents looking to boost their bottom lines. But be warned – the REO landscape is a potential minefield, fraught with danger as lenders demand more services from buyer and seller representatives.

With today’s REO listings, lenders and servicers are asking real estate agents not only to market and show a property, but also to convince disgruntled tenants to vacate; to oversee repairs; to protect against vandals; and to take charge of utility bills and landscaping. And they’re being asked to do almost all of it out of pocket.

Not to mention report back at least once a week on the property’s condition.

“From a regular real estate point of view, they are quite demanding as far as what you have to do for them,” said Linda Kody, broker/owner of Kody & Co. in North Andover, who specializes in REO listings. “There’s a lot of reporting, a lot of photos, a lot of being [lenders’] eyes and ears for the property.”

Hands On

That can mean being a lot more hands-on with listings than most agents are used to. For instance, in order to be eligible for standard government-backed loans, including FHA deals, any REO property must meet certain minimum habitability standards.

And while there is a need for professional contractors to take on larger jobs like replacing frozen pipes or restoring looted wiring, not all required maintenance work is big enough to warrant contractor expense.

“Some jobs are too small for a contractor, even handymen, to want to go out and deal with,” said Bart Foster, a Keller Williams agent in Boston. “They’re being asked to drive an hour away, that’s their time, they expect to get paid for that. [But] lenders don’t want to pay for that.”

In order to make sure one listing passed the FHA’s guidelines, Foster and another agent found themselves buying blueboard and patching compound and repairing holes in the walls themselves.

“It’s not uncommon for people not only to be thinking outside the box, but also working outside the box,” Foster said.

But going above and beyond the call of duty can cause problems if a dispute arises. Standard professional liability insurance for agents and brokers does cover “property preservation,” such as lawn-mowing and maintenance, but going beyond minimal duties can be more trouble than it’s worth.

“There’s usually a cut off as to how much property management [insurers] will allow you to do before you’re more of a property manager than a Realtor,” said Betsy Magnuson, president and director of Landy Insurance in Needham.

With so many more foreclosure listings out there, “real estate agents are being asked to do a lot of things that they never used to do,” said Magnuson, and some they probably shouldn’t be doing, like evictions and repairs.

“We are seeing some claims with regard to eviction,” she said. “Because there is a legal procedure that you have to go through, and if you don’t follow that procedure,” a claim might be filed.

“We’re also seeing some claims in regard to shoddy work that the real estate agent did,” Magnuson said, because most standard policies require that repairs or improvements to a property be carried out by a licensed contractor.

Creeping Mission

In addition to the physical property management, there are also civil and legal chores for agents to take care of.

“Pay attention to local code enforcement issues and registration issues,” Kody urged agents looking to get into the REO business. “Most of the major cities have registration requirements for foreclosed property.”

Agents also need to stay on top of the political winds – during the last Massachusetts legislative session, a new housing law was passed allowing tenants to stay through the end of their lease if their landlord was foreclosed upon. With many lenders and servicers based out of state, they may not be up-to-date on changes to local laws.

That’s exactly why agents should be wary of such “mission creep,” said Eugene Marconi, general counsel for the Connecticut Association of Realtors.

“None of that is necessarily part of listing the property,” Marconi said. “We’ve told members to watch out for mission creep and stick to what’s in their listing agreements and not go out and volunteer to do all these other things that the asset manager would conveniently have them do.”

“Even the REO specialists, there’s a question there if they’re taking on more than they really need to be taking on,” Marconi said. “They become de facto property mangers, and some of them don’t realize what the legal liabilities are.”

But even with all the challenges, not taking bank-owned listings may be unrealistic. “Bank properties and short sales are the business right now,” said Kody. “[Agents] have to learn about it and you have to engage with it at some level, whether they’re listing agents or buyer agents. Working with bank property, you have to deal with it.”