Flat Fees.

We have noticed many of the clients we are signing on are going to a “flat fee” policy when it comes to services. And, they are bundling services together like a package such as the REO Initial Service or the REO Deed in Lieu, etc. Where these services used to be itemized and you would be paid individually for them, now it’s a package price.

This is the case especially with the asset management companies we have dealt with. In fact, for some time I have heard so many people say, “You really need to sign on with _______________ and/or __________________ if you want to stay busy. They have the bulk of nationwide REO volume.” Then, when I researched their pricing, I was literally disappointed. They subscribed to these flat fees. And, when dividing these fees along the services performed, it didn’t make sense to agree to such work.

Using the flat fee guidelines is not a governmental policy. I know this because we work directly with some of the larger banks and they have never suggested bundling services and doing them for a set amount. It is these asset management companies who are making this rule.

What it equals to is roughly 40 – 50% of what we used to earn for these services individually. Now we are struggling to find a way to earn a profit at all. The fees have not changed on the bank’s end. In fact, it was not the banks who originally set the pricing standards but asset managements who negotiated them. The banks agreed to them with some discussions here and there about this being too high and can we do it for less.

The truth is the asset management companies have set these flat fees out of greed. They were not satisfied with taking a 20% administrative fee on top of what the vendor was making. And, they began to grow to meet their claim of nationwide status. So it became necessary to take 30 – 40 – 50 – 60% instead.

Economics as a science takes into account the shopper who is looking for a deal. She looks around until she finds the best price. But, the shopper does not set the prices and then presume to drive them down. That would be a sin against the process itself. IT would only be a matter of time before the system itself would fall. That is what I see happening with the REO industry as it pertains to these flat fees. The asset management companies try to put a price on services performed, unrealistic at that, and expect vendors to continue doing business this way.

It is a wise principle not to set a flat price on your work because regardless of the unforeseen intensity of the work required, the time needed for research, not to mention out of pocket expense, you are binding yourself to a certain price. Heck, in the end you just might flat price yourself out of a profit. So, it has been advised to charge on a project by project basis. At least offer a base price and then a charge per hour after a certain amount of time.

To agree to a flat fee before seeing the work to be done is unwise in any industry. It behooves us to protect well our time by reviewing well what is asked to be done and then to say no when it appears that the flat fee will not permit a profit.

I don’t think these flat fees will last. Vendors like Integrity REO Solutions will grow tired of the greed and bypass these companies altogether driving them out of the business.


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