The Flipping Pad

Posted by Dominick C. on Jun 20, 2010 7:45pm

If you are an REO industry insider, chances are you have heard the term “Daisy Chain” more than once. So what exactly is a “Daisy Chain”, you ask? According to Webster’s dictionary, a “daisy chain is a string of daisies with stems linked to form a chain”.

These days, it seems like everyone in the real estate or lending industry is trying to get their paws in the pie, and get in between sellers and buyers so they can make a fee. Everyone seems to claim to be direct with a seller who has “tape” or a buyer who has millions to spend. What ends up happening is that the sellers and the buyers are often kept apart as a result of too many middlemen and brokers getting in between, and trying to get a piece of a commission. When this happens there can often be as many as 3 or 4 middlemen in between a seller and a buyer. This creates the “Daisy Chain.’

Who are these People in the Daisy Chain?

The typical culprits in the Daisy Chain are real estate agents and mortgage brokers. Many of these realtors and mortgage brokers have come upon hard times, and their usual source of income has been reduced or wiped out entirely as a result of the real estate melt down. As a result, they often think getting involved in brokering REO pools will be a fast way to make money. The reality is that very few ever close any deals and most end up wasting their time as well as othersÂ’. DonÂ’t get me wrong, many of these brokers are smart, well-meaning people, but unfortunately, they end up creating the Daisy Chain and make it difficult for real buyers and sellers to connect.

Daisy Chain Sample

A typical Daisy Chain might look like this: Wealthy individual from New York (lets call him Bob) decides that now is the time to buy foreclosed homes. He has 5 million available to purchase, he goes on LinkedIn and finds someone who has “real product direct with seller.” This person it tuns out is realtor somewhere in South Carolina and has a Hotmail email account (first bad sign). The truth is, the realtor doesn’t have the direct contact, but knows someone else (lets call him Joe) from LinkedIn or another web site who swears they are direct. Joe is direct, but the person he is direct with, Joe never really vetted to make sure they really have the producted to sell. Lots of paperwork gets signed, non- disclosures and noncompetes, commission agreements before Joe (seller) can speak to Bob (the buyer). Assuming this paperwork gets signed, there is about a 50% chance an actual call takes place. If there is a call, there usually will be the buyer and seller and all the middlemen on the call. What happens after that unfortunately is almost always nothing. The reason nothing happens is because no one bothered to really see if the buyer and seller were capable of producing.

Avoiding the Daisy Chain

If you are a seller or a buyer the best thing to do is to deal direct with other sellers and buyers. Easier said than done, but try to stay away from middleman unless they have been in the industry of brokering foreclosed pools or notes for at least 5 years. If they have not, ask them to prove to you that they have transacted deals in the past. This will at least show that they know what they are doing and have been succesful in the past.

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Dominick Corey / Cherry Pick ReoÂ’s
www.cherrypickreos.com
A Supply Side Wholesaler of Reo Assets