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During this episode you will learn which types of buyer financing are most favorable when it comes to getting your Short Sales approved by the seller’s lien holder.
During this episode you will learn which types of buyer financing are most favorable when it comes to getting your Short Sales approved by the seller’s lien holder.
Understand this about what we’re looking for in a buyer, there are three characteristics or components.
#1 We want a buyer that is getting a good enough deal that they’ll do what we tell them to do.
#2 We want a buyer that knows exactly what they’re getting into and willing to spend money to make sure.
#3 We want a buyer that has a degree of financial flexibility.
We’ve already gone over how the value of your buyer feeling that they’re getting a good deal, how important that is, and that they know what they’re getting into and willing to pay to find out. But what does financial flexibility really mean? It means that your buyer has the necessary resources, as well as willingness, to be able to come up with a little more cash than they expected without choking. Now I’m not saying that they’re going to go from paying $100,000 to paying $120,000. What I am saying, though, if your buyer, the one that wrote the offer of $100,000, remember it’s worth $150,000 if it was in tip-top condition, you listed it wholesale at $108,000, and they wrote an offer of $100,000.
Now, if they came back to you and said, “Well, we don’t have the money to do an inspection, don’t have the money to do an inspection, don’t have the money to pay to have an inspection done.” My recommendation is it would almost be a crime for you to continue with this buyer. Why? If they can’t come up with the money to do an inspection, then they are probably going to have a hard time coming up with the money. The best thing you can do is find a new buyer. No hard feelings. There’s a difference between them not being able to come up with the money and them not being willing to come up with the money. There’s a huge difference there. If they are not able to, that’s different.
Likewise, how the buyer plans to finance the purchase is really another entire landmine. Let’s say that they agree to the $100,000. But in order for them to purchase it they’re going to borrow money. Not just any money, but a federally guaranteed loan, an FHA loan, because they don’t have any money available. What’s wrong with this? Well, try to keep in mind that it is a short sale and it’s a house being bought in as-is condition. Do you really want to bet the next three months of your life on whether or not this buyer is going to be able to close the deal? Especially when they demand upfront that the seller pay their closing costs and cover their down payment?
This is the opposite of financial flexibility. That doesn’t mean that you can’t work a deal out with a buyer who wants to get an FHA loan, but my advice to you is this. There’s a huge difference between having no money and not wanting to use the money they have. Having no money, landmine. Avoid them. Discover it quick. Find a new buyer. Choosing not to use their money, that’s OK. We all do it. It’s like buying furniture when they say, “Look, would you like to pay us cash, or we’ll give you six months, no interest?” As long as you’re disciplined, why would you not take the six months, no interest? The choice of not using money they have available is different than not having money. That’s financial flexibility, as it has to do with financing.
If you were to go to all the lenders and get their criteria for approving short sales, as far as the type of funding I’m going to use a different word here, funding, meaning how did the buyer fund the purchase, the number one preference by lenders, and I’m talking about lenders approving short sales because remember, they want to make sure that the buyer is real and that it’s a fair price, and that you can prove that everything’s good. So what do the lenders look at as preferential funding?
This is the one that you’re probably not going to believe when I tell you. Number one, conventional loan. I don’t know that they’ve even said it this way, but our proof has been that these deals got through quicker, easier, cleaner when the buyer is buying and funding the purchase with a conventional loan. Yes, they actually prefer that over a cash buyer.
I get a lot of push back on this where agents tell me that a cash buyer is a better buyer. But over the years the preference by the lenders has changed, because there were so many misuses of the system that the lenders started flagging deals that were coming in all cash. They scrutinize them more, and all cash offers are more challenging. The number two preference is a government guaranteed loan. So a lender who is reviewing a short sale proposal, they’re going to prefer that that borrower, the buyer, is approved for a conventional loan, second to that, approved for a government guaranteed loan. Yeah, they prefer that over cash.
As a matter of fact, all cash purchases are their least preferred. It wasn’t like that all the time, but we went back and we tracked hundreds of approved deals. What we looked at is which ones were more likely to be rebutted, meaning that the lender came back and wanted to bump the price. We found that in all cases finance deals were approved, finance meaning that the buyer was funding the money with a conventional loan or a government guaranteed loan.
The sales that were financed were approved as fast or faster than cash deals, but, and this is the most interesting part that I found, cash deals were more likely to be countered at a higher price. 80% of the time cash deals came with the lender saying, “You’re going to have to bump the price.” That is why we started mandating to those students that we work with to negotiate their deals that all cash offers were to be replaced with conventional approval letters. Let me say this another way. If the buyer came to the table and said, “We want to buy it and we’re willing to pay all cash,” that’s fine. If the buyer’s offer was $100,000 and they wanted to pay all cash, remember I said that you can clean it up with a counter offer. We taught our students to counter it with keep the price the same, but go get an approval from a conventional lender that says you’re approved for a conventional loan.
Oddly enough, a lot of buyer’s agents said, “Well, that’s preposterous. Why would you do that? It’s a cash buyer. They’re the top of the top. They’re the best. They’ve got the money in the bank.” Great. Well, then go to the lender and tell them you’ll pledge the money that’s in the bank to get an approval for a loan. It doesn’t mean you have to borrow the money to close, you’re still given the option to pay cash at closing, but from a negotiating point-of-view, it made the negotiating a lot easier.
In summary, if you want to increase your odds of going from sold to closed, instead of sold to cancel, you’ve got to make sure that it’s a good enough deal for your buyer that they’ll do what you tell them to do. You’ve got to make sure that your buyer knows what they’re getting into and willing to spend the money to find out. That’s the inspections and the appraisals. You’ve got to make sure that your buyers are financially flexible. Stay away from buyers that don’t have any money. It’s OK if they don’t want to spend the money, but don’t deal with buyers that don’t have any money. Avoid the buyers that have no money. Remember, cash buyers may have been preferred in the past, but today, the lenders prefer, number one, conventional loan approvals, government insured loan approvals, and cash is third.
Of course, this isn’t to say that you can’t close a short sale that involves a buyer that has no money. It doesn’t say that you can’t close a deal, where the buyer asks the seller to pay for everything under the moon. It doesn’t say you can’t close a short sale that they’ve got to finance the purchase with a government insured loan with very little of their money. But if you plan to do a lot of short sales and you follow what I’ve taught you so far, that I’ve given you in this episode as well as the prior two episodes, number 11 and number 12, I hope that you see that you can increase your odds of going from listed short sale to sold short sale or to closed short sale as opposed to sold going to cancel. More importantly, you’ll stop wasting time on the wrong things and focus on spending your time on the right things, be able to close more deals, spend less time, have a better life.
Thanks for Listening and Happy Learning,
Scot Kenkel, Instructor
P.S. What do you think? Leave your comments below. Thanks.
The post SSP013 : Short Sale Help: Selecting the Best Buyer Part 3 appeared first on How to Sell More Houses.
This is the second of three parts where I’ll share with you some tips to help you to get more short sales listed, sold and closed.
This is the second of three parts. In the last episode, number 11, we left off explaining what to do once you start getting offers. The goal is to go from listing to sold to close and not from listing to sold to canceled short sale.
To increase your odds of going from sold to closed, instead of sold to canceled, we need to avoid the landmines, these are the negative components. The landmines that are typically contained within the purchase agreement, or the purchase offer. We want to get rid of those, whether there current landmines or future landmines. Now, future landmines, we want to make sure that we get a buyer that’s getting a good enough deal that they’re willing to do what we tell them to do, they know what they’re getting into, and there willing to spend money to make sure they know what they’re getting into. One of the most challenging landmines involves something as simple as the inspection.
Here’s the scenario. The after repair value as we said before was $150,000 in our example, you put it in the MLS at a $108,000, because that represented a fair price in a whole sale valuation. Remember, we went through that in a previous episode. You got an offer at $100,000. So, it’s a little bit less than the price you’ve got it listed, and, keep in mind that we expect to clean up the offer, because we’re not going to expect to accept the initial offer as a trend. We’re going to use a counter offer in order in order to clean up any of the landmines.
The first landmine that is common is the buyer is asking the seller to let them wait until the lender has approved the short sale, before they do their property inspection. This is a landmine, sounds reasonable if you’re not thinking about it and yet they’re a problem here. You’re going to clean up in the counter offer, but let me repeat what the buyers are saying. they’re saying “look we want to buy the property at this price and we want you to let us the buyers wait, until got an okey-dokey from the lender on the short sale. Then if they give you the okey-dokey, then we’ll proceed with our inspection.”
Now, here’s what you’re going to do. You do not want to allow the buyer to convince you that this in normal. Don’t let the buyer’s agent convince you that this is normal. In the counter offer, you may be fine with the price, because remember I said it has to be a good enough deal that they’ll stick around. You want to make sure that in a counter offer, that you ask the buyer to remove the inspection contingency, or complete their inspections within 10-14 days, whatever is standard in your area, of this sellers acceptance. You do not want them to be allowed to wait until the end of the transaction to do their inspection. Understand this about as-is, if you’re buying it as-is your buying it as-is. If you let the buyer until the lender approves the short sale, then you’re going to find yourself renegotiating the price after they do their inspection. I’ve seen it before; you don’t want to do that.
More importantly, you could also be guilty of fraud. This is the part most agents don’t think about; because effectively gone to the lender and you said “hey Mr. Lender, yeah my sellers can’t afford it and my sellers owe all this money and my sellers, they’ve got the property sold to this buyer who is real and the buyer is buying it as-is.” But that isn’t really what you’re saying it. The lender isn’t going to read the fine detail language in the contract that says “inspection put off until lender approves it.” When the lender approves the short sale they’re assuming your buyer is real, remember I said those are the characteristics that the lender is looking for. If the agent for the buyer tells you that the buyers don’t have the money to spend on an inspection, I would hope that you don’t fall for that; because this is a common landmine. Find a new buyer.
Here’s another component that I’ll strongly urge you to add, in order to make sure your buyer knows what they’re getting into, and willing to spend the money to find out. In addition to putting language into the counter offer that says “no we want the buyers to go get their inspection done now,” which is absolutely critical, add another item, which is to require them to go ahead and order and pay for a lender appraisal of the property in advance, and send a copy of that appraisal to you, the listing agent.
Before you say “That’s silly it doesn’t make sense”, understand the benefit to the buyer they’re buying a $100,000 piece of property don’t you think it would be in their best interest to know what it’s worth and to know what kind of condition it’s in before you spend 90 days trying to work to get this deal to go together. Of course it makes sense. It makes sense that they do their inspection, and they do an appraisal. The benefit to them is they know what it’s worth. It doesn’t matter if it’s worth more than what they’re willing to pay for it. But the real benefit to you, is that you will already have a copy of the appraisal in case another popular landmine happens and That’s the valuation differential.
This is what occurs when the lender order their evaluation, because at some point the lender has to feel comfortable that they buyer is real and the buyer is paying a fair price. How do they feel comfortable? They’re not just going to take your word for it. they’re going to do a BPO or an actual legitimate appraisal. When they get their value, and they’re sitting there looking at the appraisal, it may or may not be what you think it is. They’ll use that though, to negotiate the price. Unless you’re prepared by already having an appraisal in your hand, you have nothing to defend yourself with. I know that. We’ve been through this 1,000 times with those agents that we actually work with to negotiate their short sales.
Don’t think that just sending a few comps is going to bring the valuation down to your purchase price. At this stage of the game, only a bona fide lender appraisal will work. If your buyer tells you, if your buyers agents says “no they don’t want to spend the money on an appraisal”. I’m hoping that you think to yourself wait a minute. So, got a buyer whose buyer $100,000 something or another, and you’re telling me that they don’t want to spend $400 to make sure it’s worth what their offering to pay for it. Are you crazy? That’s the way I want you to think about it. If they don’t want to get an appraisal my recommendation is that you find a new buyer.
Why? Because logically they’re buying something that they don’t really know. They should have an expert evaluation on both the condition and the value, other than yours or the buyer’s agent. If they refuse because they don’t have the money, that should tell you everything you need to know. Find a new buyer. If they refuse because they don’t want to spend the money, well find a new buyer. Because as I said in the beginning you want someone who is getting a good enough deal that they’re willing to do what you tell them to do. You don’t want any buyer to make a mistake. You want them to know what they’re doing and be willing to spend the money to do it. So, landmine number one is the inspection being put off, no.
Landmine number two, demand that the buyer order an appraisal or lender appraisal. They’re going to have to get one anyway so have them get it through the lender they’re going to go through. Then there’s the third most common landmine that is the buyer asking for seller paid concessions. It goes something like this, remember the after repair value was $150,000, buyer made an offer of $100,000, because you had it in the MLS at $108,000. They asked to delay the auction, but you fixed that with a counter offer. Where you require them to get not only their inspection out of the way; but you also required them to get an appraisal and delivered to you within a certain period of time. But, the buyer also asked for seller paid concessions.
They want the seller to pay 3% towards closing cost and pay for a home warranty, and more. Now listen closely as I go through this, and it’s just like I said for the first two common landmines. Any amount of seller concessions agreed to between the seller and the buyer, any amount, will dramatically increase your odds of going from sold to canceled, instead of sold to closed. Why? Well, Let’s give you the illustration and just use a home warranty as an example. Let’s say that your buyer comes along and offers $100,000, you took care of the inspection, and you took care of the appraisal, but they want this seller to pay for a home warranty.
So the buyer asks for it, and you think nothing of it. So, you tell the seller sure That’s no problem. But, the lender for the seller they’re looking at the amount of sold price minus all allowable closing costs, to determine their net discounted pay off. The lender for the seller is most likely going to look at any non-essential costs coming out of the sales amounts; such as a home warranty and they’re going to knock that off. They, the lender, they may and pay for a home warranty and more. Now listen closely as I go through this and it’s just like I said for the first two common landmines any amount of seller concessions agreed to between the seller and the buyer, any amount, will dramatically increase your odds of going from sold to canceled instead of sold to closed. Why? Well, Let’s give you the illustration and just use a home warrant as an example. Let’s say that your buyer comes along and offers $100,000, you took care of the inspection, and you took care of the appraisal, but they want this seller to pay for a home warranty.
So the buyer asks for it, and you think nothing of it. So, you tell the seller sure That’s no problem. But, the lender for the seller they’re looking at the amount of sold price minus all allowable closing costs to determine their net discounted pay off. The lender for the seller is most likely going to look at any non-essential costs coming out of the sales amounts such as a home warranty and they’re going to knock that off. They, the lender, they may be fine at $100,000 sale price but they may very well disallow the cost of a home warranty. But, remember the seller agreed to it contractually, the buyer agreed to it contractually, but if the lender for the seller says no way what you have is a voidable contract. The buyer is expecting it, but the sellers not allowed to provide it unless of course the seller pays for it outside of closing, but they don’t have any money.
So, who do you think is going to end up paying for the warrant? That’s right you guessed it, you. See the best solution to avoid this landmine, is to get rid of any and all seller paid concessions. In fact you would be better off to adjust the price down even further from $100,000, before agreeing to pay even $1 of seller concessions. Here’s a tip. Don’t let the buyer’s agent convince you that they’ve done and that they’re going to keep doing it. I know they’ve done it. Just because they did it, just because they’ve done it before, doesn’t mean that it’s going to make your deal any easier any better. My understanding, my belief, my experience has been simply this; any seller concession is going to create a challenge, it’s going to take longer and decrease the odds of success. Why would you do that? Get rid of them.
How do you get rid of them? Counter offer. So, when the buyer asks for the seller to pay X number of dollars in closing cost, or pay for a home warranty, or pay for a lender title policy blah blah blah whatever it is. Counter offer with no. If you have a really good buyer and they’ve got the money, they’ve got the credit, they’ve got the demand. Maybe you’re going to have to give them a concession by lowering the price a little bit, because it’s better to have a clean contract than to have it all messed up with a lot of conditions. In the next episode we are going to discuss even more common landmines to avoid.
Thanks for Listening and Happy Learning,
Scot Kenkel, Instructor
P.S. What do you think? Leave your comments below. Thanks.
The post SSP 012: Short Sale Help: Selecting the Best Buyer Part 2 appeared first on How to Sell More Houses.
In this and the following two episodes I’m going to share with you some very well-used tips that I’ve shared with my boot camp students to make it possible for them to get their short sales not just listed and sold, but listed, sold and closed.
Many agents make their very first short sale mistake by pricing their listings too high, which makes it nearly impossible to find the best buyer.
In this and the following two episodes I’m going to share with you some very well-used tips that I’ve shared with my boot camp students to make it possible for them to get their short sales not just listed and sold, but listed, sold and closed. Notice I said listed, sold and closed, because it does you no good to list a short sale and not sell it, or worse to list it, sell it, and then have it not close, have it cancel.
Why would a short sale listing be listed and sold, but not get closed? Well, in most cases it’s because you had the wrong buyer, the not best buyer. The number one most common reason for short sales falling apart is paperwork, bad paperwork, and the number two most common reason short sales fall apart is not the best buyer, but the wrong buyer.
Notice I didn’t mention price as a reason that short sales don’t get closed. I want to emphasize this over and over again. Paperwork is more important than price. The right buyer is more important than price. If you go back to short sale truism number one, properties that are put on the market at too high of a price are at greater risk of going to auction than properties that are priced correctly.
So let’s assume that you have followed my advice to the T. You have listed the short sale, you’ve priced it aggressively, offers are pouring in. Now what? Well, let’s understand what you’re looking for, the characteristics that are going to increase your odds of success so that you go from a listing that is sold to a listing that is closed, versus a listing that is sold to a listing sale that has cancelled.
The characteristics that you’re looking for, there are three of them. The number one characteristic is that you find a buyer that is getting a good enough of a deal that they’re motivated and committed to doing what you ask them to do. It has to be a deal. If it’s not a deal, why would they stick around long enough to get this thing closed?
Number two characteristic is you want a buyer that knows exactly what they’re getting into and is willing to spend the money to find out what they’re getting into. In other words, they’re willing to spend the money to make sure that the property is worth the right amount and it is in the condition they think it’s in. We’ll discuss that a little bit more in detail.
The number three characteristic is you want a buyer that has a degree of financial flexibility. Again, you’ll hear me describe that in greater detail.
Now let’s compare those characteristics to what the lender, this is the lender for the seller who’s going to have to approve this buyer, what are the characteristics that they’re looking for? Well, there’s only two.
Number one, they want to make sure that the property is being sold at a fair price to a solid buyer. Number two, they want to make sure that they’ve got all the paperwork to prove number one. Let me say that again. They don’t want to waste their time if they don’t think they’re getting a fair price or if they don’t think it’s a solid buyer, and the only way you can prove it to them is by giving them paperwork.
So you have to understand a little bit about what they think is fair price, because you as a licensed professional, I’m assuming you’re a licensed professional, you owe it to not only your seller, but the buyer and the lender to do what’s best for everyone. That may sound complicated, because as the buyer’s representative you want to get them the best deal possible, as the seller’s representative you want to do them as well as you can by getting this property sold and closed and off their back.
But as far as the lender, as the listing agent, no matter what price it ends up selling for, you are going to be responsible to support that price. In our example, our pricing example, we took a $150,000 valued home, that would be after repairs, and we’ve got the seller’s permission to list it at whatever price we want, so we decide to put it on the market at $108,000, which is the wholesale number. If you can’t in good consciousness support a sale amount of $108,000, then you have to adjust for price accordingly. If someone comes along and wants to try to steal the property for $40,000 and you push it through, in all fairness to the bank if you could’ve sold it for $108,000, you should have. But if you could only sell it for $40,000, then you have to prove that that’s as much as you could sell it for, and this is where a lot of deals fall apart because the only way to prove it is paperwork.
Here are some things that you’re going to hear me refer to again and again, but when it comes to dealing with offers on your short sale listing, remember you’re doing what I told you to do. You got the listing. You got all your paperwork from the seller. You went ahead and you put the property into the MLS, and the first thing that I’m going to tell you about dealing with offers is this, don’t plan on accepting any offer in its original state. Count on the fact that you’re going to have to counter that original offer to clean up the terms or the conditions of the sale and maybe even price. But notice I say price last. So the offer isn’t going to be accepted as it is. You’re always going to be countering to clean it up.
Another issue in dealing with offers is there’s nothing wrong with a buyer getting a deal on a property so long as you can support the price. In other words, what I’m saying is if the property would be worth $150,000 after repairs and someone is buying it for $108,000, it may be that the current appraised value is $120,000. The lender isn’t going to say, “Well, it’s worth $120,000. You must pay $120,000.” They understand the current state of the economy.
If you can sell $120,000 as-is property for $110,000, $115,000 or $108,000 ,it doesn’t mean a lender is going to say, “No way Jose, you’ve got to back to the drawing board and get us a $120,000 offer.” There’s nothing wrong with the buyer getting a decent deal. Lenders are fine with that. But it’s usually those low-ball, unsubstantiated, unsupported offers that come to you from novice wannabe investors that you find are typically a waste of your time, and they don’t often close.
Third item regarding dealing with offers, if your buyer and I should say and/or the buyer’s agent, because it could be either one of them, remember you’re the listing agent. The buyer comes with the representation of a buyer’s agent. So you’ve got the buyer’s agent playing in between. They’re doing their job to protect their buyer. But if they’re difficult and uncooperative at the beginning of the process, they’re going to only get worse as you get down the road further.
So what’s my point about that? Well, you’re going to find that if you price the listing aggressively, you’re going to find that buyers and their agents are more grateful and willing to cooperate. When you price it too high, you’re going to find that the buyers have an attitude, as do their agents, of doing you a favor. Price it right, they feel like you’re doing them a favor and they’ll be easier to deal with. Price it too high, they feel like they’re doing you a favor and they’re going to be a challenge.
My recommendation is follow my advice. It’ll make your job easier. You’ll be able to close a lot more deals, because what you want is a committed buyer who’s getting a deal and a buyer that knows what they’re getting into and willing to pay for that and a buyer that has financial flexibility.
In the next episode, we’re going to talk about the mechanics of using the counteroffer to create the absolute best buyer.
Thanks for Listening and Happy Learning,
Scot Kenkel, Instructor
P.S. What do you think? Leave your comments below. Thanks.
The post SSP 011 : Short Sale Help: Selecting the Best Buyer Part 1 appeared first on How to Sell More Houses.
In this episode, we’re going to discuss how to set the price of your next short sale listing.
Pricing is a really tender subject for most agents because they never develop the skill to deal with pricing effectively with a seller. It’s especially a critical component of helping sellers, especially when they’re in distress, as you may be dealing with those folks that are having challenge meeting their obligations or perhaps they owe too much on their house and they’re really looking to you for advice.
But I want to give you a couple of truisms about short sales. And the first one, as it relates to pricing, is very simple. Properties that are put on the market at too high of a price are at much greater risk going to auction, than those that are priced appropriately or aggressively, meaning that they’re priced correctly.
And truism number two regarding short sales, Properties that are sold at auction, those would be the ones that did not involve a real estate agent, will always sell for less than those sold when a real estate agent is involved.
So how do you know whether or not your new short sale listing is overpriced? What’s the easiest way to know? Well, you know it’s overpriced if A, You’re not getting any showings. That’s pretty obvious. B, If you’re getting showings but no one’s writing an offer. Maybe not as obvious… But when you think about it, getting showings but no one’s writing any offers, priced too high. Or C, You’re getting showings and you’re only able to eeck out a single written offer. That’s how you know that your listing is overpriced.
Is there a formula for how to price a listing properly when you’re dealing in short sales? Absolutely!
The pricing model that I’m going to recommend that you become familiar with is the Wholesale Investor Price Formula. There are some things that you’re going to need to know in order to follow along with this, but understand this about pricing. There’s retail, and that’s the highest price possible to sell something for when you have ample time and you’re not in a distress situation. And then there’s the other way, which I would refer to as wholesale.
Wholesale is where you sell a property in the existing condition it’s in, but you sell it at a reduced price, a wholesale price. You’re not expecting first time home buyers to come along and buy it. It’s not really for them. It doesn’t mean you won’t sell it to a first time home buyer but first time home buyers are typically looking to buy retail as opposed to wholesale.
How do you get to that price, the formula, if you’re not familiar with how real estate investors think? You’re going to love this next part because I’m going to tell you the formula that they use, and as an active long-time real estate investor, this is a formula that we all use.
First of all, you have to have a good understanding of what the property would be worth in mint condition. Investors refer to this as the ARV, after repair value. For this example, let’s say that the property that you’ve got, forget how much they owe on it, but if it was put in tip top condition, and there was no distressed component, no risk of foreclosure and you’re selling it for retail, the estimated after repair value we’re going to use for the example of $150,000.
Second thing you’re going to have to know, how much rough estimate is it going to cost to get the repairs done? Now this is a tough one for most agents, because you’re not typically asked to know this information. But you can guesstimate and guesstimate high if you have to but let’s say that in this example the estimated cost of the repairs is $15,000.
Third item you’re going to have to know. What costs are going to be involved in the transaction? And these are the costs as the investor. Such as how much is it going to cost the investor to acquire the money or hold on to the money? Cost of funds is the cost to the investor of coming up with the money. Holding cost would be the money he has to pay, he or she, in order to keep the property and that’s going to go on as long as the repairs take.
And once the repairs have been made marketing costs; that would be your commission. And then there’s always going to be an Oops allowance. An Oops is for things you didn’t even think about. As you’ve done this more and more, you don’t have as much of an oops allowance. You get a little bit better at your estimating but in this case we’re going to allow $5,000 for oops. We’re going to figure it’s going to take 3 months to do the repairs and we’re going to allow $1,000 a month holding cost, and we’re going to look at selling it at the after repair value of about $150,000, which means the marketing cost, your commission, is going to be about $9,000. All together, it comes out to $17,000.
The fourth item you’re going to need to know is investor profit. Yes, investors want to make a profit. They’re not going to take the risk for free. They’re not just going to do it because they’re kind. There has to be a financial gain for them. So on a small flip house in this price range, an investor might want to make anywhere from $10,000 to $20,000. In this case, we’ll use a high number and let’s say that the investor is going to want to try and make $20,000 for their time. That number may go up. That number may go down, but what we’re going to do is take the $150,000 and after repair value, minus the $15,000 we estimated for the cost of repairs, minus the $17,000 other costs, that’s the cost of money, marketing, holding and then profit of $20,000, which means that as an investor I would have to buy the property for $108,000 and that’s what I would refer to as wholesale purchase price.
But of course I can hear you out there saying “But Scot, wait a minute. My sellers, they don’t want to price it that low.” But remember short sale truism number two, where I told you that Properties will always sell for less at auction than they will if in the hands of a real estate professional. So if you think that selling it for $108,000 is too little, I mean, that’s what they’re telling you, is we don’t want to sell for that little, their logic for not wanting to sell it for that amount is typically based on the alternative.
They don’t know the alternative but here’s the alternative. I put it on the market for $108,000. I get an investor to come on and buy it, or someone else to buy it at an attractive price. Or we do nothing and let it go to auction. I guarantee you, if it goes to auction, it will sell for less. It will not sell for more at auction. We will sell it for the most by being in control of it.
And why is that? Well, the reason why, I truly believe and I hope you do too, that it will not sell at auction for more is number one, less than 1 out of 10 properties that go to auction actually sell to a third party. 9 out of 10 of the properties that go to auction actually sell to the lender or the guarantor of the lender.
Second, there’s much greater risk to an investor who’s buying at auction. They’ve got to move quick. They get very limited information and as a result they expect a much better deal if they’re going to buy it at auction. Third, properties that sell at auction take away all the control from you, the seller.
So, is it better to put it in the hands of an agent who’s going to price it aggressively? Yeah, because we have a very clear pricing objective… Our job is to get the property sold quickly. We want to create the least amount of interruption, disturbance to the sellers. We really want to generate a feeding frenzy, because it’s priced aggressively, which also allows you to be more selective on picking the best buyer.
How long should it take to get the property sold? Well, if you’re following along with the way I teach my students to do it, what you should consider is this. In some areas of the country, you can’t do it exactly this way but my belief is you put the new short sale listing in the MLS on Thursday. Try to delay showings at least for 1 day and then put on your MLS listing that all offers will be opened Monday at noon.
By putting it into the MLS, by delaying showings for at least a day, you start to build up the frenzy, if it’s priced right. And if it’s not priced right, do the same thing the following week. Follow the same structure except lower the price by 10%, remembering short sale truism number one and short sale truism number two; that the properties that are put on the market at too high of a price have a greater likelihood of not selling and going to auction — and properties that are sold at auction always sell for less than those that are sold in the hands of a real estate professional.
Thanks and Happy Learning,
Scot Kenkel, Instructor
P.S. What do you think? Leave your comments below. Thanks.
The post SSP 010 : Short Sale Help: How to decide on the RIGHT Price for your next Short Sale appeared first on How to Sell More Houses.
During this episode we will discuss how understanding a little more about the effects of filing Bankruptcy will keep your sellers better informed.
How does bankruptcy affect your sellers that may or may not be considering a short sale? Let me make a disclaimer, I’m not an attorney and there’s nothing I’m going to tell you in this episode that is intended to be misinterpreted as legal advice. But I do feel that for you to understand the impact that bankruptcy may have on your sellers would be incredibly helpful. Don’t worry you’re not going to get accused of practicing law. In fact, I suggest very strongly that as a real estate professional, you take a little bit of time, make a couple of phone calls to some local attorneys that are reputable that are in your market place and ask them if you could sit down with them and discuss how bankruptcy affects sellers, that may or may not be considering selling their home as a short sale.
Lawyers can give legal advice. And lawyers can give real estate advice. It’s one of those odd things that are written in most of our state statutes. But as a real estate agent, you can only give real estate advice. As a licensed real estate agent, you’re not allowed to give investment advice. You’re not allowed to give legal advice. And lawyers, just like real estate professionals, some are better than others, some are easier to trust. You’ve probably had some dealings with some reputable ones. But if you take the time to go look for a couple of good lawyers in your marketplace and sit down with them, you might find that it can turn into a mutually beneficial relationship.
Why do people file bankruptcy? Let’s answer that question, so that you have a basic understanding. In most cases it’s because they have too many bills or just too much debt. Maybe they ran into some catastrophic experience, loss of job, maybe an injury, a divorce, a legal issue, it’s hard to say why. But in most cases, bankruptcy is a provision provided to citizens, residents, U.S. citizens in order to help them overcome challenges that have to do with the absence of money or too many bills, things like that. I’m not advocating that people should irresponsibly manage their money and then file bankruptcy, but I do understand enough about bankruptcy to be able to give someone, not legal advice, but a little better understanding.
There are two common forms of bankruptcy; Chapter 7 and Chapter 13. The difference between the two is that a Chapter 7 Bankruptcy is what they’d refer to as a complete liquidation while a Chapter 13 is a financial restructuring. Think of a Chapter 7 as “I give up, I just want out, I don’t want anything to do with anything” whereas a Chapter 13 is “I just need a little breathing room to be able to put things back on a good footing”.
Filing bankruptcy should be done under the supervision of a lawyer you’re comfortable with. You’ll need to be prepared to pay your legal and filing fees up front since most lawyers tend to protect themselves.
When you file bankruptcy,what happens is you fill out a list of all the things you own, all the things you owe, what kind of expenses you have to determine any exceptions, and of course any income. Now in a Chapter 13, remember I said that’s a restructuring. The courts are going to look for your ability to be able to pay into the bankruptcy. If your income is less than your current living expenses, then they’re going to look at what you have available to pay, because the bankruptcy trustee needs to determine what your monthly payment is. So income, if it doesn’t even meet your living expenses, is probably not going to put you into a Chapter 13; because you’re going to be obligated to pay something each month into the bankruptcy. When you take out your living expenses from your income and you’ve got money leftover, well then the bankruptcy trustee will look at that and figure out how can that money be distributed between all of your creditors, those are the people you money to. And they will set up a payment schedule that that money goes into the trustees hands every month. The bankruptcy trustee will negotiate all your debts.
But in the case of owning a house when you go into a bankruptcy Chapter 13, all the back payments, the late fees, interest charges, are typically just determined to become unsecured debt. Verify that with a lawyer. But you’re still going to have to make current payments, the go forward payments. So if your income doesn’t support basic living expenses and mortgage payment, going into a Chapter 13 is not going to really be a good idea. Because they’re not going to reduce your mortgage payment. Just like a car loan, you’re still going to have to make payments or you’re going to lose the car. Now once your payment plan is established, then all the lenders will be agreed to take whatever your bankruptcy trustee negotiates. And for a period that may go as long as three to five years, you’ll make payments into the trustee and at some point they’ll released you and all of your debts.
A Chapter 7 bankruptcy is a total liquidation. It’s a lot different than a Chapter 13 because in a Chapter 7 you take everything you owe, everything you own, and you pretty much turn it over to a court appointed 3rd party or trustee. This person’s job is to sell everything they can for cash, and then distribute the proceeds accordingly to the creditors. The debtors may get very little or nothing depending on what the trustee is able to liquidate. And after the assets have been liquidated and the funds distributed the filing party will be discharged and it’s all over, the end.
But what if you own a house? What if you have a house that’s say, worth $200,000 but you only owe $100,000 on it? Well, it’s not a very likely scenario to go into bankruptcy where you have substantial equity. Most people with equity in their home would have already tapped into the equity to avoid the bankruptcy. But let’s say you did have equity and you had to file a Chapter 7, what happens? The Bankruptcy Trustee would probably order you to sell the house to release the financial equity.
More than likely though the seller’s situation is the exact opposite; they have a house that’s worth $100,000 but they owe $200,000 or more on it. And what happens there? Well, depending on who you talk to, the court is going to treat the property as a secured asset; which means there’s a secured loan or mortgage against it. At some point the lender is going to ask the Bankruptcy Trustee to release the property from the Bankruptcy so they can begin or continue with the foreclosure process. The lender wants to sell the property and hopefully recoup some of their money but the lender can’t sell it because they don’t own it and in order to own it they have to go through the foreclosure process.
Even after filing a Chapter 7 Bankruptcy there are still issues to be resolved that could come back to haunt you. For instance; the Lender will still be required to file a lawsuit against you in order to proceed with the Foreclosure action. Until the property is out of your name anything that happens on and to that property could become a financial liability issue.
Here are some suggestions that I think you might want to make to your sellers. Again, we’re not practicing law with the sellers; all we’re doing is helping them understand all of their options. If it becomes an option, it should be treated as the last possible option; the one that you do when nothing else has worked, including trying to get your house sold doing a short sale.
My second suggestion is if your sellers may have to file bankruptcy make sure that you can recommend an attorney that will take the time to explain all the legal options to your sellers. You want to make sure that you refer them to an attorney that believes bankruptcy should be preserved as a last thing you do. Some attorneys lack a clear understanding of the Short Sale process and as such may offer a solution that contradicts what you’re trying to accomplish with the sellers. Before recommending an attorney make sure you have a good understanding of what kind of advice they’ll likely give to your sellers.
Homeowners considering bankruptcy tend to look to their lawyers for advice on what to do with the house. If your sellers have already filed bankruptcy they may not understand how involved they’re allowed to be in getting their house sold. The property may be under the control of the Bankruptcy Trustee even though it’s still in their name. I’m not attempting to give legal advice here and neither should you, but your sellers have the right to mitigate (or minimize) their own financial demise by helping to get the property sold. They may or may not need permission from the Bankruptcy Trustee to get the property sold but they’ll most certainly need the cooperation of the Trustee to transfer the title once the property has sold. The benefit to the seller is that they get the property out of their name faster and reduce further additional liability.
Keep in mind that you’re not an attorney so you’re not allowed to give out legal advice. But the next time a seller tells you that they’ve already spoken to their attorney about what to do, especially as it relates to getting their house sold, you should at the very least get them to meet with you so you can better understand their situation and advise them accordingly.
Thanks and Happy Learning,
Scot Kenkel, Instructor
P.S. What do you think? Leave your comments below. Thanks.
The post SSP 009 : Short Sale Help: Does filing Bankruptcy matter? appeared first on How to Sell More Houses.
During this episode we will discuss how understanding the numbers in your market will help you decipher the future of Short Sales.
I want you to take out a piece of paper, unless you’re driving and listening to this, in which case just listen. I’ll try to explain it so you can follow along, but don’t write this down while you’re driving. I don’t want to be responsible for that. For everyone else who’s not driving, I’m going to give you some numbers, and I want you to write them down, and I want you to write them down in the exact order that I give them to you. Got your pen? Got your paper? Here we go.
First number, 30, 56, 43, 13, 8, 100. Let me repeat them. 30, 56, 43, 13, 8, 100. Kind of sounds like a lotto poll. If you have those numbers, you did not win $800 million, but you may win something if you follow along with this. Did you get them all written down? You got them? Good. Let me explain.
I’m a really big fan of numbers, always have been. I was crazy about math as a kid, very good at math. I see numbers in my mind. I think about numbers a lot. Sometimes I’m accused of thinking about them too much, if you ask anyone that’s close to me. There’s a lot of things you can tell about numbers by understanding numbers and being able to analyze numbers, because they do have a true meaning, once you get them.
For instance, the first number I gave you was 30. What does 30 signify? I took it upon myself to do a little bit of a survey, and I analyzed 30 days worth of information for one county in the state of Kentucky; 30 days. 30 days represents one month, 1/12 of a year, roughly 8 1/4% of an entire year. In those 30 days what I was researching was how many properties went onto the active auction list. Remember we’re only talking one county in the state of Kentucky. In that one month there were 56 properties added to the auction list. That’s 56. 56 in one month, one county, state of Kentucky.
Could be other parts of the county had more, had less, but I just wanted to analyze where they came from, and what happened to them. You have to stick with me, because I’m going to take this in a place that probably will have a surprise ending. Understand this about my feelings about the foreclosure effort, at least what it really is and what it really means. Because to me when a property is actually sold at auction, it is the end. It is the final step in the lender’s attempt to recover money from what appears to be a bad loan.
Auction sales might appear in your area as being sheriff sales, they might be called trustee sales, master commissioner sales. Whichever way they are, they are by far, in some representation, a failure of the real estate community. Without a doubt, any property that ends up being disposed of at auction, would have sold for much more had there been a real estate professional involved. I’m going to prove this to you.
What numbers do we have so far? 30 days, 56 properties. Here’s the part where it starts to become interesting. Out of those 56, remember there are 56 of them added. These auctions take place every Thursday, 10:00 am round a courthouse. It’s very clearly marked. Everybody understands, if you’re involved you know where to go, you know where to stand. They seem informal at first. If you haven’t been to those, I suggest that you go and at least see the process of what happens.
Of the 56 that were put on the schedule, 13 were taken off the schedule. I don’t know exactly why the 13 were taken off. They mostly don’t say why they were removed. They just say that they were taken off, canceled. They might have been canceled because there was a clerical error, a filing error, a bank error, maybe the seller took some legal action, maybe they pleaded with their bank, maybe they had a final hope of something happening. Nonetheless, 13 of them came off the chopping block, and that left 43.
So we had 30 days, 56 started, 13 removed, and 43 remained. Here we’re getting to the part that’s going to involve you, every real estate professional in North America. I’m not blaming real estate agents, but in a way what you’re going to hear next is going to sound like agents missing the boat. Because out of those 43, remember 13 of them got canceled, we started with 56. Of those 43, my team researched the multiple listing history books. They went back as far as two years to see what took place. I said two years would show at least some activity that was taken to avoid this calamity.
There’s probably hundreds and hundreds of properties that didn’t show up on our list, because we’re only dealing with the ones that ended with their final demise of going to auction, going to sale. Also keep in mind that these 43 homes, they were at one time bought and lived in by moms and dads, maybe even the average 2.3 children, maybe even a dog in the backyard. Owners that at one point in their life had to actually fill out a loan application. They had to prove that they had jobs, unless of course they got it during the time when you didn’t have to prove you had a job. They probably had a down payment, and they agreed to sign a bunch of paperwork to get their piece of the American Dream.
What did my research team up with? They went back a total of two years, and out of the 43, only 8, I almost say that painfully, technically it would be 8 out of 56, but of the 43 or the 56, whichever number you want to look at, only 8 of them appeared in the prior two years, to have any assistance from a real estate professional.
Sadly, the numbers get even more depressing when you understand this. Out of those 8, only 2 of those were within a couple of months before the auction. 3 of them were closer to a year ago. That means that they were on the market at one point, but they came off the market almost a year ago, and 3 more of them had been on and off the market two years ago. 8 out of 43, or 8 out of 56, whichever way you do the math, of the owners took the time to reach out for the help of a realtor. Yet I know, and I hope you do too, that 100% of these houses would have been sold for more if an agent was involved. At the very least, having an agent involved would have prevented perhaps the final demise and the final chapter of these folks’ American Dream.
How can I say that they all would have been helped? It’s simply this, you know doggone well that once the lender takes the property back at auction, who do they go to to dispose of the property? You; they use real estate agents. Real estate professionals are the most common vehicle to dispose of properties. Why? Because as a rule of thumb we, as a group, are able to sell them for more, much more than you would sell at auction. Why would they end up at auction?
Well, that’s the sad part of this reality that those folks that lost their homes to the end result of an auction, probably didn’t know that there was help out there for them, because out of 30 days, 56 properties added, 43 disposed of, and only 8 of them had sought help, and 100% of them could have gotten help. Remember this is just one county in one state for one month.
What can you do? Let me make three really quick suggestions of what you can do to make an impact, because it is a tragedy. Number one; you need get in the habit of spreading the word. Spreading the word to the people you know, the people that know you, to let them know that if they know anybody who’s struggling with their mortgage. Whether they are struggling because they owe more on their mortgage than their house is worth or they’re struggling because they can’t afford to keep up with the mortgage. You need to spread the word so that those folks know that they can call a pro, a professional real estate agent.
Number two, go out there. Spend a little bit of time each week finding folks that need help. Pull up the list of upcoming auctions and go to their house, knock on their door, talk to their neighbors. You’d be amazed what a couple of hours each week would do to get the word out. Plus it will make you feel better, and the fresh air will help you. Maybe the exercise will too.
Number three, share what you know with other agents. Learn how they get the word out, or let them know to get the word out, and let them know how you got the word out. Don’t be just focused on how many listings did you get out of it, how many deals did you do. Join or form your own short sale mastermind group or distressed property group. At the very least, look at the numbers, because the numbers will give you a good indication about what’s going on in your little market, your county. 30 days, 56 houses, 43 sold, gone, 8 sought help, but 100% could have used help.
Thanks and Happy Learning,
Scot Kenkel, Instructor
P.S. What do you think? Leave your comments below. Thanks.
The post SSP 008 : Short Sale Help: What the Numbers will tell you about the future of Short Sales! appeared first on How to Sell More Houses.
During this episode we will discuss three critical ingredients that must be present so you can make sure your Short Sales get approved by the Seller’s Lender.
What are the three critical ingredients for getting your next short sales approved? You know we’ve all done it, as least I have. We bought a cake mix, thought we were following the instructions. Preheated the oven like it said on the back of the box. Got out the mixing bowl, measured out the water, measured out the oil, mixed everything together, put it in the oven, baked it and then realized, and this is the embarassing part, we forgot something. What was the something we forgot? One ingredient. The eggs. I remember thinking this myself, I did everything else but I forgot that one ingredient. How could one ingredient really make that big of a difference? It didn’t turn out to be cake, it was something else.
In short sales, well they’re kind of the same. If you skip one of the critical ingredient, you’re probably not going to get the approval from the bank that you were hoping for. The sad truth about short sales and approvals is that lenders have a tendency to inadvertently mislead agents. Now I don’t mean that they do it on purpose. They don’t intend to do that. But what they tell you is you need to get them this and you need to get them that, and then get them this and this and that and that, and then we’ll get you an answer.
Not a problem. Then you go out there and get them this, this, this and whatever else and you send it to them and what happens? You don’t get an answer. So you call them and you call and you call and you call, and you feel somewhat cheated. You feel like you followed the instructions just like you were told to do and then, ouch, nothing. What do you do?
Well I’m going to tell you the same thing I’ve told thousands of students over the year, that in most cases you probably are missing one of the three critical ingredients that must be present if you intend to get an approval from the lender. Skip any one of these and you might as well just give up. And just by leaving out the egg, it might look like a cake, but it’s not going to be cake, it’s not going to taste like cake. So what are these critical ingredients?
Number one, you need to give the lender proof, I mean underline the word proof, that your sellers, these are the people that owe the money, your sellers are deserving, deserving. Now proving that your sellers deserve a reduced payout from their lender, this is the same lender that lent them the money. Keep in mind it’s the same lender that gave them the money. It’s the same lender that was promised, at one point, that they’d be paid back the money. To prove that these sellers, those are the borrowers, that these sellers are deserving, is like proving credit worthiness in reverse.
Let me say that another way. Proving that someone should be given a bonus, a free ride, a discount, a reduction, call it anything you want to call it. They borrowed the money, they spent the money, they agreed to pay back the money. And to prove that they’re deserving of some forgiveness, some reduction, an approved short sale, is kind of on the same lines as the opposite of being approved to borrow the money. So you have to be able to prove this. You need to prove that they deserve some kind of an exception.
Sellers, or borrowers, call them whatever you want, are not entitled to a reduction in their debt. There is no entitlement. They need to prove they’re deserving. You need to prove they’re deserving. How do you do that? One of the most common ways to prove that they’re deserving is to focus on the hardship, a financial hardship. A financial hardship such as loss of a job, which seriously would reduce their income. Or maybe the death of a loved one, or a divorce, a catastrophic financial issue is going to put them in a place where they may be deserving. And it has to be something that you can prove that isn’t about them not wanting to make the payments but that they cannot make the payments, it’s not a choice. Because if they could make the payments they should.
So is it because they can’t afford to make the payments? And maybe they afforded it but they did it at the loss of everything else, that they didn’t buy their meds, they didn’t pay for the electric, they didn’t take care of the car, they didn’t pay their insurance, they didn’t maintain the house. Proof that they are deserving has to be sound, it has to be honest. How do you prove someone cannot afford a house?
Well think the opposite. How do you prove you can afford the house? If you were taking a buyer out there to get them into their first home, how would you prove that the lender should lend them money? You’d have to make sure they have a job, you’d have to make sure that they have income, you’d have to make sure that they have some fall-back, some history, some credit worthiness and the same deservingness in reserve. In order for them to prove that they cannot afford the house they have to prove that they don’t have the income. They have to prove that they don’t have any money in the bank, they have to prove that they have nothing to fall back on.
There’s another popular way to prove that someone’s deserving and this doesn’t necessarily have to be because they can’t afford the house so much, as the value of the house continues to go down. This has become new over the last couple of years. And what’s the risk if the house keeps going down? Well since it’s the collateral for both parties, the collateral to the lender for the loan, and from the owners point of view how long do I want to really keep this asset if it’s going to continue to go down in value? But you have to be careful here.
Just because the home is not worth what they owe on it does not make the lender a bad guy. Too many times you’ll hear folks blame the lender and say, “hey, the lender’s owed all this money but the house is really not worth it, I should just walk away from the house.” Well, there’s probably nothing written in the loan document that says if the loan balance is lower then the value that you can just walk away. Think about cars, most cars that have loans have loans that exceed the value of the car. With that in mind, it’s still possible that even if they have some money in the bank, even if they have some income to be able to afford it, if the house is truly underwater and heading down in value. I’ve seen it happen more today then ever before, where the bank will consider a discount of the loan, so that the sellers can get the house out from under them and stop the declining value.
So ingredient number one, critical ingredient, you need to prove that your sellers are deserving. Critical ingredient number two. You have to be able to prove to the lender that the property is only worth X. I’m going to say X because X would be whatever value you say it’s worth. You see, lenders are very pragmatic. They deal in black and white, there is no grey. If you were on the borrowing side, remember back with those buyers? They found the house they love, now they have to arrange to borrow? Lenders aren’t shy about asking for everything under the moon short of taking a DNA sample.
They’re skeptical. They don’t believe anything, you have to prove everything; and that’s just how they work. I mean you fill out a loan application, they want to make sure that was you that filled it out. You say you have a job, well they want to verify you have a job. They don’t take your word for it, they want proof. You show them a pay stub, they’re going to call and verify it’s really yours, they’re going to verify it’s real, they’re going to verify the employer exists. And when it comes to what the house is worth they’re not going to take your word for it. Yeah, sure, we want to pay this amount for it, we think it’s worth that amount. No.
What are they going to do? Proof, call it an appraisal. Now you’re on the other side doing the opposite. And you have to do the same thing. But it’s in the opposite, because now you’re asking the lender, this is the same lender that lent these sellers the money to buy the house. These are the same lenders that gave them the money that they signed a piece of paper that said, “we’ll pay it all back”. But you’re going to ask the lender to approve a discounted payoff, a reduced payoff, based upon the fact that number one these folks are deserving, and number two the understanding that you sold the house for the highest price possible. But how do you prove that you sold it for the most? Because if you haven’t sold it for the most, shame on you. You didn’t do your job. You have to be able to not only sell it for the most but prove that you sold it for the most.
Number one for starts you have to have it sold. Because if it isn’t sold how do you say you sold it for the most? You can’t, and you have to have it sold to a real buyer, a buyer that not only can demonstrate the ability to buy, by way of a pre-written, pre-approval for a loan with no conditions and no contingencies. Buying it as is, no repairs made. Not only this but you need to have comps and a breakdown of the repairs that the property’s going to need, so that the lender knows if they take possession of the house what kind of a challenge it’s going to be for them to sell it. You need good, solid comps.
I recommend that you have a narrative written, explaining what’s going on in your local marketplace. It’s almost as if you have to do, I don’t know I’m going to say don’t do this, don’t do this anti-ingredient, because if you ask me how do most agents not prove that a house sold for the most? Well this is something that your’e probably not going to hear in many other training programs, but I know that the lender has a team of loss mitigation negotiators, that have been trained to do something. And if you’ve done any short sales you’d know this. But in order for them, the lender, to prove that you sold it for the most or not prove that you sold it for the most, they’re taught to ask every agent a question. They come back to you as they always will and they always have, and they’ll say to you at some point in the transaction negoatiation process they’re going to say, “hey you, agent, you need to go out there and sell the house for more. We need more.” Your response is either going to convince them that you sold it for the most or convince them that you didn’t sell it for the most. If they say you need to sell it for more and you agree to do that you have pretty much, by affirmation, you have confirmed that you can. Whether you really can or can’t is irrelevant. But the lender’s negotiator will say we need to get you to sell it for more.
Here’s what I would put on your notes in capital letters. “DO NOT OFFER TO SELL IT FOR MORE. DO NOT INDICATE THAT YOU WILL GO OUT AND INDICATE THAT YOU WILL GO OUT AND SELL IT FOR MORE. DON’T EVEN GIVE IT AN EFFORT”. You have to give the conviction that says, no I can’t sell it for more. I can sell it for less, but that’s the most we can sell it for. If you waiver on that you might as well just throw ingredient number two out the window and hope that your cake tastes like cake.
So you have to prove that the selller is deserving, you have to prove that you sold it for the most, and then final critical ingredient number three. And this by far is the one most agents don’t even know about.
You have to prove to the lender that you are competent. What? Competent? Why is this a critical ingredient? Well here’s the thing about competence. It can be demonstrated in just a couple of ways, but incompetence can be demonstrated in so many ways. Most agents repeatedly display signs of incompetence, without even knowing it. For example, paperwork. There’s a decision that every agent has to make. And when they don’t really know what they’re doing they go to the lender for guidance. And they say, “hey Mr. Lender, what kind of documents would you like us to send you, in order to get the short sale approved?” Naturally the lender says, “well we need A, B, C and D”. What do they do? They go out and get A, B, C and D, they send it in and then they wait.
Well there’s a problem with that. The lender is going to give you what they think they need. But what they really need is much more than that. You see, if we were to take it away from this example and go into a different situation like a listing appointment, if you want to prove that you’re competent on a listing appointment you should go in and start with, get there on time. Because if you get there late it’s a lack of respect which is going to reflect on your incompetence. You should always follow a step by step process. Don’t go on a listing appointment just willy nilly doing it as you go, shooting from the hip. You should go in with a step by step process. What do you do after you ring the doorbell? Smile and greet them, get them to the kitchen table, sit down, get them to sit down, ask them some questions.
You should always have a prepared presentation. And you should be able to display an obvious concern for your sellers by being able to ask question. You should be able to gain their respect, treat them with respect. You should always have a process, a step by step process, to ensure the results, presentation and ask questions to get to the conclusion. And have an answer when they ask the question, “so what do you think we should do?”
But see in a short sale when it comes to dealing with a lender how do you demonstrate competence? Well you can’t go there and do a powerpoint presentation. But you could do what might appear to be similar to that. It’s called paperwork. Paperwork is the proof. You have to use paperwork to prove that your sellers are deserving of some kind of discount or a reduced payoff. You have to deliver paperwork to prove that you sold it for the most money possible. You have to deliver paperwork to prove that you’re competent. Paperwork is more important than price. Paperwork is the most important key aspect of the entire process.
In fact I remember I did an interview a couple of years ago, with one of the Bank of America level 2 negotiators. I had asked her, “what do you give as the number one reasons why short sales don’t get approved?” And she said, “it’s really simple”. She said “I’ll give you number one and number two and number three if you want me to”. She said “number one reason short sales don’t get approved is paperwork”. I thought wow, paperwork. Number two, give me that one, because I’m thinking it’s something else. And she said, “nope, number two paperwork”. By then I caught on. What do you think number three was? Paperwork. See, paperwork is the reason deals don’t get approved. Not price, paperwork. Not the commission, paperwork, not price.
So what am I saying? It’s the paperwork. You need to make sure that you’ve got the paperwork. You know what you need. If you don’t know what you need I have a checklist on the site. Go to www.theshortsalepodcast.com. Download the document checklist. But make sure your paperwork’s right. Put it together professionally. Do it as if you were putting together a resume. Add a cover page, a table of contents. A financial summary that points to what you’re asking the lender to do. And make sure that you get it all there. Make sure that they get it, and make sure that you’re able to paint the right picture with the paperwork. More ways of proving your competent? Treat the lenders employee’s with respect. Don’t yell at them, don’t scream at them. If they can’t find your file be polite, be respectful, call back again.
Provide them with not what they ask for but what they need, which means everything. Go above and beyond. It’s just like baking a cake. If you leave out the eggs it would be like leaving out proof that your sellers are deserving, or leaving out the proof that you sold it for the absolute most possible, or leaving out the proof that you’re competent. Add these ingredients. Not only will your cake look like a cake, but it will taste like a cake. Most importantly you’ll get your short sales approved and you’ll be able to get them closed and be able to get out there and help more distressed sellers.
Thanks and Happy Learning,
Scot Kenkel, Instructor
P.S. What do you think? Leave your comments below. Thanks.
The post SSP 007 : Short Sale Help: The Three Critical Ingredients for a Successful Short Sale appeared first on How to Sell More Houses.
During this episode I will be discussing how to help your homeowners decide whether doing a short sale is better for them or not
Is doing a short sale really the best option for your homeowners? Answering that question, making that decision, to me, is like deciding what to watch on TV. I remember when it wasn’t as complicated to decide what to watch on TV because there were only three channels, three networks that you could decide upon: ABC, NBC, CBS. You’d look at the program guide for television, choose something to watch and when that time came, you watched. That was it. Of course, as the years went by, the choices became greater to the point to where they are now where you have hundreds and hundreds of channels to choose from. So many so that it’s almost impossible to make a decision of what to watch. So what do we do instead? We channel surf. We don’t make a decision. We try to watch too many things.
What does this have to do with short sales? Well, it’s really simply this. Your job as a real estate professional is to help your sellers make a decision by eliminating all of the unnecessary channels. Keep their choices to a minimum. If you can eliminate confusion, you’ll help them make a choice, because the worst decision they’ll ever make is no decision at all. You need to help your sellers make some pretty basic, simple decisions. Should they move? Should they sell? Should they short sale? That’s it. And then, of course, should they hire you, which, if you help them with the first, second, and third decision, the decision to help you will become pretty natural.
Should your homeowner do a short sale? Would they be better off doing a short sale? Is a short sale the best option for them? Let me warn you about something here. Don’t assume that just because your sellers came to you and said they need to do a short sale that it means they need to do a short sale, or that a short sale is better for them. In too many cases, homeowners get misinformation and they make decisions based on what they think to be the right thing for them. You’re the professional, and the best way you can help your sellers decide whether or not a short sale is in their best interest is to consider every one of their options.
You need to analyze their situation, and to do that you’re going to have to sit down with them and have a private conversation. Something you should not do over the phone, you should not do at their door. You should do it at their kitchen table. When you do sit down with them, I would encourage you to ask the questions that are tough to ask. You could start with easy ones like: When did you buy your house? How much did you pay for it? How did you come up with the money for it? What do you owe on it today? You could get into the tougher questions. Are you current on your mortgage payments? In addition to your first mortgage, are there any other liens or loans against the property? Have your taxes been paid, or were they escrowed and paid with your payments? Do you have and HOA dues, fees? Are there any income tax judgments, any legal judgments, any mechanic liens?
All of this information will give you good insight into their specific situation. But you also need to find out are they struggling financially? Have there been any changes to their income? Perhaps they lost a job. Perhaps there was an injury, some medical issue, a divorce, maybe even death, some sort of financial hardship. And what got them thinking about moving? Who said moving is a good idea? Is it because they figure there’s not an option? Because you’re there to help them understand their options.
Now maybe it doesn’t have anything to do with them falling behind on their mortgage payments. Maybe they got a job relocation, transferred. Perhaps the house they’re in is too small, too big, too close, or too far away from something. But as you analyze their situation, be keenly aware of getting them to tell you what they think. What do they think the house is, as far as condition? Do they think it’s in good shape? Let them tell you instead of you telling them. Does it need a lot of work? Because most folks that are in a bad situation have a tendency to defer maintenance on their house, and you’ll see it: carpet stains, broken door handles, the yard has more weeds than normal. And find out from them what they think the house is worth, and what do they think it would sell for in its current situation, its current condition. Again, it’s better if you get them to answer the questions as opposed to you.
Let’s say that they have encountered a financial setback, whether it was due from a job loss or a health related issue, death, or divorce. But they’ve depleted their resources, and that’s a polite way of saying they’ve got no money. Maybe they’ve managed to stay current on their mortgage, but they let everything else go, or not. Maybe they’re not behind on anything. But here’s what is obvious. Whether they’ve taken care of or not taken care of their house, they owe more on their house than their house would sell for. This is what we call a non-equity seller. Should they move? Well, if this isn’t the house they need, then yes. This house is much more than they need at this time. If it’s the wrong house, it’s too little, it’s too big, should they sell? Well, it may present a problem selling, but it may be a bigger problem not selling.
And should they short sale it? Well, that’s still something we’re trying to determine based upon the information, because what you need to understand and explain to them at the right time is that if they do nothing, and in the case of them falling behind in their mortgage payments, it could be that the property sale won’t be up to them, what we call a forced sale, an auction, or a sheriff’s sale. A controlled sale is where the homeowner is in control of the outcome. They know what’s going to happen, and they know when it’s going to happen. Whereas a forced sale, they don’t really have control. They can’t control the outcome. If they let their house go to auction, they’re going to actually lose more money than if they control the outcome and minimize their losses, because houses sold at auction always sell for less than houses sold by agents. So if they want to maintain control of the process, they have to decide first that they want to sell it. And then second, do they want to sell it retail, or do they want to sell it wholesale?
Now there’s good and bad for either way. Retail is what most real estate transactions look like. That’s where you take a house and you make it really nice. You clean up everything, fix everything, and make it show like it should in order to attract the right buyer. Selling it retail is going to appeal to your typical emotional buyer, the ones most agents are accustomed to working with. Retail buyers are more demanding. And the good news about selling it retail is it’ll sell for more. The bad news is it takes longer and it takes money, because they’re going to have to put the property in tip-top condition.
They could sell it wholesale. The difference between wholesale and resale is price. Wholesale is the lower end of the pricing spectrum. You’re going to get it to sell quick because you’re going to sell it as a value. You’re not trying to appeal to the retail emotional buyer who’s going to want everything fixed and looking nice. Instead, you’re going to sell it to someone who’s more than likely an investor who’s probably going to fix it up and flip it or fix it up and rent it out. The good news about selling it wholesale is you can sell it quick and you don’t have to do any work on it, which, in many cases, they weren’t going to do anyhow. The bad news is it’s going to sell for less.
Now, this is where we get into the argument of is it better to do it as a short sale or not? So if your sellers have money in the bank, they’re not behind on their mortgage, but they owe more on the house than the house is going to sell for, but they’ve got some fallback resources, there’s really no need to do a short sale. The only reason to do a short sale is when there are no other options. There is no alternative funding. They can’t come up with the money to pay the difference, therefore their only alternative is to give up hope and let it go as a forced sale or a controlled sale whereby they hire someone like you to get the house sold and they know that they’re not going to have enough money to pay off the loan. Therefore they’re going to have to ask the bank to approve a short sale.
As an example, if the sellers owe $200,000 on their house but the house would only sell for, say, $170,000 in a retail sale, that’s still subject to them doing the work to get it nice, after closing costs are paid, they’re going to be short. They’re going to owe money. If they don’t have the money to come up with to cover the balance due to the bank, then they’re going to need to do it as a short sale. But that’s only going to work if they’ve demonstrated that they’ve exhausted all other options. The short sale is the best thing for them. Is it the best for them? Is it the best option if they have no other choices?
But let’s look at their other choices, their other options. They could do nothing. They could just let it go back to the bank, as you might hear them say. But that isn’t really good for them. Letting it go back to the bank is often called a deed in lieu. It’s another way of trying to appease the lender by giving the title to them, kind of like signing it over. But this option is very restrictive, and still, it typically ends up going to auction by the lender.
They could try another alternative, which is, well, let’s do nothing. Let it go to auction. That’s a terrible idea. They could seek legal remedies, bankruptcy. But in doing so, by doing this they can minimize the risk of the lender coming after them for the difference. But that difference hasn’t really been established yet. Where many times sellers make the mistake of thinking that they need to go talk to a lawyer before they exhaust the other options, talking to the lawyer about a legal remedy–and I’m not a lawyer and I’m not giving out legal advice–but I do know this. Prematurely filing bankruptcy is probably not going to put them in a position that’s going to be of any benefit to them. So the time that they need to file for that kind of protection is when it’s been established how much are they indebted to the bank, which can only be determined after they’ve sold the property or the property is sold at a forced sale.
So, is it really a best option for them to do a short sale? Yes, if moving is good for them, selling is the best option for them. If they owe more than the property is worth and they have no alternative to paying the difference, then doing a short sale is the absolute best option.
In upcoming episodes, we’re going to go a little bit deeper into some of the issues that you may run into with your sellers as far as obstacles, questions about a deficiency, and questions about what could possibly go wrong.
Thanks for Listening and Happy Learning,
Scot Kenkel, Instructor
P.S. What do you think? Leave your comments below. Thanks.
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The post SSP 006 : Short Sale Help: Is a Short Sale the BEST Option for your Sellers? appeared first on How to Sell More Houses.
During this episode we will be discussing why agents mistakenly avoid working Short Sales because they think they’re much more complicated than normal listings
During this episode I will be discussing why agents mistakenly avoid working Short Sales because they think they’re much more complicated than normal listings. I’ll also share with you some tips on what it takes to really master the Short Sale Process so that you’ll be in a better position to help more homeowners.
The post SSP 005 : Short Sale Help: Why do Agents think Short Sales are more Complicated? appeared first on How to Sell More Houses.
In this episode you’ll learn whether or not Short Sales actually take longer than normal sales.
Short sales are definitely not going away anytime soon! In fact in many markets across the country distressed sales account for as much as 40% of houses being sold. To be successful in real estate now and in 2012, embracing the distressed property market – and specifically short sales– can be your key to success. We know that short sales are a necessary market segment and we also know that they need to be an integral part of every real estate agent’s business plan. Although short sales have been driving the real estate market for quite some time now, there are still plenty of how-do-I? questions being asked; possibly more now than when agents were just discovering how to do short sales a few years ago.
But the question asked most often by my short sale boot camp students is “why do short sales take so long to get closed?” And while many agents may initially disagree with this statement the truth is that in many cases short sale don’t take longer to close, they just seem to take longer. It’s a common case of perception versus reality, similar to the eternity of time that passes while impatiently waiting for a red light to turn green, or the time spent waiting for a server to bring out the check after you’ve just finished a wonderful meal. The perception of time passing is a bit different than the reality… It just seems a lot longer than it really is. The same can be said about the time it takes to list, sell and close a short sale.Consider the following: In a normal real estate transaction you take a listing. Then you wait 30/60/90 days, or even longer, hoping for a buyer to come along. After that point you work out the details of the sale and move forward to get the deal closed which could take another 30 days or more. This adds up to 60 to 120 days from the time you listed the property to the time you close the sale and get paid. That’s the reality of a normal transaction.
The real difference in the time it takes to close a normal transaction versus a short sale is almost negligible, but the perceived difference is huge. This is mostly due to the fact that agents have been conditioned over the years to believe any sale should close 30 days or so after a buyer has been found. Short sales take much more time once a buyer has been found – normal sales take much less. So the next time you hear an agent complaining about how long it takes to get their short sales to close remember this; the perception of time passing, whether sitting at a traffic light or waiting for a short sale to close, is often perceived as taking much longer than it does in reality.
Let me know your thoughts by commenting below…
Happy Learning — Scot
The post SSP 004 : Short Sale Help: Do Short Sales actually take Longer than Normal Sales? appeared first on How to Sell More Houses.
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