Its been a tough year
Sellers are not yet ready to accept price adjustments to get their properties sold. Buyers are finding fewer mortgage vehicles to finance their purchases. Foreclosures and short sales are now large portions of the market in parts of the country where they were almost nonexistent. A huge portion of the real estate industry finds they need skills to survive that they didn’t need up to now to succeed. And to top it off, the transactions that get written seem to have more and more challenges. And everyone wants to know when the market will hit bottom.
This is my third major readjustment in the real estate market. I mean industry adjusting major.
My first was in 1979 when interest rates went from 8 to 13% in 8 weeks. We had inventory, we had buyers, but none of them could afford the monthly payments. Interest rates would go as high as 18 or 19% before they peaked. People left the business, and some of us just hunkered down and went to work every day.
In 1988, I bought a second office, just in time for my second industry adjusting event. Not only did I make every possible mistake when buying that office (something I may write about in another post), but the Tax Reform Act of 1986 was kicking in and combined with the Savings & Loan debacle, the market was terrible. Foreclosures increased, investors went away, and people moaned about how they had lost money on homes because they perceived they had lost equity as the market was readjusting.
And of course, we’re in the third adjustment. This adjustment has new components, due to the amount of national media attention,the effects of real estate investment and speculation in the heat of the market, the huge amount of second home purchases, and the number of “experienced real estate agents with over 5 years in the business who never worked in a boom real estate market. Even so, we were doing Okay in many parts of the country until the credit industry crunch, and a confusion of the consumers and the loss of consumer confidence.
In my first rodeo. we learned about seller financing, wrap around mortgages, installment contracts, and blended interest rates. And at the end of 1982, I realized I had earned more money then ever before, even with the high rates, which had started to come down to the 12% range. In January 1983 I opened our first office because it was time for me to do that- not because of the market. And we worked really hard. As we grew, and the market improved to the great market of the mid to late 1980’s I realized tin retrospect hat 1982 was when the market had changed.
The next time around, the market was tough but work was still a matter of going in every day and working harder and harder with limited results. We honed our skills working with buyers, taught sellers about adjusting prices, went back to basics, tried out new tools , and after doing that day in and day out , all of a sudden we turned around and realized that the market was getting more stable and our numbers were once again increasing each year. until, in the mid 90’s the market was once a “good market”.
This time the challenge is to learn basic skills that weren’t needed before. Treasure the call of a property buyer and learn how to help that consumer reach their objectives by focusing on the market, financial prudence, and real estate as a long term purchase. Learn to meld old techniques with new technology to reach the audience of potential consumers who need your guidance. And learn more about the business as a core human need, and how it affects your buyers.
It really is a good time to buy real estate if you know what you’re doing, or have an agent who can show you how to get it done properly.
Get Your T-Shirt
- Discard many of the wisdoms that you learned when the buyers outnumbered the sellers and the rising tide of appreciation floated everyone’s investment boat.
- Sell Investors properties that they can hold and earn income from. Or properties that have a value added component to the rehab.
- Remind home buyers that when rates are good, it is the time to buy, and rates are good now. Over a period of years, they will probably go higher before they go lower.
- If the rates go down, they can refi, if the rates go up, they secured more house today then they will secure tomorrow.
- Remind home buyers that they are buying a home, not an investment.
- They need to look for strong basics that help the home fit their needs, and will provide value for the next buyer.
- If the home will fit their needs and they can afford to make the monthly payment, they will benefit from home ownership over the long term .
- A house is not a short term investment, it is a place to raise your family and make a home for yourself.
- Since everyone with a monthly housing expense is probably paying a mortgage for someone, it may as well be for themselves.
Nothing in life is constant except change. And the need for housing. Go help someone fill that need for their family. And get your T-shirt.
Disputing a property’s value in a short sale: turn a no into a go
During a short sale, there may be various obstacles, with misaligned property values ranking near the top, but it doesn’t have to be a dealbreaker!
It’s about getting your way
Were you on the debate team in high school? Were you really effective at convincing your parent or guardian to let you do things that you shouldn’t have been doing? How are your objection-handling skills? Can you flip a no into a go?
When working on short sales, there is one aspect of the process that may require those excellent negotiation or debate skills: disputing the property value. In a short sale, the short sale lender sends an appraiser or broker to the property and this individual conducts a Broker Price Opinion or an appraisal, using special forms provided by the short sale lender.
After this individual completes the Broker Price Opinion or the appraisal, he or she will return it to the short sale lender. Shortly thereafter, the short sale lender will be ready to talk about the purchase price. Will the lender accept the offer on the table or is the lender looking for more? If the lender is seeking an offer for a lot more than the one on the table, mentally prepare for the fact that you will need to conduct a value dispute.
Value Dispute Process
While each of the different short sale lenders (including Fannie Mae) has their own policies and procedures for value dispute, all these procedures have some things in common. Follow the steps below in order to conduct an effective value dispute.
- Inquire about forms. Ask your short sale lender if there are specific forms that you need to complete in order to conduct a value dispute. Obtain those forms if necessary.
- Gather information. Your goal is to convince the lender to accept the buyer’s offer, so you need to demonstrate that your offer is in line with the value of the property. Collect data that proves this point, such as reports from the MLS, Trulia, Zillow, or your local title company.
- Take photos. If there are parts of the property that are substandard and possibly were not revealed to the lender by the individual conducting the BPO, take photos of those items. Perhaps the kitchen has no flooring, or there is a 40-year old roof. Take photos to demonstrate these defects.
- Obtain bids. For any defects on the property, obtain a minimum of two bids from licensed contractors. For example, obtain two bids from roofers or structural engineers if necessary
- Write a report. Think back to high school English class if necessary. Write a short essay that references your information, photos, and bids, and explains how these items support your buyer’s value. This is not something that you whip up in five minutes. Spend time preparing a compelling appeal.
It is entirely possible that some lenders will not be particularly open-minded when it comes to valuation dispute. However, more times than not, an effective value dispute leads to short sale approval.
Short sale standoffs: how to avoid getting hit
The short sale process can feel a lot like a wild west standoff, but there are ways to come out victorious, so let’s talk about those methods:
What is a short sale standoff?
If you are a short sale listing agent, a short sale processor, or a short sale negotiator then you probably already know about the short sale standoff. That’s when you are processing a short sale with more than one lien holder and neither will agree to the terms offered by the other. Or… better yet, each one will not move any further in the short sale process until they see the short sale approval letter from the other lien holder.
Scenario #1 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they will proceed with the short sale, and they will offer Bank 2 a certain amount to release their lien. You call Bank 2 and tell them the good news. Unfortunately, the folks at Bank 2 want more money. If Bank 1 and Bank 2 do not agree, then you are in a standoff.
Scenario #2 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they cannot generate your approval letter until you present them with the approval letter from Bank 2. Bank 2 employees tell you the exact same thing. Clearly, in this situation, you are in a standoff.
How to Avoid the Standoff
If you are in the middle of a standoff, then you are likely very frustrated. You’ve gotten pretty far in the short sale process and you are likely receiving lots of pressure from all of the parties to the transaction. And, the lenders are not helping much by creating the standoff.
Here are some ideas for how to get out of the situation:
- Go back to the first lien holder and ask them if they are willing to give the second lien holder more money.
- Go to the second lien holder and tell them that the first lien holder has insisted on a maximum amount and see if they will budge.
- If no one will budge, find out why. Is this a Fannie Mae or Freddie Mac loan? If so, they have a maximum that they allow the second. And, if you alert the second of that information, they may become more compliant.
- Worst case: someone will have to pay the difference. Depending on the laws in your state, it could be the buyer, the seller, or the agents (yuck). No matter what, make sure that this contribution is disclosed to all parties and appears on the short sale settlement statement at closing.
- In Scenario #2, someone’s got to give in. Try explaining to both sides where you are and see if one will agree to generate their approval letter. If not, follow the tips provided in this Agent Genius article and take your complaint to the streets.
One thing about short sales is that the problems that arise can be difficult to resolve merely because of the number of parties involved—and all from remote locations. Imagine how much easier this would be if all parties sat at the same table and broke bread? If we all sat at the same table, then we wouldn’t need armor in order to avoid the flying bullets from the short sale standoff.
Short sale approval letters don’t arrive in the blink of an eye
Short sale approval letters may look like they’ve been obtained simply by experts, but it takes time and doesn’t just happen with luck.
Short sale approval: getting prepared, making it happen
People always ask me how it is that I obtain short sale approval letters with such ease. The truth is, that while I have more short sale processing and negotiating experience than most agents and brokers, I don’t just blink my eyes like Jeannie and make those short sale approval letters appear. I often sweat it, just like everyone else.
Despite the fact that I do not have magical powers, I do have something else on my side—education. One of the most important things than can lead to short sale success for any and all agents is education.
Experience dictates that agents that learn about the short sale process
have increased short sale closings.
Short sale education opportunities abound
There are many ways to become educated about the short sale process and make getting short sale approval letters look easy to obtain. These include:
- Classes at your local board of Realtors®
- Free short sale webinars and workshops
- The short sale or foreclosure specialist designations
As the distressed property arena grows and changes, it is important to always stay abreast of policy changes that may impact how you do your job and how you process any short sale that lands on your plate.
The most important thing to do is to read, read, read. Follow short sale specialists and those who blog about short sales on AGBeat, Google+, facebook, and twitter. Set up a Google Alert for the term ‘short sale’ and you will receive Google’s top short sale picks daily in your email inbox. Visit mortgagor websites to read up on their specific policies and procedures.
Don’t take on too much
And, when you get a call from a prospective short sale seller, make sure that you don’t bit off more than you can chew. Agents in most of America right now are clamoring for listings since we are in the midst of a listing shortage. But, if you are going to take on a short sale, be sure that it is a deal that you can close. And, if you have your doubts, why not partner up with a local agent that can mentor your and assist you in getting the job done? After all, half a commission check is better than none!
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