One of the realities of life is impermanence. And yet, people act as if their current state of circumstances will never change, when of course, they inevitably do.
Sadly, you can find stories of suicide in any local paper – people overwhelmed by their current set of financial circumstances…or bullying at school….or their loss of love. But as we all know, financial fortunes can change seemingly overnight, high school bullies fade into a memory, and you meet your love in a coffee shop on a normal random morning.
The Economic Change
As our economy changed over the last couple of years, many of us have struggled with this reality of impermanence. Our burgeoning home equity, our expanding 401k’s, our profitable and growing business felt so good. And while we know intellectually that all economies have a curve, and that we were likely at the top of that curve, many of us believed that it would be the ‘soft landing’ that was mentioned by economists at CAR, the financial world, and even leading government.
I’m not speaking for everyone. Some moved their investments to commodities or cash. Some sold their real estate investments and rented. Some planned for the downturn in their real estate practices. But from what I’m seeing locally – that’s unfortunately a significant minority of the population.
Lessons From My Youth
One of the early lessons of impermanence came from my father via his after dinner lectures. He used to say to me that nothing was guaranteed in a marriage. One might divorce, one might be an early widow and it was my responsibility to own some ability to care for myself. Hence, my real estate career.
Fortunately, I married a man I adore. And yet, my father was right in some ways; you never know when circumstances may change. I did anticipate a downturn in my residential real estate business. What I didn’t plan for was the news we got last January – my husband, in commercial development and construction, was laid off. The check that simply appeared in our bank account every two weeks over the past 6 years felt…well….permanent. My real estate business immediately took on an entirely new level of importance in our home.
Let’s Look at Your Business
My reason for bringing this to your attention is that while circumstances do change, we often do not change our desire for a sense of permanence. Many of us simply go into another set of circumstances believing THIS is the new forever. So let’s examine how this in your business.
Your Business Before The Changing Market
- Did you find that you were too heavily focused on one sector of the market – FSBO’s, first time buyers, or ‘B’ paper loans – that diminished or simply went away?
- Did you find that you have been too reliant on one form of marketing – newspaper ads, real estate magazines, expensive farming methods – that were no longer as effective?
- Did you create enough of a safety net for a shift in economic conditions?
What Have You Learned
The bigger questions are really about what you have learned. Are you allowing yourself to believe that THIS set of circumstances is permanent OR are you making the long term plan for the next change?
- Do you have systems that are diverse? If you are having success as an REO agent, an ‘expired listing specialist’, or a ‘short sale specialist’, are you still working your other systems?
- Have you thought about the areas of expansion that you can capitalize on when the market begins to recover, such as FSBO’s or farming?
- Most importantly, if one of your most profitable systems went away tomorrow – could you still sustain your business and your life?
The Sphere of Influence Caution
If you are thinking, ‘Most of my business is from my sphere of influence; I don’t have to worry,’ – be careful. I’ve seen it with colleagues – the dissolution of a marriage, a disagreement with a friend that is a ‘connector’, can change a social situation overnight. Again, even a business heavy with sphere of influence revenue, should not be considered ‘permanent’.
I wonder if we fool ourselves into believing our current state is permanent – if only to believe that WE are permanent. At it’s core, it’s a denial of our mortality….but I realize I’m getting a bit too deep here.
The Moral – just check your damn systems people! Be diverse. Be flexible. Live in the now – just don’t be married to it.
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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