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Shadow Inventory or Not? Agents, Get to Work!

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I’ve been thinking about the future of real estate.

Shadow Inventory of REOsFellow Agent Genius Contributor, Russell Shaw, wrote a thought-provoking blog post a few days ago about the rumored shadow inventory that is (or is not) coming our way. I have to admit that I loved this post ‘cause it got me to thinkin’. It got me to thinkin’ about why so many folks are on the fence about taking a short sale listing. After all, why bother taking a short sale listing that will take months to close when you may get a major REO account later this year?

A few months ago, I got a call from a local Broker who wanted me to come to his office and give his agents a pep talk—wanted me to motivate them to start embracing the short sale transaction. He mentioned to me that he had been waiting a year for some Bank of America REO listings, but they never came. After a year, he decided it was time to make a change to his game plan.

While I adore this particular Broker and was happy to visit his office, I was surprised that he allowed his whole slew of agents to sit on the fence for an entire year. What a waste of time!

What could I do in that year?

I could have easily taken at least 15 or 20 short sale listings. I could’ve closed most of them. I could have helped that many families to avoid foreclosure, and I could’ve made some money doing just that!

What is my point? My point is this: while I would love to postulate about whether there may be a shadow inventory, it is just not productive to do so. All of the time spent speculating about what may or may not be coming could be time spent improving myself, making money, and helping others.

Agents moan and groan about the current market and how they miss the way it used to be . . . about how many listings they had “back in the day” and about how much money they made. When, oh when, will we return to normalcy?

Guess what, folks? This current unique and challenging real estate market (with or without its shadow inventory) is the new normal. Get used to it; enjoy it; embrace it. There has never been a better time than the present to polish your real estate skills and take more listings than ever before. And . . . if I have not gotten you off the fence and you are still going to wait for your big REO account, feel free to send those short sale listings my way!

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

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21 Comments

21 Comments

  1. Ken Brand

    January 28, 2010 at 8:09 am

    Amen Sister. To WIN (survive) you have to run like Forrest Gump.

    Every morning in Africa, a gazelle wakes up.
    It knows it must outrun the fastest lion or it will be killed.
    Every morning in Africa, a lion wakes up.
    It knows that it must run faster than the slowest gazelle, or it will starve.
    It doesn’t matter whether you’re a lion or a gazelle
    when the sun comes up you’d better be running.
    ~ Anonymous

    • Melissa Zavala

      January 29, 2010 at 11:43 am

      Ken: I love the metaphor that you have shared here about Forrest Gump (and the anonymous poem as well). Thanks for stopping by and taking the time to make a comment!

  2. Benn Rosales

    January 28, 2010 at 9:18 am

    I think we’re going to keep reporting the news and debating the merits but your point is well taken, and you’re so right. I was just reminded of the head spun depressed agents in the office I’d talk to from time to time that were just negative that inevitably ran me out of the office to avoid catching their funk- great message, and great attitude.

  3. Bob Stahl

    January 28, 2010 at 1:12 pm

    While it’s always a good idea, in my opinion, to think about what may be coming in the future (to position ourselves for it), it’s most productive to move quickly to take advantage of what is happening right here, right now. In the Phoenix and Scottsdale real estate markets, what’s happening right here and right now is certainly a lot of short sales and bank-owned sales. They make up well over half of all transactions, so agents who haven’t moved into those arenas are. . . I don’t know, looking for new jobs?

    • Melissa Zavala

      January 29, 2010 at 11:45 am

      Bob: I wonder if the phrase “A bird in hand equals two inthe bush” was created as a result of some previous era centuries ago with similar problems in real estate. (LOL)

  4. Lisa Oden

    January 28, 2010 at 1:51 pm

    Great post! You nailed it. My area has been hit very hard. Guess what? It’s going to be rough going for a while. People need help and solutions, not whining about days gone by. That’s why I obtained my Short Sale & Foreclosure Resource (SFR) certification. This way when I encounter those who need help (which is very often), I can be part of the solution and help them look ahead to better days.
    When the shadow inventory gets here, we’ll just have to adjust again. Good or bad – Nothing lasts forever!

  5. Bruce Dietz

    January 28, 2010 at 7:55 pm

    Agents should embrace short sales…it is a huge market. It takes diligence, but it is rewarding to help people in a difficult situation and make a living at the same time.

  6. Paula Henry

    January 28, 2010 at 8:03 pm

    Last year I wasted a lot of time on investor short sales. I worked hard and the banks were slow. I still do short sales because people need help and don’t know where to go. I have adjusted and learned to qualify better. I have also teamed up with another agent who helps me on the bank end. It’s a perfect match and everyone wins.

  7. Jeff A Smith

    January 28, 2010 at 9:02 pm

    Shadow Inventory or Not? Agents, Get to Work! https://bit.ly/bFh4mI

  8. Carin Arrigo-Zimmer

    January 28, 2010 at 9:37 pm

    So agree with you Melissa and appreciate your insight! I think I’ve avoided short sales for the simple reason of still thinking of myself as a newbie in the biz as I enter my 3rd year as a full-time agent. Didn’t want to touch short sales last year, in part, because #1.) no training at my previous company, which leads to #2.) little to no self-confidence. Then I read an interview with an seasoned agent who refuses to do any short sales at all! What to do? What to do?

    Now with a company who provides their agents’ with effective, useful tools and education, I’m looking at short sales much differently than I did a year ago. That said, I suppose it’s never too late to learn, right? Compassion for others can be a powerful motivator…. Thanks.

  9. Cathy Ryan

    January 28, 2010 at 9:57 pm

    Melissa, thank you for the great article. I have been doing short sale for the last 3 years. My marketplace has been hit hard with foreclosures. People need our help now! Besides, if the trends go the way they are going, it will look more favorable for a homeowner to short sale than foreclosure. This means the distressed homeowner’s financial future. I don’t believe that the lenders are going to revert back to just foreclosing on these homeowners. Besides there is enough data to show that the loss to the lender is not as significant as it would be if the lender foreclosed and sold the property as an REO.

  10. Derrick Barnett

    January 28, 2010 at 10:12 pm

    Shadow Inventory or Not? Agents, Get to Work!: In the Phoenix and Scottsdale real estate markets, what's happening… https://bit.ly/cbOubU

  11. ShowingSuite

    January 29, 2010 at 3:23 pm

    Shadow Inventory or Not? Agents, Get to Work! https://ow.ly/11Ny9 #realestate #shortsales #realtor

  12. Melissa Zavala

    January 29, 2010 at 10:19 pm

    @MDHouses @TMH_Sacramento @OCShortsalehelp @mrshortsales Shadow inventory of REOs. What do you think? https://bit.ly/9kMJJY

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Coaching

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!

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magic eight ball

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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
  5. 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.

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Coaching

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:

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short sales standoff

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.

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Coaching

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.

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short sale approval

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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