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Getting started in short sales – how to cherry pick your listings

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Inaccurate calculations can cost big bucks

Everyone already knows that one of my favorite topics is short sales. In fact, my son says that I use the word foreclosure more than any other word in the English language. In a recent blog post, I discussed the importance of making correct calculations on the Estimated Settlement Statement that is sent to the bank with the short sale package. I can talk about that subject until I am blue in the face. However, oftentimes real estate agents don’t understand the negative impact of inaccurate calculations until this error costs them a portion of their commission.

One of my Florida friends made a comment to me that really hit home. He said that a $500 error hurts a lot more when we are talking about a third of your commission.

Yeah, that’s a real bummer. And, as a California agent, I am blessed because the property values are not quite so low. (I’m also blessed by the fact that we do not have alligators—except at the zoo.) While there is certainly a fair share of properties under $100,000 in California, there are many properties with values higher than one million dollars.

Cherry Pick Your Short Sale Listings

Agents frequently contact me because they want to get “into” the short sale business. They have read an article, attended a workshop, or seen a presentation that has prompted them to explore this new business model. They always ask where they should begin.

Well, in order to venture into the field of short sales, you need to begin by obtaining some listings–some short sale listings. And, if you can cherry pick your listings, attempt to prospect for short sales in the millions of dollars, so that you will not end up with that $1500 commission check that my Florida friend sees far too often.

While some short sale aficionados may disagree, I must say that my experience negotiating multi-million dollar short sales is always easier and more satisfying than the negotiations of the fifty thousand dollar transaction. In a fifty thousand dollar transaction with multiple liens and a homeowner’s association, there never seems to be enough money to make everyone happy.

On the other hand, the two million dollar short sale seems to have a little more wiggle room with regard to the negotiations. And, of course, there is the other obvious benefit: 6% of two million dollars is quite a bit more than 6% of fifty thousand. You do the math!

How to Locate Prospective Short Sale Listings

Perhaps you are wondering… How can I identify people with two million dollars homes that need my help?

There are several ways to go about doing this:

  • Identify a neighborhood with high-end homes built after 2000. Use your local MLS records tool to determine whether anyone in that neighborhood is in pre-foreclosure.
  • Speak with a local title company representative about opportunities available to search data through the local title company. Many title companies can provide agents with some information and access to online records free of charge.
  • Join an online service. There are some online subscription services where you can create an account (for a fee) and then log in and download all sorts of foreclosure and pre-foreclosure data.

While every short sale closing is very satisfying, I’m sure you will agree that the high-end short sale (with its higher commission and easier negotiation phase) may be a great place to start.

 

Photo: flickr creative commons by Tim Pearce

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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20 Comments

20 Comments

  1. Angie @AgentKnowHow

    September 13, 2011 at 3:06 pm

    Thanks Melissa for sharing this. I couldn't agree with you more. I cherry pick all of my listings for sure. But, when it comes to a short sales. I have to know if the seller is going to cooperate fully and even advocate for him or herself if necessary. Good article. I will share it with my group.

  2. Richard Murphy

    September 20, 2011 at 9:23 am

    I feel Shortsales should be Negotiated by a Third party Negotiation team because these Agents moving into Shortsales are just setting up relationships with the Negotiators at the Banks and do not know the procedures and make mistakes that are causing buyers to walk, plus the Selling agent shares in that discount caused by a "So Called Shortsale Specialist"
    A third party Negotiator works on the Deal, have Seasoned relationships with the Bank Negotiator, and doesn't leave the Agent open to sue if they did something wrong.
    A Lawyer will be advertising soon on TV, saying did you Realtor do something wrong representing you while Negotiating your shortsale, did they do what was best for you, or were they really doing what was best for the Bank while representing you. There may be a conflict Please call 1-888-888-8888

    I think those that know should and those that don't should hire a Negotiator because they are giving us all a bag name just because they want to try this shortsale thing. 1% of a Deal that closes is better than 5 deals sitting around for 124 days waiting for a response.

  3. MaryAnn

    September 28, 2011 at 10:28 am

    I do not agree with this. Some 3rd party negotiators have way too many files and let them sit until they get to it just like some of the bank negotiators. Bottom line, if you are not certified and chose not to take the time to educate yourself to prevent yourself from lawsuits, then one should stay away. This is why the banks refer a certified short sale specialist to their past due data base. On a final note, the banks are starting to kick off the charges for attorneys and 3rd party negotiators. The banks want Realtors who are certified to negotiate the whole deal.

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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: 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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