Are you really an expert?
Last week, The Stigliano Chronicles, covered my thoughts on being an expert and what it means to be one. Its a word we use all the time in real estate and something we all want to be recognized as. Today, I went to the experts for some education, advice, and new information.
I admitted last week that mortgages weren’t my strong suit, so when my local title company offered a class with a panel of experts on different aspects of the lending side of real estate, I jumped at the chance. I knew a few of the people on the panel from other classes and around town, so I knew this would be a great class that would leave me full of knowledge.
This isn’t about what I learned.
I’ll save the ins and outs of what I learned for another day (by the time I write it, it will be completely outdated – this is the mortgage business we’re talking about). So what is this about then? Since this was a panel of experts, I would expect to get the best information available and for the most part I did. At the very end though, came some information during a question and answer session that sent me back to my office to whip open my laptop, hit the internet, and do my research.
The expert on mortgages, decided to talk about the First Time Home Buyer Tax Credit, something I feel I am pretty well versed on (both the previous 2008 credit and the 2009 credit). I have heard in the past (back with the 2008 credit) murmurs of how to use the tax credit as a down payment on a home. Not only did I hear murmurs about it, but I read an article about it in one of the many publications I receive. Now, of course, when I read this, I hit up a lender I know and asked the tough question; “Really? This just doesn’t sound right.” We had a long discussion about it and although he wasn’t sure whether it was possible or not according to the tax code, we both agreed it seemed like a very dangerous proposition.
The rumor resurfaces.
Apparently, the rumor is back. Surrounded by a sea of agents at the class this morning, the topic quickly came up. The expert’s answer? Yes, you can claim it today as long as you plan to buy a house before December 1, 2009. They then went on to explain that on the new IRS Form 5405 there is a section that you must put the purchase date (this occurs in Part 1, Line B), which they then suggested you put December 1, 2009 if you had not already purchased the home.
Back up and re-read that one.
Yes, you read it correctly. Fill in an arbitrary date on a tax form. Get tax money refunded to you and then purchase a home using that money. I’m not even going to get into the potential complications of a theory like this (what if you can’t close in time?). What shocks me is that here is an expert with a sea of nodding heads with light bulbs going off over their heads. How many clients got a call tonight telling them of this wonderful news?
And here’s the kicker. The lender gave us the “government’s website“, set up to explain everything you need to know about the tax credit. Of course, I wanted to research this myself, so I wrote down the URL for later reading. I want you to click on it and look at it for a moment, then come back and finish reading:
Good, you’re back. Did you see what I saw? The little logo in the bottom right hand corner? Didn’t look like a government logo to me. Nope, it was from the National Association Of Home Builders. Ok, fine, so the lender misspoke a bit. I can live with that. So where’s the info on how I can leverage the tax credit into a down payment? I mean that nugget of info is gold to a client, so I better find it…right? Well, dear friends, I searched high and low and the closest thing I can find is #19 of their Frequently Asked Questions. I’ll let you read it on your own when you have time. I’m not here to disprove the rumors. I’m here to make a point.
Don’t worship false experts.
Although we all rely on experts and consumers rely on our expertise, a mistake can be costly. When we take what we read or hear as the gospel truth; we can find ourselves in court, distrusted, discredited, or out of a job. We can’t know everything about everything, but we can do our homework. We can listen and take in information, but backing it up with the facts and finding out the nuances of any information can be crucial. So next time you hear someone preaching salvation from the street corner, take a moment…listen, soak it all up, and then go seek the truth.
photo courtesy of Gary Denness
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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