Coaching
We Pre-Qualify Our Buyers, Let’s Pre-Qualify Our Short Sales
Short sale listings need to go through a pre-qualification process.
I had an agent from Riverside County contact me the other day about his short sale listing. He seems to be a pretty detail-oriented guy, and he had some really good questions. He was actually taking the time to study the property and the preliminary title report before signing the listing agreement and putting that property on the MLS.
Some agents are so excited to take a short sale listing that they do not take the time to qualify that listing and to assure that it is going to make for a viable short sale transaction. After all, if we pre-qualify our buyers, why not pre-qualify the sellers and the property as well?
Here are a few things that you should do in order to “qualify” your short sale listing:
On or around the time of the first consultation with the seller, obtain a copy of the preliminary title report or property profile. These documents will reveal how many liens exist against the property. You will also learn about the nature of those liens. All liens need to be satisfied at settlement.
In most short sale transactions, institutional lien holders will only “throw a bone” to other institutional lien holders in junior positions. So, if there is a lien against the property placed by Mr. Seller’s cousin, that lien may need to be satisfied by Mr. Seller, and not by the first lien holder. Is Mr. Seller going to be able to resolve the matter with his cousin? The answer to that question will help you to qualify the short sale listing.
The preliminary title report will also reveal whether the foreclosure proceedings have begun. Foreclosure time frames and procedures vary from state to state. If foreclosure proceedings have begun, then you need to be mindful of those dates when taking the short sale listing. For example, if the preliminary title report shows an auction scheduled for next Monday, the property in question may not be a viable short sale listing.
A third way to qualify the short sale listing is to qualify the seller. Is the seller truly interested in participating in the short sale? Will she or he provide you with all of the documentation that you need in order to get the short sale approved? If the seller is reluctant to share information from tax returns and bank statements with his or her mortgage lenders, it is going to be tough to get the short sale approved. Lien holders have very strict guidelines as to what they require in order to consider a property for short sale. If the seller is not willing to adhere to those guidelines and submit the required documentation, then you may not want to “pre-qualify” this short sale listing.
There are a number of other ways that you can qualify your short sale listing. Start with these, and I’ll share a few more in the coming days.
Are you still on the fence about taking a short sale listing? Think again. Read here to learn more about the beauty of the short sale transaction.
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!
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.
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:
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.
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.
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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CJ Brasiel Broker Associate
January 26, 2010 at 1:21 pm
Great post. I would add that back HOA fees must be dealt with up front. Short sale lenders will not normally pay for HOA liens. Encourage your seller to keep up on these payments. If not a short sale may not be possible.
Mike
January 26, 2010 at 1:32 pm
Great Post. This is a major problem with many of the SS in my area. It should be so obvious, that you need to qualify the property, (liens) and the seller themselves. Why do these SS agents list it if they don’t know that it has a chance to sell? You are one of the most valuable posters Melissa, here and at AR!
Melissa Zavala
January 26, 2010 at 7:17 pm
Mike: Thanks for the kind words. Many folks believe that selling real estate is “easy.” But, as you well know, there are so many things that agents need to take into consideration when preparing for a listing. My post only reviewed a few of those things.
Justin Boland
January 26, 2010 at 3:17 pm
Wow, this was excellent stuff. I’ve been reading/researching all day and it’s a welcome relief to find so much concise information in one post. As someone who approaches this from an economics/macro perspective I really appreciate the hands-on detail here.
Have you done “comparison shopping” on the various software products that automate the short sale process and gather this kind of information for you?
Melissa Zavala
January 26, 2010 at 7:19 pm
Justin: I have cruised the Internet over looking for the perfect software. I think the short sale process is only as good as the folks on your team: the listing agent, the buyer’s agent, the title officer, a cooperative buyer and seller, etc. While some awesome software could help, you are only as strong as your weakest link.
Eric Hempler
January 26, 2010 at 8:10 pm
I 100% agree
Bob Gibbs
January 27, 2010 at 11:47 am
We spend a lot of time with perspective short sale sellers making sure that they have exhausted all of their option prior to listing and that their home is actually a candidate for a short sale. There are some certification programs that we as agents can take which are intended to prepare you for listing short sales. I would recommend that prior to becoming a “Short Sale” listing agent that some education would be of great help.
ColoradoHomeFinder
January 27, 2010 at 4:25 pm
Every real estate board in my market should make this mandatory reading for it’s members. I hate showing short sale properties, and worse yet I hate writing offers on short sales because my experience has been that the listing brokers haven’t got a clue as to what they should be doing. I’m convinced that most brokers take a short sale listing for one reason only: to put up their sign, get into the MLS, and hope the phone starts ringing with new buyers (and not necessarily for their short sale listing).
DC
January 29, 2010 at 7:37 pm
Where can I go to get educated about the short sale process?
Melissa Zavala
January 30, 2010 at 2:02 pm
Great question! If you are a Realtor® member of your local board, you can see what classes are offered y the local board. Most boards offer lots of classes that support agents in mastering the market of the moment. There are also two different designations specifically addressing short sale and foreclosure. They are SFR and CDPE, and you can obtain these certifications/designations by taking courses locally or online.
Short Sale Software
January 31, 2010 at 10:12 pm
Melissa, another great article. I think making the case is incredibly important. Why clog up loss mit departments with claims that don’t, or really shouldn’t, merit a short sale? I’m a proponent of short sales – but the case has to be real. There has to be distress, inability, and the bank really does have to make out better by doing the short sale than not. If all that is true, then making it happen is easy! If it’s not, or if the evidence is marginal at best, get ready for a drawn out due diligence process.
It’s funny, I had always just assumed that everyone was doing due diligence before moving forward on short sales! Whaddya know 😉
Homes In Pasadena
October 18, 2010 at 5:44 pm
Excellent information Melissa.
Once again you provide valuable, relevant information.
Thank you – Steven