Oh Man, It’s True…
It’s finally happened. The world has gone mad, and I’ve got two choices. I can either fight it, or I can slip into that stylish straight jacket along with everyone else and accept it.
First, there are my clients, the ones who used to be normal until they started watching the news — and listening to the stories of their friends. “Our next door neighbor’s Uncle Sol’s poker buddy just bought a foreclosure that was listed at $14 million dollars, and he got it for $7.95 and a goat!” they say. It’s then that they decide that they want one of those, and it becomes my job to find it.
So we spend every day on the phone discussing the new listings. I warn my buyers, the ones who want a turn-key home with all of the amenities of the White House Red Room, that the latest listing is a “light fixer.” “The toilets and cabinets have been removed,” I counsel. “Let’s see it!” they cry. “For the right price, we can do some touch-up painting!” “But it has NO ROOF!” I shriek. And, so, off we go to what will be our 98th showing of the week, a showing which will culminate in my clients shaking their heads in disgust at this home that just needs too much work.
Kickin’ it Into Overdrive
Occasionally we hit pay dirt, and on the rare occasion that our new “home of choice” doesn’t already have twenty-seven to the power of infinity offers, all above asking price, my clients kick it into overdrive. We study the comps; we consider the cost of repairs which will need to be done to make the home sort-of habitable, and then my clients instruct me to write an offer at a “fair price.” This “fair price” is typically determined by adding the ages of their children and then dividing by the number of homes we have seen year-to-date, multiplying by the price of crude oil in Danish kroner, and then subtracting a random integer (usually 3). And the owner rejects it. Rinse and repeat.
Now, before you argue that to be a doormat I have to lay down, let me point out that these are often past clients I am working with. I do not, practically speaking, have the luxury of firing them. They stuck with me in the good days, and I feel a fiduciary obligation to stick with them in the crazy days.
It’s Not All THEIR Fault…
I can’t blame the clients entirely. Agents today deserve some of the credit for the cloud of insanity under which we are operating. Let’s take that “asking price.” Particularly where short-sales and foreclosures are concerned, the asking price today is most frequently not based on perceived market values or an analysis of comparable sales and trends, but it is some mythical number intended to move that sucker as quickly as possible. We saw one of those homes make its debut in our area this week. It had eleven – eleven – offers in two days. It is times like this when I have to ask whose interests are being served (Answer: the bank’s), and I have to wonder if the agents are just firing into a crowded room (yes). And, so go the distress sales, go the rest. What we are now witnessing in many areas is a downward spiral, a spiral fueled by agents who are perhaps a little too opportunistic. They may be a little too quick to facilitate a short sale (heck, it’s a listing!) just because the net sheet is upside down, forgetting that the seller should be counseled on other options. And they may be a little quick to price that puppy to fly off the shelf, at any price, forgetting that even their clients in a short position would be better off registering a lesser loss.
Oh, and Don’t Forget the Banks
Finally, there are the banks. Not them again! The banks, one could argue, largely got us into this mess, and they are the gift that keeps on giving. While they are now busy mitigating their losses, the sellers who didn’t fall into the over-leveraging trap are watching their home’s equity and their chances of selling before the next time Thanksgiving falls on a Tuesday mitigated into oblivion. The lenders, having reclaimed their collateral, assign a single agent a hundred listings or more, homes spread across entire counties, when a single agent clearly cannot cover that much geography while wearing the hat of the neighborhood expert. They miss on the pricing – a lot – but there is no accountability, because the bank-owner just wants it gone, and there is no motivation on the part of the agent to do anything other than slap a crazy price on it, because the agent just wants it sold. Sure, the banks dispatch other agents to offer an independent Broker Price Opinion, but these agents too are stretched a little thin. Or, perhaps, the lenders just don’t care. They are clearing the books of the bad paper, but the problem is this “bad paper,” paper manufactured from greed, paper which used to represent families, is now being used to TP our neighborhoods.
These are crazy times we are living in. Unfortunately, I fear my stay in the asylum is going to last awhile longer. Pass the meds.
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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