At some point in your career, no matter how hard you try, you’re going to get burned by a client. I don’t think it’s possible for any successful agent to navigate an entire career in this business without getting bit in the ass at least once. Unfortunately, that “principles of real estate” class agents take to get their license can’t possibly cover the infinite impossibilities that may occur between an agent and their client.
In order to help agents bridge that gap, I’ve put together a list of ideas and actions that agents can take in order to try and prevent customers from burning you as an agent:
Get a Buyer Agency Agreement BEFORE You Start Showing Houses-
If you can’t get a buyer agency agreement signed by your buyer, then you probably shouldn’t be working with them. Clients love the fact that you can send them listings, show them houses, suggest how to craft offers, etc. When it comes time to write a contract, however, you might be in trouble. Nothing is stopping that client from having Curly, their wise-guy Cousin/Agent, write that offer for them. You’re out of luck, but Curly thanks you for making his job so easy!
Call The Buyer’s Lender Immediately-
Your client, Debbie Dummy, already had a pre-qualification letter in hand before calling you! She just failed to mention that the letter was written in 1995. Too bad she’s filed for bankruptcy twice and run up $75,000 on her credit cards since then. That qualification isn’t worth the paper it’s written on, but if you had called the lender at the start, you could have saved yourself a lot of time and money!
EXPLAIN The Contract!-
Lazy Larry hates reading contracts, especially since they’re far less interesting than the latest copy of NASCAR magazine. It’s a shame, because if he HAD read the contract, he’d know that settlement was scheduled the same time he’s heading down to Daytona for the big race. Suddenly you’re stuck with a contract that can’t close while Larry is sunning his beer gut on the top of an RV in the infield, and them there cars is runnin’ so loud he can’t here that phone ringin’ in his britches!
Keep A Calendar-
Ricky Realtor had a great rookie year. He closed 12 transactions in his first year, but suddenly he’s juggling tons of clients simultaneously and he can’t even remember all of the appointments he made. If he kept a running calendar, he would know he’s got 3 different clients scheduled for Friday at 3pm, but alas, 2 of his clients are destined for disappointment (and probably a new agent). Planning big while starting small is important. It’s easy to manage 2-3 clients at a time without a calendar, but when business grows, you’ve got to be ready to handle it if you expect your clients to keep calling.
Do A Preliminary Title Search-
Lizzie the Liar listed her house and is about to go to settlement. That is, she THOUGHT she was about to go to settlement. The title company just found out that VISA put a $130,000 lein on the home, and the IRS did the same for an additional $200,000. Too bad Lizze didn’t mention that to you when you listed the home. Add that to the outstanding mortgage debt and the HOA fees that haven’t been paid since 1987, and you’ve got a house you can’t even sell. If you had just ordered a prelim title search when you listed the property, you could have saved yourself a lot of aggravation.
Give Yourself Extra Time-
Hapless Harry has gotten himself in trouble again. His clients are buying their first home, and when he helped them write the contract, he put in a settlement date that was only 2 weeks away. It’s a bummer that the loan won’t be out of underwriting by then, because the bank is going to charge $150/day for each day they don’t close. Harry should have given his clients more time to get the deal done, because guess who they blame for this mess? Turn’s out that Harry’s last name was, in fact, Mudd.
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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