by Marylyn Schwartz
Ever hear the expression, “There are no free lunches?” Well, there is little, if anything, free today, especially a fast way to make money in real estate. For the time being, the days of slapping a sign in the ground and voila you have three offers are a fond memory. In many markets, the sign in the ground has a better chance of sprouting roots and growing into a tree than it does generating a ready, willing and able buyer quickly.
So, what are the agents thinking relative to an effective way to level the playing field? Why don’t we go after short sales? Oh, how wrong that will be for most. If finding qualified buyers and motivated sellers is challenging, wait till you see what really challenging looks like … enter the pre-foreclosure market.
Short sales are sales in which the outstanding mortgage balance(s) is more than the market value able to be realized were the home to be sold. Owners find themselves in this predicament when they over leveraged the home relative to its value. Lots of folks took loans with interest rates that, when they recalculated, caused the owners to be unable to pay the higher monthly payment. In many cases, when the owners went to refinance the home, they found that the equity to do so was not in the home. Sellers could not make the margins work relative to loan amount to property value ratio. A great many homes declined in value for all the reasons we all know too well. We can play the blame game till the end of days. However, it is far more productive to devote energy to what we can do to move forward.
To say that banks are being cautious when making loans is an understatement. For a bank to accept a short sale from a mortgagee, they are going to do diligent research to ensure that the seller cannot pay the loan and has not a “farthing’s” worth of resources that they can offer to the bank to lessen the short sale. If that seller has a savings account, 401K, stocks, bonds, a co-signer, etc. the bank will vigorously pursue the asset(s) to bridge the amount owed with the amount realized by the short sale.
The paperwork required to justify the bank’s willingness to negotiate a short sale will take the better part of a 16-hour day to complete. Frankly, many sellers needed weeks to complete the bank’s process. In today’s environment where many properties are going into foreclosure, banks would rather find a real buyer and sell the home rather than taking it into inventory. An REO (real estate owned) property costs a bank between 30-60 percent of the outstanding mortgage balance to take that property through the foreclosure process and then to sell it as a bank asset.
The agent who decides to assist sellers with this process had better know all the ins and outs before embarking on the journey. You’ll need to be familiar with the typical bank paperwork, who to contact within the bank to bring a short sale to the forefront (hint: the person calling the seller about their late payments could care less about negotiating a short sale … neither does the mortgage side of the bank.) Finding out who handles asset recovery properties, or as they are often called REOs, are the people who, in most instances, do not want to “buy” the home back through a foreclosure.
Advising a seller as to the best process for handling a short sale is rife with responsibility, not to mention liability. There are many attorneys who specialize in the process and may be the best choice for an uneducated seller and/or agent. The sellers may wonder how they would pay the attorney. However, the attorney will attempt to negotiate his/her fee with the bank as part of the short sale amount. Likewise, the agent’s marketing service fee can be rolled into that short sale amount.
Once the sellers are able to demonstrate to the bank that they are unable to pay the loan, the bank will most likely consider a short sale. If the agent finds a buyer to present to the bank, that buyer had better be golden in every way. They will need to:
- Have an outstanding FICO score
- Have irrefutable documentation that they are ready, willing and able to close
- Remove contingencies if the bank wants to sell as is, and that is common
- Have a signed offer in hand to present to the bank
It is incumbent upon the agent to provide the bank with compelling proof of the value of the home. Offers that do not match up with the real value of the property are a waste of time for all concerned and will do nothing to endear the agent with the bank. The bank is not interested in dealing with an agent that they perceive to be marginal, possessing limited skills/understanding of market values.
It might be worth noting that the larger bank’s asset recovery personnel may want a resume from any agent with whom they do business. They’ll want to know if the agent has a working understanding of the ins and outs of pre and foreclosure processes. With the amount of work at the doorsteps of the larger banks relative to mortgage holders in trouble, the banks have neither the personnel nor the inclination to “educate” agents on how to work with them to close a sale, or for that matter, handle a property in the bank’s inventory. They look for people who understand the bank’s requirements (most are quite similar) and get the job done.
With all the additional education needed to get up to speed on how to handle short sales and other pre-foreclosures through to foreclosure properties, it makes no sense that an agent who is not profitable should take his/her eyes off generating business through readily available channels: FSBOs, expireds, target marketing, SOI, door knocking, etc. Trying to get ready to get ready to feed, clothe and house one’s family through some kind of nirvana shortcut is back to believing there are free lunches, the Easter Bunny brings the colored eggs and the guy with the white beard is coming with that Lexus … .
If an agent is thriving and wants to broaden his/her knowledge of the industry by learning another segment or specialty, then that’s a good thing. However, diverting from what needs to be done today, i.e. generating revenue quickly, to learn a complicated, risk-filled new business, will ensure failure. The lifeblood of a successful real estate agent is referrals, prospecting and salable listings. Everything else is gravy. You’re not ready for the gravy if there is nothing to ladle it on!
