Short sales are the most expensive aspect of any real estate transaction, due to the negotiations involved. It is extremely important to ask for more commission and reduce your time invested. It can easily be done by being more selective with the short sales you choose to work.
You will find the occasional exceptions to my "short sale rules" listed below; however, if you stick to these rules, you can be assured that you will have a short sale transaction with a high closing probability.
Walter Sanford s Rules to Taking Short Sales:
1. There is no secondary financing, liens, or judgments against the property, unless the second is part of a HELOC.
2. The seller did not originally defraud the lender by supplying incorrect information to induce the delivery of the loan in the first place.
3. The seller is willing and able to throw a few dollars toward the problem.
4. The sellers cares enough about the transaction to cooperate with the paperwork and showings necessary to complete the short sale. This is important because if the seller does not care about his or her credit nor care about rectifying the situation in a procedure other than a foreclosure, their motivation may wane in cooperating with the necessary steps for a short sale.
Once you have found this potential seller, it is imperative that they understand the short sale process, prior to your making a listing presentation so you can cut out the amount of explanation time necessary. Help with the learning curve by sending the following letter:
Date
Name Address City, ST ZIP
Name:
"Short payoffs" are becoming more prevalent in today's real estate market. What is a "short payoff?" It is when sellers ask the lender to accept less than what is owed because there is not enough equity left after closing costs on a market value sale. The lender does this in return for avoiding the complete foreclosure process.
It has been estimated that when a lending institution does implement foreclosure procedures (takes the foreclosure full term, obtains ownership of the property, prepares the property for market, markets the property and sells it), it may net as little as forty percent of the original appraisal after all costs are considered.
In order to alleviate this problem for the lender and save the credit of our clients, we have implemented a program of negotiating with lenders on a market-value sale. The customary practice is to list the property at a price that will generate a loss to the lender after closing costs. During this marketing period, the lending institution has little to do with the short sale. However, we do make sure that a file has been opened on the property and that the lender is at least aware of it and is willing to consider this prospect.
The lending institution is only interested in negotiating once an offer is received. By pricing this property at market value or a little bit less than market value, we should be able to obtain that offer and send it to the bank for their consideration.
Many things will be required from you at that time. First, a financial disclosure is required by the lender when considering your request for a short payoff. Obviously, this document should be truthful, but it is acceptable to include all of your discouraging economic news in this financial statement. I have included one on which you can start working.
Secondly, we will need a letter of explanation telling why you are requesting this short payoff, which may include your reasons for moving, how long the property has been on the market, the failure stories you have had with previous real estate agents, and any other disturbing circumstances that have prevented you from selling the property.
A third item requested is an authorization, and it works on your behalf toward this short payoff, meaning the bank must know that you have authorized Sanford Systems to negotiate the terms of the short payoff.
Finally, you are required to submit employment verification, pay stubs, or two years worth of federal tax returns and verifications of deposits or bank statements for the last three months.
These documents will be required only when we actually receive an offer, but it would help to gather them now so that we can submit them immediately with the offer. Enclosed is a financial statement form and a self-addressed, stamped envelope for your return.
I have also included a list of terminology that you will be exposed to in the coming months and a financial statement that the bank will want to have completed.
Thank you for using Sanford Systems. Our experience is without equal in Long Beach, and we hope to prove to you that we are an asset and a resource to your real estate future with a goal toward building clients for life.
Sincerely, Walter S. Sanford Sanford Systems
After arriving at a potential short sale listing presentation and assuming they have read the letter to become educated, the only items left to ensure are the following:
- 1. Your 8% commission 2. Make sure the listing sale is subject to the bank accepting a short payoff 3. Obtain a signature.
When you get back to the office, obtain a short sale package from the lender and start filing out the required paperwork. The property should be priced right to allow offers to start coming in quickly. You are not accepting offers from highest offer buyer, but instead from the buyer who is the most motivated. A motivated buyer in this market means that he or she has agreed to put down a much larger than normal deposit and be pre-qualified by a lender that you actually trust. I would ask my buyers to wait four months for a resolution to the short sale before they could cancel the contract.
I know that we went fast in this article, but if you apply these simple rules, you will be cutting out more than 60 percent of the short sale opportunities. On the remaining 40% that you work with, you will have a much higher closing ratio. When you use our systems and strategies, we want you to deal with transactions and leads from the "low-hanging" fruit. There are easier ways to obtain listings and closings, rather than going after the tough short sales.