Three Tips for the Adamant Short Sale Addict

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Have you ever had one of those days where you really questioned your career choice?  I had one of those days not long after I made the decision to specialize in short sales.  It really happened quite innocently. I had a guy call me who was upside down on his condo and in trouble.  My husband said, “You can do this!” and thus I was off and running and before I knew it was up to my eyeballs in distressed homeowners.  I had entered the world of non-responsive, document losing, and utter lack-of-common-sense big-box lending.

Short sales add a whole other level to a real estate transaction and give new meaning to the word “challenging”.   Because of my experience, I have had investors come to me and ask, “Are short sales a good investment?”  To which I emphatically answer, “What??  Are you crazy??!!” … but I digress.

Advice for the Adamant Short Sale Addict

If you are indeed determined to traverse the short sale mine field, let me leave you with some information that might help alleviate the pain of this experience that I liken to having hot needles shoved under your fingernails.

1.) Avoid the “Let’s Submit a Low-ball Offer and See What Happens” strategy!

First of all, a short sale works If (and it’s a big if) the lender agrees to take less than what is owed on the note.  Thus creating the “short” in the sale.  Now their ultimate goal is to lose the least amount of money as possible and they are not desperate.   Short sale lenders will bring in a 3rd party evaluater to determine the fair market value and that is the price they will try to stick to.  Submitting a low-ball offer will either result in an outright rejection or worse, indifference from the lender and un-returned phone calls.  Secondly, if you were wise and found a short-sale-proficient agent to work with, they will tell you to take your low-ball offer and kick rocks down the road.  At least I would!  Here’s the deal.  For an agent, a short sale means HOURS of work.  My days as a short sale agent were spent with a phone attached to my ear (sometimes 2 phones) and my eyes glued to the computer, not to mention the stress that goes along with an impending foreclosure that, as an agent, you are either trying to beat or get postponed.  Receiving a low-ball offer is a nightmare because it is a “Time Stealer”.  Don’t be a “Time Stealer”.  If the deal doesn’t work with your business model, move on.

2.) In a time crunch?  Short sale is probably not right for you!

Do you have some cash that you need to sink into an investment in a relatively short amount of time?  More than likely a short sale deal is not going to be right for you.  It can take anywhere from 30 days (in my dreams) up to 180 days to just get an approval from the bank.  As a matter of fact, I currently have  a listing on a short sale that I submitted for approval June 1st.  As of today, I am still waiting for approval.  We’ve got a terrific buyer who continues to hang on through my updates of lost documents (by the lender who shall remain nameless) and overall incompetency.  With any luck, we may get approval before the next end of the world event takes place.  So unless you have a plethora of time and money on your hands, just don’t bother.

3.) Want a deal killer? Ignore the dreaded Arms-Length-Transaction clause.

A lenders least favorite thing to do is lose money.  If they feel that they’ve been cheated, then it’s a perfect storm for a lawsuit.  The Arm’s Length Affidavit came about because  someone wanted to make sure that no one would get a better deal then anyone but the lender.  Make sense?  So it is important that there is no relationship other than agency between all parties.  This also includes the real estate agents.  When in doubt, just play 6 Degrees of Separation.  Also, most big box lenders will not allow for contracts to contain any assignment verbiage.  Additionally nothing must change at closing.  Even the simplest change of the spelling of a name can result in the short sale lender sending back the funds and decline the sale, AFTER the closing.  And you wonder at my cynicism regarding short sales!

If you’ve read through the above barrage of negativity and still insist on pursuing a short sale I can tell you that although the above is definitely the rule there are exceptions.  For example, if you submit an offer and it gets rejected, tell the agent to hold on to your offer.  I’ve seen instances where the first offer was accepted but by the time the bank was ready to move forward, those buyers had moved on.  In some cases it was the 3rd or 4th offer that actually ended up with the property.  Secondly, you must possess patience.  A ton of it.  Finally the best piece of advice is to find yourself an experienced agent.  Few and far between are the deals where you, as the investor, could call up the bank and work a deal.  Now the lenders want everything run through the MLS to get the best possible price.  So go find yourself a short sale expert and happy waiting….just don’t call me!

Photo: Susan Goulding

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About Author

Katherine Grote, co-founder of I Buy Austin Houses.com, (Google+) has been involved in real estate for 7 years. Through her experience, Katherine has gained the expertise to sell a home fast. With experience in short sales, REO's, multi-family, and rentals, Katherine is a well-rounded licensed Realtor as well as an avid investor in residential properties.

8 Comments

  1. As an active real estate agent in Central Jersey, I find that many investors play offensive on both making many offers and relying on many agents to do the “dirty” work for them. Some of them burn through REALTORS and agents just as fast as they do properties. It can be exhausting, but all they need is that one lucky offer that sticks that encourages them to stick with the low ball strategy. It is after all, a numbers game.
    Smart agents who receive these low ball offers ask for larger Good Faith Deposits, maybe an appraisal upfront, and strip the contract of conditions and clauses to lock an investor , which by definition would weed or inexperienced or insincere investors.

    • You are dead on. There are a lot of hungry agents out here in Texas who agree to take on these investors thinking that they too might “get lucky”. One of the things I started doing as the listing agent on these short sales was requiring the buyer to move forward with their inspections, option fee, and like you suggested, a larger earnest money deposit. In essence, making them put their money where their mouth is! Thanks for reading.

  2. We bought 2 short sale 4plexes in ’12. One took a grueling 12months, but we kept it on the because the inventory was drying up. When we signed contracts we signed it et al and had no problem changing the name on the contract at closing. On our other ss it closed in 45days, and had a little bit of problems when we changed our financing choice. A deal is a deal whether it takes days or months to close. When we closed on the 12 monther we gained equity on it at close.

    • Hi Troy,
      Like I said earlier, although my experience over the past year of short sales has been the rule but it sounds like you ran into a couple of the exceptions. After I posted my post I immediately regretted not adding that purchasing a short sale for a rental investment could be a great choice depeding on the market. However waiting 12 months to purchase a property for a re-hab may not be so hot depending on the investors financial situation and experience. I see a lot of green investors try to make it on short sales alone because they think they are going to get a smoking deal. Not usually so. And the one that closed in 45 days for you….that’s awesome. I had one that closed in about that once and I thought I was dreaming. It really depends on the lender, the investor, and the state you live in. Anyway, thanks for reading and commenting.

  3. Katherine,
    Thanks for such a great piece of advice. Actually, I now have a short sale under contract, for which I have been waiting for about 60 days, without receiving any news from the Bank. I’m interested in the property, so I don’t mind to wait. But, I do have two concerns on this transaction that I would like to get some feedback from you:

    1) I offered just $10k below market value (at least a minimum incentive you should have after having to go through the long process of inconveniences). My market (Florida) is going up rapidly, and I’m afraid that when the Bank finally decides to evaluate my offer, the market had gone up by a couple of thousands more, and then my offer could become unsustainable for them.

    2) I noticed searching on the public records that the property does not any single Lis Pendants nor Lien on it. Everything seems to be current, including HOA,Taxes, and I’m supposing the mortgage too, because if not the bank would have immediately recorded a Lien. My questions is: Is that normal? It is possible that a short sale could fly with no apparent sign of financial hardship?

    Your feedback on this will be very appreciated.
    Alex

    • Hi Alex,
      Great questions. I will do my best to answer them. First of all offering $10K below market value is totally acceptable. They may counter but chances are they may take it. Is the property listed with an agent? If so, have you had open communication with the agent and are they short sale proficient? I only ask because that agent should be able to give you updates to the file. My next question is do you know if the lender has had a BPO/appraisal/3rd party evaluation done yet? They are typically good for 120 days and is part of how the lender determines what to let the property go for. However, if you have not secured an approval after 120 days, the lender will order another evaluation to determine new (if any) market value.

      To answer your second question, it is possible that the lender has agreed to work with the seller on the short sale. There are government programs available that postpone the foreclosure process to allow the homeowner the time to sell. Or if the mortgage is a FHA, that adds more time usually to the process. If either of the above is true then the lender may not file the lis pendens just yet. I would be very curious to know if there is a listing agent involved and who the lender is.

      60 days is not that long when dealing with a short sale but the answers to my above questions would be very telling.

      I hope that helps a little. Let me know if I can answer any other questions or clarify my above response. Thanks for reading.

  4. Hi Katherine,

    Thank you very much for the valuable feedback. Yes, the property is listed through the seller’s Agent, and I have been dealing directly with them. I don’t know about their proficiency dealing with short sales, they are a small size local Real Estate company. I called them a week ago and they just said they haven’t heard anything from the Bank yet (they told me is Bank of America) I’m supposing that the Bank has not completed the Appraisal/3rd party evaluation yet.

    Thanks for the clarification about the Lis Pendens. It’s still cause me some concern because the owner is no longer living in the house, and most of the times by this stage they no longer have interest in the property and will stop making either the mortgage, taxes or HOA payments. The other aspect is, if everything is current the Bank might not have too much urgency in moving the short sale forward.

    Anyway, I will continue waiting and let’s see what’s happen.

    Thanks again,
    Alex

  5. Colm McCormack on

    Katherine, your post is written in the genre of the stereotypically misunderstanding that exists between agents and investors. What you dismiss as “low ball offers” from “Time Stealers’ is an unfair comment on investors.

    As real estate investors, we make offers that work for us to be profitable. This is in direct contrast to the Seller’s agent’s fiduciary responsibility to get the highest price for the property as possible, thus reducing the tax and deficiency risks of their client if it’s a short sale. As investors, we have a fiduciary responsibility to our business to be profitable and buy the property at the lowest price possible. As a result of our efforts and risks (i.e. time, money and credit), investors have paved the way in the housing recovery. ( See BP article The Every Day Impact of $9.2 Billion Spent on Investment Property Renovations by Chris Clothier October 10, 2012)

    After personally negotiating and buying over 150 properties via short sales since 2006, I understand that the agents that I work with are worth a lot. So, to make up for the lower commission amount on “profitable offers”, I guarantee a flat commission amount (as an addendum to their listing agreement) to them, which I sometimes have to pay on the Buyer’s side of the HUD (and yes, the lender will allow some changes on the final HUD for the ‘clear to close’ to be issues- if those changes are clearly explained to them and their final net to lender the same). If there is only one agent in the deal (which is usually the case with FSBOs whose lender requires a listing agreement to do a short sale), I will often allow them to be a Transaction Broker (CREC Term) to collect a commission on both sides.

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