Christopher Columbus is known for discovering that the world is, in fact, round. Albert Einstein is known for his Theory of Relativity.  Well, I’ve got a theory, too. It’s the theory of the Everlasting Gobstopper. Over the last four years or so, I’ve come to reason that a short sale is kind of like the everlasting gobstopper (the never ending jawbreaker of a candy) made in Willy Wonka’s factory.

Recently (because I have absolutely nothing better to do when waiting on hold for bank employees), I began to ponder how many of the confections and concepts in Roald Dahl’s book, Charlie and the Chocolate Factory (and the Willy Wonka movie starring Gene Wilder) really parallel things that are going on in the distressed property market in California and beyond.

Since I was on hold for over 45 minutes, I had enough time to really hammer out this theory in detail.

A short sale is frequently like an everlasting gobstopper. The Short Sale process often take forever to complete–just like Wonka’s candy. There are many reasons that short sales take awhile to close: inefficiency of the banks, uncertain buyers, uncertain sellers, and inexperienced agents conducting the negotiations.

A short sale can also be like the gum Wonka creates in the factory (the one that Violet chews that that tastes like a 3 course meal: tomato soup, roast beef, and blueberry pie). You see, short sales constantly change directions (like the gum changes flavor). Many short sales get derailed for a while: sellers want to explore other options, want to qualify for HAFA, or believe that they can sell their home as a traditional sale. Additionally, when it comes to short sale processing and negotiating, you never know what is going to happen next. The bank may ask for additional documents, or you may wake up one day with an approval letter in your email inbox.

In the film, all of Charlie’s four grandparents share a bed and a one-room shack. This clearly connects with the recession, the lack of stimulus money, and the general poor economy. Statistics show that agents in certain parts of the United States who are consistently closing are earning about half of what they made in 2005. And, with the national unemployment rate between eight and nine percent, it’s not unreasonable to see people downsizing.

While the book was written in 1964, it really applies to lots of things going on today. Short sales are frequently hard to digest. But, I’d take a short sale any day before I would chew a piece of gum that tastes like roast beef. Yuck!

Photo: Profound Whatever

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

A Short Sale Is Like an Everlasting Gobstopper

Yes, that’s right. I said it and I mean it. I’m thankful for short sales, and I’m not talking turkey. Of course, I’m not thankful for short sales in the same way that I am thankful to my wonderful family and the health and happiness of the ones I love, but I do have a strong sense of gratitude for how this market and short sales have changed my approach to real estate

While I know that short sales have been around for decades, they have never been more common then they are now. Of course, our nation has never seen a recession this deep since the Great Depression, which would explain why they are so common.

But, why would I be thankful for short sales? Clearly, it is not because they are an efficient real estate transaction nor is it because they are concrete and formulaic.

For me, the short sale has pushed me to the limits and taught me to be the best that I can be. Never before have I been forced to think about real estate in the way that I do now. Never before have I had to strategize so much in order to reap success. Never before have I been required to study settlement statements and title reports with so much detail. Never before did my paperwork need to be so thoroughly prepared, reviewed, and complete.

Not to mention another great benefit: now I can take more listings then ever before. With so many people having trouble making ends meet, there is no shortage of borrowers who may need to participate in a short sale. This, of course, means that my sign is everywhere in town. And, that provides me with lots of exposure. It is this added exposure that will fuel my real estate career for many years to come.

And then, of course, there’s the little thing about helping someone else out of a jam in an honest and ethical manner. That should pretty much provide me with life long referrals if I update my database and contact my sphere of influence regularly.

Last, but not least, I am always up for a good challenge. The short sale transaction has certainly challenged me to be the best that I can be.

Last week, I read newspaper articles and heard radio shows with advice about what to do in order to correctly prepare a turkey. The descriptions and reports made the process of cooking a turkey seem so complicated. That being said, the Thanksgiving meal preparation has nothing on the short sale transaction.

Hope you had a wonderful Thanksgiving weekend.

Photo: wishuponacake

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

I’m Thankful for Short Sales

What seller doesn’t want to sell a home fast and for top dollar?  It is hard to get both but here are 6 creative techniques to help sell a home FAST! 

1. Round robin auction – Market and hold a one day open house.  Get initial starting bids then call them in round robin style bidding up the price until there is only one person left.  You can get a quick sale, sometimes for a decent price and can even get backup offers.
2. Lower the price a very small amount every week – Small weekly price reductions will keep your listing at the top of buyers agent searches with the hope the exposure will get you your fast sale.
3. Price at the top then huge price discount – Let’s assume your property is worth 110K with comps ranging from 100-140K.  List first at the highest comp 140K for 2-4 weeks such as during rehab.  Then drop to 110K and promote this huge 30K price discount, seller motivated, bring all offers.  It creates a lot of exposure, buyers think they are getting a deal and it can result in a fast sale sometimes at or higher than value.
4. Find top selling agent – Contact title and get agent sales numbers in the last 1-3 years in the zip code of your property.  The top listing agent may be able to sell your home fast and the top buyer’s agent may have your buyer.
5. CA value range drop – Some areas of CA have value ranges for their asking price such as 400-440K with your true asking price 400K.  Do weekly reductions to the top number.  Your property will show up in the top of agent searches, can result in a quick sale and you are not even lowering your true asking price.
6. Give free stuff - Everyone remembers the home that comes with the free furniture, flat screen television and/or entertainment center.  Giving free stuff to buyers can sell homes fast and give you more bargaining power.  

The downturn has created a buyer’s market.  Sellers often experience difficulties selling and long market times.  These creative techniques can be utilized to help sell your home fast.  Can you see any of these working for you and in your market?  Please share your techniques for selling homes fast.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

6 Ways to Sell a Home FAST!

Though I’m 59 years old, in just a few weeks I’ll have been licensed for 41 years. Markets have come and gone, economic cycles have lived up to their name. People have cussed and discussed why one property sells quickly while another languishes for months on end. Like anything else, if we run the film backwards, the truth emerges — OR — pet theories are unceremoniously deflowered.

Just returning to my own local market after an almost seven year hiatus, I’m eager to begin listing and selling local real estate investment properties. Just last spring I was afforded the chance to sell a client’s rental home as part of his overall Purposeful Plan. Many of my home agent friends watched closely as I told them about my first listing in years. They knew about what I did to sell property, but had never really paid first hand attention.

We listed that home on the MLS on a Friday afternoon, and opened escrow the following Tuesday after lunch. The delay was caused by some extended negotiating.

Here is our M.O. for selling San Diego real estate for our clients.

First, we have a policy regarding our clients’ compliance with our program — they must comply. If they don’t, we gently refer them to one of our very competent local agents. We’ve never lost a client over this, but there have been some who have, in hindsight, not been happy with their decision to resist our ‘rules’.

1. Price will be correctly aligned with the market as it is.

My son and I will do an appraisal on the subject property separately. We then compare notes. We argue our cases. We then settle on a price. Our practice is to then list it for a tad less. We won’t budge on this with clients. We don’t make a big thing out of it, but if we reach an impasse — we pass. Almost always, the client accepts our choice of a referred agent.

For the record, though our referrals sell the properties, our average market time is shorter, while our sales prices are equal.

2. We have an inspector, and sometimes, if merited, add a general contractor, who generate an extensive report. This uncovers any pre-existing conditions, and exposes hidden problems to be addressed. A no-brainer.

3. Since 100% of our single family listings are rentals, we insist on the property being vacant before we commence marketing actively. This is non-negotiable. Either you’re serious or you’re not. Setting aside the pain-in-the-ass nature of tenants in a home that’s for sale, buyers, and more importantly, their agents don’t like (hate) it, and we can’t turn it into the best house on the block with them in it. Also, isn’t the fact that most neighborhoods have multiple short-sales and REOs as competition? And yours has a tenant? Really?

The bulk of our local listings will be 2-4 unit properties. Generally speaking, we lean on our clients strongly to vacate one of them. Though the custom is for the buyer to see the interiors only after an accepted offer, if they can see one beforehand, we sometimes get put in front of the line. Also, since it’s vacant, we’ll have the seller/client do many of the things we do for homes. It works like a charm.

4. We bring in a very experienced interior designer to make suggestions about pretty much everything under the sun, both inside and outside the property. This has proved hand down to be the best money spent in terms of impacting both the ultimate price received and days on market. Here’s an example, using a rental we sold last spring for a local client.

• She ordered the garage completely drywalled and painted.
• Had the patio cover raised from the eaves to the roof.
• Mini-remodels for both bathrooms.
• Re-floored or re-carpeted every room except kitchen.
• Removed 18″ of wall separating living room from kitchen.
• Installed new storage in master bathroom.
• Install new forced air heater
• Total cost: $15,000 +/-

* This was the above mentioned home we sold last spring.

Note: It’s long been my contention, that if flippers/rehabbers brought in a credible, experienced interior designer, they’d not only sell properties faster, but in many cases for more.

5. All repairs and deferred maintenance are addressed. Any red flags in the inspection report are, if possible, re-inspected by a specialist. An example would be the roof. If the roof seems iffy, it’s either certified by the roofer in writing, repaired within an inch of its life, or replace completely. We want no questions left unanswered in the most positive manner — and through the buyer’s eyes.

6. We think (we is the interior designer and the mouse in her pocket) staging is somewhat overemphasized, but we employ it when she thinks the particular property benefits from it. Often, she’ll opt to partially stage a home. In any case, all costs for staging AND the interior designer are borne by the client. They know this well in advance.

7. We use a very experienced and nationally known commercial photographer. His living is made primarily photographing for major wine growers. However, after his first foray on our behalf, over a dozen agents pleaded with us to share him with them. We’re strongly considering it.

8. Our for sale signs will have either an interior shot of one of the rooms, or one of the backyard. It also shows the price via a ‘rider’ in at least 6″ tall letters. These signs tend to stop passersby, which is the point. The sign will also sport the url of the home’s website.

9. We have a stand alone website built. The first thing they’ll see is a high definition video with our designer leading them through the home, showing what’s been done, and why. This is a new addition for us, as we’ve not done this before. We were gonna do it with the aforementioned listing, but it sold too damn quickly.

10. Open houses — we don’t do them. Why? Simply because we’re not tryin’ to get other listings in the neighborhood by impressing the neighbors with how hard we’re working. We think puttin’ a ‘for sale’ sign up on Friday, and a ‘sold’ sign up the following Wednesday is impressive enough.

11. We put the listing on the MLS. It will include the maximum number of photos allowed, which I think is now 12. We also price listings using the range approach. We’ve found that works better. This is especially true when the low end is obviously less than neighborhood competition, yet the home appears to be just as obviously superior in just about every way.

12. We create flyers and print them on relatively expensive stock. They have our best photos, the home’s website address, and text that’s epic in nature. These are put into flyer boxes which passersby can easily see from either direction. Frankly, I’m dubious about this one’s impact, but we do it cuz we can.

13. We will then post about it on our company site. This will contain a link to the property’s own site, of course. Because of our site’s reputation for accurate info and trust, this boosts the home’s site more quickly than if it merely stood without links. Duh, right?

14. We have our flyers distributed to the local employers surrounding the neighborhood. We also have a smallish list of agents/brokers we trust, and who’ve told us to give them a head start on anything we list. Since they know we’re gonna do crazy cool things to the place, they want first dibs. Works for us.

15. If the listing hasn’t sold in a week, we select a local agent we know well and trust implicitly to hold an open house. It’s no skin off our nose, and every now and then (roughly 5% of the time, a figure I completely made up from experience) it’ll result in a sale. It will not do any harm. Meanwhile we’ve generated some goodwill with one of our colleagues.

16. We’ll put an ad in Craig’s List. It’ll link to where we think will generate the most good. I know it sounds crazy, but we’ll sometimes call a friendly agent in the area, asking them if they’d like to advertise it. Why on earth would we do that? Simple — We refuse to represent traditional homebuyers. It’s not our thing. Furthermore, if the buyer is an investor, we wouldn’t sell anything in San Diego to them anyway, as it wouldn’t be congruent with our stance of the last seven years. Any agent who does advertise our listing, agrees to forward any investors our way.

17. 3-5 times weekly, if it’s vacant, somebody from our firm checks out the house physically. We have it ‘cleaned’ as needed, sometimes when it’s not. Our client is held responsible for keeping the front/back yards in immaculate condition. We don’t take any prisoners on this one — especially the front yard. Curb appeal is analogous to the pretty girl who dresses to accent her figure’s strong points. Short skirts aren’t popular for nothin’.

Much of the time, the property sells itself so well, and is priced so effectively, that we don’t have time get a sign up, a website, flyers, a blog post, or an ad in Craig’s List.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Gettin’ Your Property Sold – One Pro’s Thoughts

A friend of mine is a District Manager for Honda. For his job he’s in charge of several dealerships making sure they’re doing the proper marketing and getting everything they need from corporate. I guess you could say he is the liaison between the dealerships and corporate.

Part of his job is to obviously help his dealerships become as successful as possible. So the other day he decided he would go mystery shopping to a Toyota dealership to see how they handled customers, to see their marketing materials and to see their overall sales process. He ended up visiting a total of three dealerships.

He said the first two dealerships were very professional and did a great job (and he was able to get material he could use for his own dealerships). He said the third dealership did a horrible job and he spent three hours there because they had no idea what they were doing.

What This “Bonehead” Manager Did…

Well, my friend’s boss had him write up a formal report about his three visits and what could be implemented for Honda. Along the way, another manager found out about the mystery shopping and this particular manager had a friend that worked for the third dealership which did poorly. So this bonehead other manager called his friend at the Toyota dealership and started “ragging” on him about how his dealership sucked, etc. (Yes, an immature move).

Of course the guy who worked at the poorly performing Toyota dealership told his boss, who in turn left the following message on my friend’s voicemail. It went something like this: “Hi, this is Bob Smith the General Manager at XYZ Toyota. I understand you mystery shopped us the other day. I also heard we did not do to well and I would like to talk to you about your notes. However, I am not pleased at all that you wasted three hours of my salesman’s time. I think that is extremely inappropriate and I expect a call back from you. I will be persistent about this and don’t waste my guys’ time again”.

It was a little longer than that, and my friend let me listen to the actual voicemail. So what’s the big lesson you can learn from this? What huge mistake did the GM who left the message make?

If this GM was a good salesman he would have…

Left a very friendly voicemail and said “hey, I would love to hear your notes so I can improve my dealership” and he would have left it at that. However, he was a terrible salesman because on the second half of the message he was confrontational and said how mad he was about the three hours wasted.

Now why in the world would my friend want to call this guy back and help him? He wouldn’t, because if he called this guy back he knew he would get yelled at. My point is, if you need someone to help you out, or you want them to do you a favor then obviously don’t make it difficult for them to help you or call you back.

You need to think like a salesman and put yourself in other people’s shoes…

For example, let’s say you were working with a seller who all of the sudden stopped returning your phone calls. And one day you call him and say “Mr. seller this is Jason from ABC Realty Group. I’ve been trying to call you for the last week and I think it’s very rude that you don’t have the courtesy to call me back. I would like to buy your house still, so call me”. Now of course this guy is not going to call you.

In short, please remember to keep your emotions in check. Even though we would love to yell at people (I know I would a lot of the time) you will not get business from them, or buy houses from them if you do.

By the way, I told my friend not to call the GM back because he violated a simple rule of salesmanship and he told me he didn’t ever plan on calling him back. You see, had that GM been smart, my friend would have been more than happy to tell him how he could have improved his business.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

A Crucial Lesson About Salesmanship

In my previous blog posts I told you that real estate agents who are tired of losing commissions to “short sale processing companies” are starting to realize that processing short sales themselves is well worth the effort. But, I’m not sure agents realize just how simple this process–which can net them some serious profits and help them build some great contacts for the future (remember that homeowners could qualify for another mortgage at a reasonable interest rate in as little as 18 months if their short sale is completed successfully–which means they’ll probably be needing an agent to find them another home in as little as a year-and-a-half…). In fact, with a little time and energy, any agent can learn to master the seven relatively easy steps to completing a short sale–in short order! 

1. Complete a Property Valuation Analysis – Lenders will only approve a short sale if the borrower owes more than the property’s fair market value. And, the lender must be convinced that a short sale will net them more than a foreclosure. So, preparing a property valuation report that demonstrates this is the first step in the process. 
2. Contact the Lender for a Short Sale Application – After getting the borrower’s approval in writing (this is essential), you will contact the lender with that approval. Then, it’s best to contact the lender’s loss mitigation department by telephone with the borrower sitting next to you so the borrower can answer any questions the lender may have. This step will also help you start to build a relationship with the lender that will lead to a successful short sale transaction. 
3. Help the Borrower Write the Hardship Letter – Rather than an emotional plea, this must be a fact-based description of the borrower’s financial situation–which is heading towards a bankruptcy, a foreclosure, or both–written in the borrower’s own words. The letter must convince the lender that after analyzing the numbers, they will make more money from a short sale than from a foreclosure. 
4. Submit the Short Sale Package – Carefully completing the necessary paperwork and submitting the documentation that proves the borrower’s financial hardship (eg. bank statements, bills, pay stubs and tax returns – aka the short sale package) is critical. Submitting proof that the property is in a condition that would require the lender to spend a bunch of money on repairs in order to sell it they foreclosed (eg. repair estimates) will also help your case! 
5. Prepare the Short Sale Purchase Agreement – A properly prepared purchase agreement will ensure that the transaction goes smoothly. 
6. Follow Up With the Lender During the Process – Regular calls to the lender’s agent during the process will help the transaction along. You will know right away if they have any questions that need answering or additional documentation that needs to be submitted. And, it will give you chances to charm that agent! 
7. Negotiate With the Lender and Close the Sale – Since you’ve established and maintained a good relationship with the loss mitigation agent throughout the process (you charming devil, you!), as well as submitted a thorough, well-prepared short sale package, an approval is practically guaranteed. But, if the agent somehow finds a reason to disagree with your offer, be prepared to defend it with your comps, photos and other evidence that supports your numbers.  

Now that you’ve gotten the approval (like we ever doubted you!) be prepared to close the deal as quickly as possible. Most approvals have time limits, and deals that aren’t closed within them are usually gone for good!

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Real Estate Agents Can Process Short Sales in Seven Easy Steps

While once never used to sell real estate in the amount and quantity that is business du jour today, this method is becoming ever more popular. I am not talking about the auction process that takes place on the court house steps. I’m talking about auctions that sell homes by the boat load.

Most auctions are pretty daunting for the first timer. The action is fast and the price isn’t always the price you think you bought at (see below). In order to demystify the process, I thought I’d run over a few explanations and give a few tips.

A buddy of mine in California was an auctioneer and held one every Saturday morning. I used to help him bring in the merchandise during the week and on Saturday be one of the pointers. That’s the person who points at you when you bid. (S)he also points at you and hollers out your number if you are the successful bidder.

Types of Auctions

If you are an Ebay hound you probably are pretty darn familiar with what you are about to read. For those who don’t qualify for my first statement, here are the three types you will most likely find at a real estate auction.

1. Auction with a reserve - This type of auction means a price has been set between the seller and the auctioneer. In order for the sale to be complete, this price must be met. Sellers use reserves to feel secure they will receive a predetermined amount of money.

2. Absolute auction – The property up for bid is sold to the highest bidder. This type of auction does not have a reserve price.

3. As Is, Where Is – This simply means the property is being sold without warranty and there are no contingencies based on the status of the asset being sold. If you’ve visited a used car lot, you probably have seen this sticker on their for sale autos. that means you buy what you buy. You can’t go back on the seller if you find defects.

4. Minimum bid – This auction provides prospective buyers with an initial price range where bidding will begin. For example, an auction with a “minimum bid” of $50,000, means the auction will start with an opening bid of $50,000. The asset will not sell for anything less than $50,000. Minimum means exactly that, minimum. By the way, a minimum bid should not be confused with an “opening bid.” An “opening bid” simply means a price where the bidding opens. Pay close attention to what the auctioneer says when the property is presented. That way you will know if it is a minimum or opening bid (s)he is asking for to start the auction.

Real Estate Auction Tips

Always inspect the property before the auction. Due diligence on your part is important. Contact the auction company managing the auction and inquire about times when open houses will take place, as well as any paperwork available on the property. In this day of email, you probably will receive an email with everything you will need to make up your mind about even attending.

My auctioneer buddy always had a little jewel called a buyer’s premium. This is nothing more than a form of payment for the auction company. In other words, this is pure over and above profit for the auctioneer.

The buyer’s premium comes in two forms. It is always in the advertising flyer so read the flyer from top to bottom. My auction buddy used the percentage method. He charged 10% of the high bid. If someone won the bid at $1000, they paid him $1100 after the auction. He not only made the 10% buyer’s premium but he also made the contractual percentage amount. The second form of buyer’s premium is a flat fee added on to the high bid.

If you are a little queasy about buying at an auction, attend one as a spectator. You are not obligated to bid even one penny. That is the beauty of an auction. You can sit there all day and just watch the proceedings and soak up the knowledge and learn firsthand.

More Auction Advice

Auction companies are like any other business today. They have websites. These websites have a “Frequently Asked Questions” section. You can almost always find a list of the the terms and conditions of a particular auction. This is an important section as it means you can avoid unwanted surprises.

I will repeat myself: Do your research and due diligence prior to showing up at the auction. If you’re not comfortable looking at a property on your own, bring someone with you. You don’t have to have a professional inspector just someone who can determine if repairs need to be done to a home. And, of course, it stands to reason, they should be able to give you an estimate of how much any repairs will cost.

I’ve watched people at my buddy’s auction get caught up in the moment and go hog wild bidding. The best way to avoid becoming involved in a bidding war is to set limits and stick to them. If someone bids above your threshold price, stop bidding. It’s that easy, at least in theory.

I hope the above helps out all potential auction attendees. It isn’t the end all be all in auction advice but it will help you understand the process as it exists. What you do with the information is up to you. Good luck if you go auctioning.

Image by Getty Images via Daylife

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Real Estate Auctions: Going Once, Going Twice . . . .