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.
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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