Don't purchase leads, let me tell you why!
Many new and, for that matter experienced agents get suckered in to these Lead Generation sites promising to send you 10, 20, 30, 40, 50+, leads a month for a one time set up fee of $250.00 (+) and a monthly 39.99 for 12 months and, you get an exclusive territory that only you will be listed as their local Real Estate Professional.
Hey, I will admit, I did it once but, learned very quickly that these lead generation sites are a sham! I said it....a sham!
I came across a fellow Realtor a couple of days ago, if you can call him a Realtor, who said something to the effect, he owns several lead generation sites. Well, as you can imagine, I immediately perked up and asked him how that worked. He said, he was racking in the money, hand over fist and even offered to set me up one. I started asking more questions and came to a realization that I want to share with you.
If the company isn't confident enough in their leads to take their compensation when they close, why are you confident that they will? (Not a direct quote of Bill Cherry's because, I can't find it anymore however, it gets across the idea, thanks Bill.)
If you haven't started moving your business plan towards working with Short Sales, what are you waiting on? If you don't do it now, you may be missing out.
It has been my experience and I am of the opinion that Short Sales are going to become the wave of the future, if they aren't already. In fact, I have seen many of my Asset Mangers becoming much more cooperative to them and in some cases, creating infrastructure to get them closed in 14 days or less.
To explain my point a bit further, look at the emerging success of companies like Titanium Inc and BSG3. Granted, Titanium's reputation is far superior in my opinion however, both companies are successful none the less. These companies basic business structure is to reduce their client's REO inventory by offering fast, accurate and complete Short Sales. They both go about the process a bit different however, it seems to work. The similarity is that the banks are sending their at risk clients to these 3rd parties as a Loss Mitigation tool. Titanium partners with local Realtors and has a low one time fee as well as receives a referral fee upon closing, Titanium's focus is to keep the homeowner in the home and use the Short Sale option as a foreclosure avoidance tool of last resort. Where as BSG3 sells exclusive territories to Realtors for a monthly fee based on the number of leads you want to purchase and receives a referral fee upon closing. As a matter of disclosure, I have not signed up for BSG3's service so I do not have a direct experience as a paying Realtor with them however, I have watched their on-line promotions video, had 2 phone call interviews with their sales agents and read numerous blogs about their services. The biggest reason I don't sign up with them is due to some advice I heard Bill Cherry a successful Realtor in Dallas Texas and frequent Active Rainer once say something to the effect, "If the lead generation company isn't confident in the quality of their leads to only ask for a fee upon closing, then why should you be confident in their leads to pay up front for them". It just seemed to ring true to me. At the time this blog is posted, things may have changed with their fee structure so I leave it to you to learn more about either company if you are interested in them.
My point behind this blog is, Short Sales are coming and rather than complaining about how you don't like them, you might want to consider learning more because, REO's will always have their place in this industry however, I am of the opinion REO's will soon be at their pinnacle. Another point about how REO's seem to be tapping out is the lack of banks and lenders bringing on new Realtors. Once again, this market, from a Realtor's point of view, seems to be very closed, not that it was ever really open but, more so now. Tapped out I say. Short Sales, just starting to get warm....soon will be very HOT! If you haven't jumped on the Short Sale band wagon by now....this may be the last call!
Q: 1- What are the risks?
A: The risk when investing in Short Sales is no different than investing in any other section of the Real Estate Industry. The better question is how does one limit the amount of risk they take on when buying investment real estate? Buy low, sell high however, stay competitive and if necessary, cut your loss early and move on.
Q: Can I end up in the same boat as the sellers and lose all of my assets - i.e. condo, pension plan, bank account etc?
A: Sure you can. If you don't manage your investments wisely and end up over extending yourself, then you will most likely end up in the same boat as the seller's find themselves in now.
Q: - How do I actually get qualified to become a short sale investor?
A: No real universally accepted certification exist for becoming a Short Sale Investor however, I would strongly advice you first find someone who is doing it successfully and have a real heart to heart conversation with them. In a perfect world, I would suggest you "shadow" a Short Sale Investor for a couple deals then determine if it is something you really want to do.
Q: - If I need to qualify for a loan, what type of loan would I be looking at and where would be the best place to get one to enable me to do short sales?
A: If at all possible, don't get a loan when it comes to purchasing Short Sales. Truth is, too many stipulations are involved when getting a loan for investment purposes. Cash is always best when buying Short Sales. If, ultimately you do want to invest in Short Sales with money from a loan, you need to find a loan that acts as much like cash as possible. In other words, a HELOC (Home Equity Line of Credit) or something similar, anything with the least amount of rules, regulations, guidelines and stipulations the better. Basically the easier we can make it for the bank to sell the property without worrying that something from your lender is going to pop up last minute can kill the deal, the better.
Q: 4 - Would a down payment be necessary to qualify for a loan, if so, approximately what percentage would be needed?
A: This questions is best answered by a lending professional, of which I am not however, the answer to this question is most likely going to revolve around your credit score. FYI: with the continuing credit crisis the country is facing, even with a great credit score, you may be asked to put up some type of down payment...with investment properties, it could be at least 10% or more.
Q: 5 - To qualify for a loan, would the dollar amount of the loan (like most loans are) be calculated in conjunction with my annual salary and debt to ratio?
A: Most likely
Q: 6 - Apart from fix up costs on the property; can you give me some sort of break down as to what other outgoing costs I might occur as a short sales investor?
A: You need to make sure you get a Net Sheet or Estimated HUD-1 from your Realtor when you are prepared to sell. This is a estimated itemized break down of each and every fee you will pay to get out from under the home when you have a buyer. This is a great way to see in writing exactly what you will likely walk away with. Keep in mind, the HUD-1 involves all the Real Estate cost, not the cost you will have to fix up the property...that will be up to you to keep track of.
Q: 7 - If I wanted to sell a short sale property after any needed fix ups have been completed, what are the best ways to sell the property (flip it)?
A: Flipping is what you are going to be doing, no question about it, unless, you plan on holding onto the property for rental purposes. By the way, you will want to be prepared to do just that and that is, rent the property. In areas where we see prices dropping monthly....you could find yourself with a debt on the property greater than what you could make from the sale so, the only real choice you have is to rent it out and try to cover the cost of your mortgage, if you get one. This is just another reason to buy a Short Sale in cash if you can.
Q: 8 - Once you get a home via a short sale and it is still occupied (with the view that the seller will leave very soon), what's to stop the seller from doing major damage to the home once everyone has signed on the dotted line - hence making it too late to go back and the seller knows it? What can be done to make sure damage does not happen in anyway?
A: DO NOT DO THIS TYPE OF TRANSACTION!!! DO NOT DO THIS TYPE OF TRANSACTION!! IF THE HOME DOESN'T COME TO YOU ALREADY VACATED.....MOVE ON! Avoid buying a short sale with a resident in the property......or at the very least, write in your purchase agreement that the property is to be vacant on or before closing.
First off, let me just say that a short sale is a lesser of two evils. It should be considered as the nuclear option and only available to those with legitimate hardship. Now, with that out of the way, let us talk about the truth behind what a short sale does to your credit.
If you are considering a short sale, then most likely you have fallen behind in your mortgage. This delinquent arrearages has already impacted your credit negatively. So that is the first thing you need to start considering. Any further delinquency on your part will continue to negatively impact your credit.
Now, one of the biggest differences between a short sale and foreclosure is how it's reported to the credit bureaus. If you foreclose you get "debt discharged due to foreclosure" stamped on your report. A recent conversation I had with a credit expert at Experion enlightened me to the fact that Bankruptcy is the worse thing anyone can do to his or her credit and the 2nd worse thing is foreclosure. She also explained that with a foreclosure it could take you up to 3 years to get a mortgage and drop you credit score about 200 pts or more, considering the previous damage you did by the mortgage arrearages. Where as with a short sale, this message isn't there. Instead you get a message that reads, "pre-foreclosure in redemption". This can result in about a 100 credit score drop or LESS! Not to mention, once the home is sold, it may appear as "discharged" on your credit. It's also important to know, that with a short sale, you can qualify for a loan in as little as 18-20 months later.
All in all, if you have a true financial hardship and the mortgage debt burden is too much for you to handle, then the short sale may be a viable and less credit damaging alternative to foreclosure or bankruptcy.
Other than bedrooms and baths, square footage is one of the most important considerations a home buyer contemplates when purchasing a home. Square footage, in many cases, lays the foundation to a sellers pricing strategy as well as gives the buyer a starting point when making an offer.
The importance to accurate square footage can't be underestimated, per the insurance industry, inaccurate square footage is one of the main reasons real estate agents are named in law suits. In fact, square footage problems have become such a huge concern for the real estate insurance industry, that some insurers have started marketing campaigns educating realtors on how to accurately calculate square footage.
In my experience the single biggest problem isn't that agents aren't measuring the homes it is that they are assuming the public record information is accurate and complete. For example, many agents are simply using previous MLS datasheets to populate the square footage information into their current MLS data sheets. This practice assumes that the previous agens information is accurate and complete without verification. Many people could argue that this practice is a lack of due diligence on the part of the current agent. At the very least, it could be successfully argued that this practice is a lack of professional conduct. As a realtor myself I couldn't imagine anything worse than developing a reputation or a brand in the marketplace that is seen as someone who is not a thorough or doesn't care.
The second most prevalent problem that I have experienced is that the original information provided from the builder himself is not accurate and complete or at the very least was entered into the public record inaccurately. A great example of the record being entered inaccurately is the difference between total square footage and total area. Total area typically represents the foundation, it represents the whole footprint of the home including attached no living spaces. Total square footage is typically a representation of actual living area excluding attached no living spaces, like garages. For many homes that do have attached garages or a attached not living spaces that are a part of the footprint or foundation of the home, these spaces have been included in the total square footage incorrectly.
To determine just how prevalent this problem is in my area I took my own neighborhood and check to see if the total area and total square footage of the homes are the same. In other words, I pulled the courthouse retrieval system tax record and looked at the total square footage number and looked at the total area number and if these two numbers were exactly the same and the home had an attached garage then I knew there was a problem. Almost every home in my neighborhood has an attached garage and accordingly has an inaccurate total square footage. My home is in an older neighborhood and therefore I had assumed that maybe this problem was only with the older homes however, I did the same investigation work with a newer subdivision, with more than three times the number of homes in my subdivision, and found that the problem was prevalent.
From my years of experience and from what little investigation I did I can confidently say that I believe a large portion of homes in middle Tennessee who have attached garages and are built in subdivisions most likely have inaccurate square footage from anywhere at a minimum of 150 square feet for a one car garage to up to 450 square feet for a standard three car garage.
Now for some homeowners this problem of square footage is compounded by the fact that the MLS data sheets have been fudged on the square footage numbers by agents, to make homes appear bigger. For example, a home that has a square footage of 1,459 is entered into the MLS data system as 1500. In fact, this problem of agents adjusting square footage is so severe that I know in my neighborhood a home has been over calculated by more than 500 square feet.
In the above example the home has been measured three separate times by three separate people, once by myself, once by my buyer, and at least once by the residents of the home. Not to mention, that upon the discovery of this square footage discrepancy it was made very clear to the home owner herself in front of her current residents that this home is approximately between 1250 and 1275 square feet.
The courthouse retrieval system tax records showed the home to have an equal total area and equal total square footage of 1559. This home has a two car attached garage of approximately 300 square feet; if you subtract the 300 approximate square feet for the garage from the total square footage / total area of 1559 you get a total square feet of 1259 which falls right into line with the three separate measurements by three separate people obtained earlier.
Now to the kicker, this home has recently been listed at is currently active with a realtor however, the MLS data sheet shows a total square feet of 1700. The problem here is that per the builder the total footprint of this home is only 1559 square feet, no additions to the footprint of the home had ever been made, so how is it possible that this home has morphed to 1700 square feet? It's not possible!
In fact what we have here is a complete and total lack of due diligence on behalf of the realtor and potentially a seller who can be accused of fraud.
Granted, in the best of times when homes are selling at record pace square footage may not be as big of a concern however when the market softens and pennies become very important any inaccuracy in square footage can find a seller behind a defendant's desk. The truth of the example given above is that homes in this neighborhood are selling between 92 and $100.00 a square foot. So for a home to take a 500 square foot drop it could potentially equal upwards of a $50,000.00 loss in the sell of the home. For many homeowners whose equity is their only savings such a realization could be unbearable and cause the homeowner not to disclose. Such a lack of disclosure puts everyone in the transaction at risk and underscores the point of this entire Blog and that is agents need to measure homes. At the very least buyers need to measure homes.
I wish you the best of luck on your next real estate transaction. Don't forget, I'm here to help, for questions please feel free to contact me directly through this blog or on my cell 615 - 424 - 0961
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Experienced Realtor since 2003 with a distinguishing focus on unparalleled customer service and ethical practices. I work with both buyers and seller with a concentration on default servicing.
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