Joseph Alfe

Short Sale Road Rules: Getting Buyer and Seller on Same Page

One of the most neglected, and yet, most important part of a successful short sale is getting both buyer and seller on the same page. This may stem from the traditional way of thinking on a traditional “retail” sale: It’s “Us against them.” This does not apply to short sales, and if you can over come this mentality, your closing success will skyrocket. Getting the short sale approval is only part of your responsibility; the other part is getting your buyer to the closing table. This is how I do it:

Locking the Buyer Down: The Stick

As I have gone over in my other articles, locking the buyer down into an airtight commitment is part of my “Rules of the short sale.” We do not allow a buyer to have any “outs.” To recap, here are the “Rules:”

1. 90 day contract close date-We need enough time to get approval
2. Ernest money up front
3. Inspection time normal 10 days (NO “upon lender acceptance” allowed)
4. Attorney review normal 5 days (NO “upon lender acceptance” allowed)
5. Proof of funds for cash buyer
6. Mortgage Pre Approval (NO Pre-Grades from loan officers-only banks)
7. Buyer agreement on use of professional negotiator

These rules are non negotiable. If they are refused, we recommend to our seller that this is not a legitimate buyer and we get another offer. Period. Trust me, a buyer that refuses is a buyer that will find some excuse down the road to walk away or not close. Don’t waste your or your seller’s time with these tire kickers.

Sounds like a tall order? I hear it all the time…”Joe, out here in (pick an area) my buyers will NEVER go for these rules….” WRONG! They WILL go for it, because you are going to DEMAND IT! It’s just that you are going to do it in a way that brings the buyer over to your side and gets them involved and excited about the process. Remember, the time where agents could make money by being order takers is long gone! You need to put on your big boy (or girl) pants and go out and be a salesperson. We accomplish this by giving them incentives to play by our rules.

The Carrot

We get our buyer on board by offering them incentives. The most obvious one is Price. Remember, no matter what the objection, Price cures all ills. Sounds simple, and it is, but like anything there is an art to it. First, as a listing agent, it is your responsibility to do a detailed CMA on your listing. We need to know what the true comparable properties are selling for, both distressed and non distressed. As discussed before, we have set out price aggressively at the very low end of the comp range. This attracted buyers. Now once an offer has been tendered, we set about to find the most important key to our strategy, the buyer’s “All In” price. This is where you have to get the buyer and their agent on your side.

Coming Together

How I do this is simple. I tell them that I have a duty to my seller to get this deal closed, and that if we work together, not only can I help my seller, but we can help your buyer as well. We know that it is in our best interest to make your buyer happy, and to get a great deal for them. This is why they need to be committed and honest with us. Remember, WE HELP OUR SELLERS WHEN WE HELP THE BUYERS BUY. This puts the deal in perspective, and softens the edge a little so we get a more honest answer when we ask for the all in price. As explained before, no matter what offer was tendered, we need to know the buyer’s absolute, top dollar, price, fees, extra costs, everything price. This is the ALL IN price. Once that is established, I then like to ask the buyers to REDUCE their offer by 5%-7%. You heard that right. I said drop the offer. This accomplishes two if things:

1. It gives us negotiating room with the seller’s lenders
2. It gives the buyer and incentive to stick in the deal.

The possibility of a discount is a powerful motivator for buyers, and once you show them that you are allowing them this opportunity, most buyer objections melt away quite rapidly. In fact, they become your new best friends.

Now, I know many of you are telling to “Hold on, how is this benefiting our seller..” Well, again, we help our seller when we help our buyer buy. What the seller owes is irrelevant. Our objective in a short sale is not TO GET THE HIGHEST PRICE, BUT RATHER TO PUT THE SELLER IN THE BEST POSITION TO CLOSE. Of course, we have to be quite clear to the buyer that by lowering their offer, they must be willing to bump it back upwards should the lender counter. This also means the buyer should be ready to bring a little extra cash to the table to buy out a seller deficiency on a second, pay ancillary fees, or cover any seller cost not paid for by the seller’s lender. As long as our total amount stays below the ALL IN price, we should be good to go. If you do this right, you will close at a number somewhere between the low offer and the all in price, and everyone will think you are a hero. If, by chance, we end up beyond the all in price, most of the time it’s close enough that you can negotiate some sort of settlement. For those of you who can’t believe that the seller’s lender will go for this…they can and they do everyday. What some of you don’t realize is that most investor guidelines allow for up to a 20% variance from appraised value if you know how to work the short sale right…hence the insistence of using a professional negotiator.

Remember, short sales are a strategy. You should plan ahead because if you don’t, you will be doomed to react to lender actions and that, my friends, is why most agents fail at short sales. Get the buyer on board and the rest of the deal will follow.

For more Short Sale Road Rules and information about the author, please visit our Facebook Fan Page at http://www.facebook.com/ShortSaleProcessor, and our website at www.josephalfe.com or www.ssprocesors.com.com

From what I’ve seen, not having a pricing strategy or mispricing short sale listings is a major contributor to short sale delay and failure. Something as simple as getting the price right may be the difference between a successful short sale and a foreclosure. This failure could very well become the basis for a complaint or lawsuit against the listing agent on the basis of negligence or incompetence. My rule of thumb is simple: If you have a short sale listing on the MLS for more than 30 days without an offer, you’ve priced it wrong. In the last few years, I have noticed something about buyer’s behavior. It used to be if the buyer was willing to pay $95,000, and you were listed at $110,000, they would make an offer. Now, when there may be dozens of listings comparable to yours, and many REO and short sale bargains out there, that same buyer will pass your listing right up and move on to the next one.

Pricing Psychology and the Seller
Many times, when I point out the fact that a listing has been priced out of the market, the excuse I get from the listing agent is that the seller did not want to price according to today’s market value. This is not acceptable. As a listing agent, you must be in control of your seller and your listing at all times. This is especially true in a short sale. We must be very clear in communicating how and why we are pricing a listing the way that we are, and understanding the seller’s psychology is key. There are three main steps in determining and presenting a short sale listing price strategy. They are:

1. Know The Market
The secret to a successful short sale is being able to justify your offer/list price to the lender using current and relevant market data. In effect, do your own BPO/CMA, and gather true, recent comparables that reflect closely on your price. As we know, there can be a wide range of values for comps. I suggest picking the low end of the scale and pricing your listing accordingly. In a short sale, amenities and improvements don’t count. No one cares that your property have granite counters and a Jacuzzi. If a buyer looks at three comparable properties, and they are priced at $100,000, and yours is clean and tidy with nice amenities and priced at $135,000, you will lose the sale every time because the buyer will go with the lower price and think that they will improve the property themselves for cheaper. In short, Price your listing very aggressively, at the bottom end of the market scale.

2. Communicate with Seller
This is where most agents fail. Somewhere along the line, we stopped being salespeople and became order takers. This worked through the boom years, but it is a recipe for failure today. Sales are about control, and you must be able to be confident and control your seller. We must explain with confidence that, in your expert market experience, that in order to attract offers, that you have determined that this is the price. We do not and can not think of what the property used to be worth, and we can’t pine for what we wish it to be worth. The reality is, Mr. Seller, according to this market data, the listing price needs to be X in order for us to be successful. What you owe to the bank is irrelevant. The lenders only concern is how much is it worth today and what can you get for it. That’s it. We must also explain our strategy to attract quality, legitimate buyers. Unqualified buyers are a huge problem. Remember, we are not necessarily looking for the highest price; we are looking for the strongest buyer. This is critical. Our Fiduciary Duty to the seller is to put them in the best financial position and to get the property sold. If we price a listing correctly, we should attract multiple offers in a short period of time. If 2 of those offers are by FHA buyers for $100,000 and $101,000, and one cash offer for $90,000. So long as you can justify the offer with market data, the cash offer is strongest and therefore the one we recommend to the seller. We can only attract these types of offers by pricing correctly. When I look in the MLS and see short sales that have market times of 90+ days with no offers, that is clear indication of an agent who is endangering their seller with their inexperience.

3. Make The Seller Understand
A successful short sale listing agent can make a seller release their emotional attachment to a property and view the short sale as a business decision. First, I stop calling it a home. The word Property is used to distance the emotional aspect of the home and helps the seller view it as an inanimate object. We also need to talk about the sellers relief after the short sale, and how much not having the uncertainty of the transaction is going to relieve their stress. Help them find alternate housing, which goes a long way to helping sellers let go of their current property. Finally, just level with them. Many feel bad that they were not able to live up to their obligations. Remind them that you understand, and that you share their concern, but that ultimately, this is a simple business decision, and this short sale will help them “close the books” and allow them to move on to new opportunities. If a big corporation finds one of its brands foundering, they will take the loss, write it off, sell the underperforming asset, and move on. There is no reason the average seller can’t do the same.

Conclusion
In a short sale, the successful listing agent knows the market, gathers relevant market comparables, then prices the listing aggressively to attract multiple offers. If done right, offers should come in no more than 10 days listing time. If you are having little to no showing activity, your list price is way out of market. If you have showings but no offers, you are close, but not close enough. Remember, we want to find the “Sell Right Now” price. The market will respond when you find that price, and then you can determine the strongest buyer and accept that contract with confidence. So long as you can justify that price with market data, you shouldn’t have issues getting it approved as a short sale.

Joseph Alfe is a Short Sale Consultant and runs on of the largest third party independant Short Sale Negotiating practices in Illinois. For more information and free agent short sale resources, please visit:

www.josephalfe.com

Reposted from my Short Sale Industry Blog Located Here:

http://josephalfe.com/

Pending home sales – a measure of mortgage contracts signed and an indicator of possible home closings – in November increased 7.3% from October, reaching its highest level in 19 months, according to the National Association of Realtors.

This can be viewed as good news, even though the total number is below the number from this time last year, because of the artificial bump in sales due to the home purchase tax credit which has expired. This information must be viewed through the lens of home prices though, which will give a real indicator of what is truly driving the market.

According to the latest S&P/Case-Schiller report, home prices declined 1.1% and 1.2% for the 10- and 20-city composite indexes. Prices across the 20-city composite also fell, averaging an 18 percent decline nationwide. Of the 20 metropolitan areas Standard & Poor’s studies, 14 showed record rates of annual decline. Add to the Core-Logic report that 46% of US homes are underwater, a figure that I believe to be very conservative, and you can see that while home sales my be going up, home prices continue to decline as lenders churn through the backlog of foreclosed REO inventory and short sales. With short sale volume increasing, it is easy to see that the US housing market is being driven by short sales.

This is an important metric to understand. Real estate professionals, brokers and agents must know by now that getting into the short sale game is not a decision to be made lightly-It’s a matter of survival.

The question should not be whether or not to get into the short sale market, but rather Do I have enough knowledge to properly serve my sellers and avoid potential liability?

For a more complete discussion of an agent or brokers liabilities when dealing with short sales, please read my article: http://josephalfe.com/2011/11/short-sale-road-rules-should-you-be-doing-short-sales/

Suffice to say, Agents and brokers need to be asking themselves whether it is worth keeping short sales “in house” with their agents, who are most likely not qualified to handle them, or take a leap of faith and outsource short sale processing to a third party negotiator or attorney. A third solution is for a broker to develop an in house but separate short sale negotiation team. This can allow a broker to closely oversee the process, yet manage liability.

Whether you decide to obtain detailed short sale instruction for your agents, outsource the short sale processing to a third party, or develop your own internal short sale negotiation department, Joseph Alfe Consulting can design a plan to achieve these goals.

Want to see more? Visiti http://josephalfe.com

Just closed another Short Sale. The seller liquidated an investment property at a 400K loss. We got Chase to offer the seller a FULL DEBT RELEASE, and 20K to the seller at close! Great job Angela for getting this one negotiated.

Agents, to learn how SSN can do this for your clients, contact me.

www.ssnegotiators.com

GMAC Short Sale, Approved in 45 days! Balance $280,000, approved at $45,000 FULL DEBT RELEASE! Booya!