Getting lenders to say "Yes!" to your short sales require that you know how a lender approves a short sale offer.
Often, an agent or an investor will ask me why their short sale offer is not being approved by the bank. They typically go on to explain to me that the property is in bad condition, it has been on the market forever without another offer, and after countless phone calls, emails, and voice mail messages, the lender still will not approve their very fair offer.
What the investor or agent does not realize is that, in every case, the lender thinks the property is worth far more than the current offer they have submitted. It's really that simple.
THE APPROVAL PERCENTAGE:
Lenders agree to a short sale based on a percentage of what they believe to be the current "as is" value of the property. Each lender has a different approval percentage, and it changes often.
Knowing the approval percentage is one part of the equation. The other part of the equation involves what the lender thinks the value of the property is. Lenders assess the "as is" value of a property using a variety of sources. The first and most prevalent is the the Broker's Price Opinion (BPO).
A BPO is conducted by a real estate agent and usually includes 3 closed comparable sales, 3 active competitive listings, as well as local market conditions and other important valuation details. And there are two types of BPOs, interior and drive-by.
With interior BPOs, the agent has access to the property and is able to examine the property inside and out. A drive by BPO is just as you would imagine, the agent is unable to get inside the property so they simply "drive by" and make their assessments based on only viewing the exterior of the property. As you would guess, an interior BPO is far more accurate than a drive by.
The second valuation a lender may use is an appraisal. Appraisals are conducted by licensed appraisers and typically cost about twice as much as a BPO. Although the industry may recognize the appraisal as a more accurate assessment of value over the BPO, due to the fact that appraisals only use closed comparables sales, we have found that a BPO is a far better value determinant. Some lenders, like Countrywide, will oftentimes order both an interior BPO and an appraisal to be mightily sure as to the actual as-is value.
The third valuation lenders rely on is an internal valuation from their REO or special assets department. Most lenders have access to many of the same tools that appraisers and BPO agents use and therefore can quickly glance at the comparable sales for the subject property and be able to verify if the BPO or appraisal is accurate.
In some instances, their "valuation" department may put together an assessment of the property's worth (even though they are unable to view the property in person.)
With all this new knowledge, let's now go back to the dilemma of getting the lender to say "Yes!" to your short sale offer. How does a lender determine what the current "as is" value of the property is? First, they locate the appraisal that the loan was based on. If the loan is relatively new, that appraisal will have some bearing on the final assessment.
Next, if the property has been delinquent on payments for any stretch of time, chances are the lender will have a "drive by" BPO completed. Then, if you make a short sale offer, the lender will usually order an interior BPO, an appraisal, or both. Finally, most lenders have access to a department who will supply an interior valuation.
To create the final tally, the interior BPO or appraisal will weigh the heaviest, followed by the drive by BPO, then the internal valuation and, in some cases, the original appraisal.
In the end, there is a number that the lender finally settles upon that indicates the current "as is" value of the property. They will agree to a percentage of that number. That's it.
SO, HOW MUCH DO I OFFER ?:
You may be asking, "How do I know what that number is?" Sometimes you can simply ask and the loss mitigation rep. will tell you. Other times, we employ a series of strategies that almost always uncover that number.
Further, even if you know what the interior BPO value came in at, that doesn't mean the lender is using that number. They may incorporate an exterior BPO or their own interior valuation into the equation.
So there you have it, armed with the approval percentage and the determined current "as is" value, you'll have the lender saying "Yes!" in no time.
It's also important to know that you can reduce the lender determined value by controlling the interior BPO or appraisal. The concept is that you communicate directly with the BPO agent or the appraiser before they assess the property and educate the person as to your objective, so that hopefully they do not over-value the property and instead, value the property as low as possible.
Lenders have a few checks and balances that will disregard an ultra low BPO. There is a very fine line between a low BPO that the lender accepts and one that is inaccurately low and thrown out. We've spent a decade perfecting the art of controlling the BPO, so that the BPO report or appraisal is low but acceptable by the lender--a fascinating topic for another day.
So, the crux of the matter is that a lender approves a short sale based on what they think the current "as is" value is and their current approval percentage. If your offer is not being accepted, you are offering too low. That's it.
When you sell a property, certain disclosures are mandated by state and federal law. Do you know what they are? Are there other disclosures that are recommended--even if not required?
Let's address those issues.
Federal law requires disclosure of lead-based paint hazards on any property built before 1978. This is generally done on an EPA-approved form and the buyer is given a copy of the pamphlet, "Protect Your Family from Lead in Your Home," available at the EPA's website. The law requires that you give your buyers a 10-day opportunity to test the house for lead.
Every state has different required disclosures, so it is best to research your own state's law. A good place to start is www.findlaw.com. Common disclosures include radon, mold, asbestos, meth labs, whether the property is in a flood zone, and other health and safety issues.
States like California require disclosure of "seismic hazards." Colorado requires disclosure of the source of water. Some states require disclosure of the existence of child predators in the area ("Megan's Law"). The bottom line: Learn your state's disclosure requirements.
Typically, your real estate broker will ask you to fill out a 4-page property disclosure to give to the buyer. In most states, this is not a mandatory disclosure, rather a disclosure that the buyer demands in the purchase contract. I would recommend you fill it out either way, answering as truthfully as possible.
COMMON LAW DISCLOSURES:
The common law rule is that you are required to disclose any known "latent" defects. That is, you must disclose anything that you know about that is not easily discoverable by a visual inspection of the property.
For example, if you opened up a wall to fix a mold problem and then sealed it up with new dry wall, there's no way for the buyer to know this. Such an issue should be disclosed to your buyer.
Sellers commonly mistake the "as-is" clause in the contract as a substitute for full disclosure. It is not. Even if you are selling the property "as-is," you must comply with state, federal, and common law disclosures. Failure to do so could result in a lawsuit for monetary damages or rescission of the contract.
The bottom line is that disclosure is the name of the game. When in doubt, tell the truth, tell what you know or have reason to know. You will avoid many problems down the road.
Our Economy, someday, will get back on track. That Day we will still be searching for the real deal in Real Estate. We will have passed by the Real Estate prices of today saying "It will bottom out soon," "Mortgage rates will get lower," "Our Realtor will give us a better commission rate."
Something would have to have frozen our intelligence, our sense of hearing and thinking process and rationalizing. Maybe it is our GREED to save more, no matter what. We name the presence of Future, amongst the turmoil we are experiencing, a work of necessity. This necessity has been the father of a tool for the Marketing Solution of the Real Estate industry, working only for the Buyer and the Seller. But yet we did not use this most obvious wealth saver; This web presence will have saved; buying and selling of the same house TEN PERCENT of the sale price of the property. GO FIGURE and SEARCH.
When the house prices start soaring, this web presence will lower the buying and selling of the same property by TEN percent as it is doing NOW. Are we seeing this future of REAL ESTATE transaction. Are we aware of what is going to happen to the future pricing of housing? Are we ready to accept the comfort and confidence of real property searched to our satisfaction?
In this Future the ordinary happens without any hoopla. The Buyer will find the Seller and both already educated to the facts and figures of the transaction within the web site, the proverbial Real Estate transaction; the sale of the house or the property processed with all the ease and lowered costs, of the closing costs applied and we will be moving in to our home in 3 days with, the comfort of TEN percent less, because NO COMMISSION was paid, for the price of the house we just bought.
The future is yearning to be discovered, because the unintelligent behavior of our Grand fathers and Fathers have seen the real properties sold with commission had lessened their wealth and put them in financial awkwardness and a wrong state of mind. Commission paid, to sell their real property, their home, had effected them negatively. Therefore they had lost faith in the Real Estate as an investment but a place to live in, a home. Everything will have happened with a speed of lightning.
Face it - most real estate ad copy is boring, uninformative, and does nothing to entice a buyer into calling for a showing appointment. So what if it has 3 bedrooms, 2 baths, and a garage? So do dozens of others.
Why are real estate ads so often boring?
First of all - because they list features and omit benefits.
That might happen because the real estate agent writing the ads wasn't inspired by the house. He or she didn't see anything "special" to use as a focus for the ad. It could be because the house was a cookie-cutter and the agent had seen 200 others just like it, but it could also be because they simply didn't take the time to see what benefits the house had to offer.
Are you faced with this problem from time to time? Then try this: Involve the seller.
You can approach this either through an extensive interview with the seller or by supplying a questionnaire for the seller to complete.
Either way, you want to know several things that will help with your ad writing and in your conversations with potential buyers.
I really recommend the interview over the written questions, because many people aren't comfortable with writing and their answers will be brief. The best combination is to supply the questions ahead of time and ask your sellers to give them some thought. Then do the interview.
Get them talking
If you can get the homeowners to start reminiscing about why they chose this particular house, you might get some valuable information that wouldn't come out otherwise.
And if you do this exercise with a good number of sellers, you'll gain added insight into what motivates buyers in general. You might learn some things that will surprise you if you haven't worn "buyer's shoes" for a long time.
The second reason why an interview is better than a written list is that it gives you the opportunity to get a little more in depth and draw the seller out with conversation (rather than specific questions) about topics such as:
Armed with this added information, your narrative ad copy can come alive and actually paint a picture of life in this home.
Of course you have to be careful to follow the Fair Housing and ADA rules, but that really isn't all that difficult now that you have plenty of space on line to say what you want to say.
Involve the sellers. They live there and they had a reason for buying, so use their knowledge.
Marte Cliff is a Freelance Copywriter who specializes in writing for real estate and related industries. She'll help you with one letter, or an entire marketing plan. For Real Estate agents and brokers who are ready to get full value from their websites, she'll be happy to put together an entire package - from the web copy to the lead generation packages that make an agent's phone ring.
A deed is required when real property is bought, sold, or traded. The document is used to provide information about the realty from the time of its inception to the current date. A new deed must be recorded through the county recorder's office each time the property is transferred.
The type of deed used will depend on the transaction used and the type of property being transferred. Each state governs the type of deed used, so the parties involved should consult with a real estate lawyer to ensure property transfers abide by state laws.
The four most common real estate deeds include: Warranty Deed, Deed of Trust, Quitclaim, and Deed in Lieu of Foreclosure.
A Warranty Deed is used as a written guarantee that the seller owns the property outright and states the property is unencumbered from a mortgage note, liens and judgments. There are two types of warranty deeds which include: General and Special.
A General Warranty is used to claim the person selling the property owns the real estate; is legally allowed to sell it; and the property title is clear. General warranties cover the property title from the date of origin. The seller can be held financially responsible for costs to clear the title if problems occur after the sale.
A Special Warranty only covers real estate during the time it was owned by the seller. Special Warranty deeds are typically used when transferring commercial properties, foreclosure real estate, probate properties, and real estate transferred to a trust.
A Deed of Trust is essentially the same as a mortgage note. The document records information about loan terms; property description; names of borrowers; and the person or company providing the loan.
The funding source can be a financial institution, private lender, or property owner who has engaged in seller-financing. The entity which provides financing is named on the title as the beneficiary which grants them authority to repossess the property if mortgagors default on the loan.
The Deed of Trust is secured with a promissory note and several other documents such as a Truth in Lending statement. Many borrowers fail to read the entire contract, but it is crucial to examine any deed used to secure real estate. It is best to consult with a lawyer or mortgage provider when uncertain about terms or legalese presented in deeds.
A Quitclaim Deed is used to add or remove a person's name onto real estate titles. This document is often used to add a spouse after marriage, remove a spouse after divorce, and to transfer real estate bequeathed through a last will and testament. Quitclaim is required when transferring ownership interest. This deed has various uses within each state, so it is best to seek legal counsel.
Deed in lieu of foreclosure is used when banks allow borrowers to return property "in lieu" of undergoing the foreclosure process. This deed transfers property interest to the mortgage lender and removes borrowers' names from the title.
Those who accept a deed in lieu must carefully read the fine print. Many banks hold borrowers responsible for deficiency amounts between the loan balance and sale price by issuing court-ordered deficiency judgments. This can be very detrimental to borrowers who owe more than their home is worth.
Always have this type of deed reviewed by a lawyer.
Have you ever wondered why and how a property is called a bank REO property? REO actually stands for real-estate-owned and is used to designate properties that have reverted to the bank's or lender's ownership. A borrower could have defaulted on his loan, causing a foreclosure action to be filed against him by the bank.
Usually, a notice is given to the defaulting borrower so he could have ample time to make current his account. However, if he fails to pay within the specified period, then the property will be the sold by the bank at a foreclosure auction.
In the real estate market, a bank REO property is regarded as one of the safest investments that a buyer can have. This is because the bank typically takes care of all the liens, debts and obligations attached to the property before it turns it over to the new owner. But before a property becomes a bank REO property, it goes through an auction.
An auction is a public sale where foreclosure properties are sold to interested buyers. The goal is to recover money owed on the property. But not every property offered in an auction is actually sold. Those which fail to get any successful bid revert to the lender's ownership as an REO property.
But since a bank is not really engaged in the business of selling real estate, it has an REO department which takes care of their bank owned properties. It is common notion in the industry that banks always aim for a quick sale in order to reduce the number of non-performing assets in their inventory.
A large inventory of property is actually undesirable for a bank. This is because a huge number of properties in their yard can only cost them money in terms of their maintenance, taxes and repairs. Selling them would literally transfer these obligations to the new owner, thus, the desire for a quick sale.
This is the main reason why many investors prefer a bank REO property over any other property in the foreclosure market. They know that they can negotiate for its price, and even some repairs on the property. If you can master the art of negotiating for a bank owned property, then you can get a good bargain for yourself.
Getting a homeowner to sell his home to a real estate investor can be a formidable task or it can be very simple if you learn some prospect qualifying techniques. The investor has to fulfill a specific need or provide a solution to a problem that a realtor can't supply by simply listing the home on the MLS and waiting for the property to be sold. One of the biggest needs that investors fulfill is a speedy purchase and a cash closing. However, most investors get frustrated by homeowners who can't seem to make their mind up quickly about selling, but there is a simple solution.
The ability of a homeowner to make a decision quickly is determined by whether he is motivated and needs to sell his home and, ideally, has some type of time limit imposed by an outside force. These outside forces include probate, pending death, foreclosure, divorce and a legal action to mention just a few. When investors are prospecting for homeowners selling their properties they should ask a series of questions about the sales features of the property and to determine if the homeowner is truly motivated to sell or is just price shopping.
Often the homeowner will say they want to sell "yesterday" but in the next breath, they are asking for an unreasonable price. Unreasonable for investors is any price where the investor cannot wholesale the property quickly with no market risk. The fact is that if the homeowner wants to sell at his price but doesn't need to sell, he isn't truly motivated.
What investors need are homeowners who have to sell their properties and better yet, by a specific date in the future. These homeowners are motivated; the others are mostly shopping and are not truly ready to accept a solution that is solely dependent on a sky-high price. One of the best ways to determine a seller's motivation is to simply ask the most powerful qualifying question, "Why are you selling?"
This single question is so important because the seller will usually tell you the truth to gain your empathy for his having to sell. You can then establish a timeline for him to move out and you now know you are working with someone who needs to sell their home, not just a shopper. Shoppers will eventually become motivated sellers but it can take time, sometimes even years. Persistence in following-up will often get the deals that seemed impossible when you first approached the seller.
Just because a seller says no once, twice or even three times or more doesn't mean he won't sell at a price where you can make a profit, it simply means he isn't ready just yet. Some of the largest deals we have had, with profits exceeding $100,000 on single family homes in the price range of less than $125,000 have come months and months after we originally made a proposal to the seller.
Besides screening the seller for his motivation level, persistence is going back to the seller time and time again and not taking a "no" for an answer. Pre-screening the sellers with the powerful qualifying question of, "Why are you selling?", is the key to saving you time and money and to making larger profits in real estate investing.
WHEN WILL IT BE SAFE TO BUY REAL ESTATE AGAIN ?
Hi, it's Mik with New To You RE, LLC and that is the number 1 question other investors ask me, as of 11/30/10.
Here's the REAL concern behind that question:
Property values have fallen, throughout the country.
The "sand states" have been the hardest hit (FL, NV, AZ and CA), with their values plummeting 50% and more.
What alarms many is the fact that real estate values dropped at all.
They believe that this has NEVER happened before and that this event must surely signal an end to real estate investing profits.
BULLSHIT - This happens EVERY 10 - 12 years, on average.
Admittedly, NOT to the degree of recent declines.
Not to panic, though.
While real estate values HAVE dropped, the root cause was the employment sector.
Generally, housing values are challenged every 10, or so years, as I stated above, and that is usually due to supply and demand, as well as other factors that are STRICTLY related to real estate.
THIS TIME, the values were mostly affected by:
1) Subprime loans that should have NEVER been made
2) A poor job market - which caused a
3) Weak economy
When 3 MAJOR factors, like these, combine - the result is NOW
Just understand that STRONG VALUES will return, in 3 to 5 years - as long as the current economy continues to improve.
DOES THAT MEAN I SHOULD BUY REAL ESTATE - NOW ??!!
YES - it absolutely does.
Most wealth, in real estate, is MADE in this kind of market.
LET ME PAINT YOU A PICTURE:
Mik finds a sweet deal on a house that he is buying for LESS than other "RECENT" comps have sold for.
As the rental market is STRONG in this economy, he puts a renter in the house and concentrates on finding more great opportunities - using all the knowledge that he acquired from NEW TO YOU RE, LLC !!
A couple/few years pass and that SWEET DEAL has become MUCH sweeter.
Mik sees all the investors that are NOW starting to come back into the market - looking for GREAT opportunities.
Because Mik had the foresight to BUY earlier, the increased real estate values, on the properties he acquired over the last couple/few years, have created a TREMENDOUS opportunity to sell, capitalize on instant equity, and continue to find other investment opportunities.
Once the real estate market is flooding with buyers and investors, that drives up real estate prices/values !!
DON'T miss the opportunities that are all around you.
CURRENT Market conditions are all set to make you INCREDIBLE PROFITS in real estate.
OPEN YOUR EYES, OPEN YOUR CHECKBOOK AND RULE THE REAL ESTATE WORLD !!
At mikcohen.com - we enjoy sharing insights, helpful tips and specific information. Feel free to comment and share your knowledge and experience, but please keep it respectful.