If short sales are on your shortlist of ways to make money in 2012’s real estate market, it’s crucial that you be able to get your offers approved in the shortest possible period of time. Bob Hertzog, owner of Summit Home Consultants in Phoenix, AZ, closes about 90% of his short sale offers, and he offers some great advice for experienced real estate agents:
Find the sweet spot that will get the lender to agree to your offer
Hertzog says lenders don’t just pick a figure out of thin air – they do their homework. So you’ll have to do yours. Lenders will either order an appraisal or request a BPO (Broker Price Opinion) to estimate value, so Hertzog recommends offer amounts within about 5%-8% of fair market value.
“This doesn’t mean banks won’t accept an offer that’s below their target price, but it does mean you’ll have to make a compelling case for the price you bring. Guessing will only get your offer rejected, so make sure you can back up your price with cold hard facts,” Hertzog said. Hertzog says this includes providing accurate rehab estimates (if known).
Know the reasons short sale offers are rejected
Reasonable short sale offers are rejected – sometimes in record time. Hertzog says the number one reason he sees short sale offers rejected is one most real estate agents don’t consider: fuzzy math.
Because mortgage insurance guarantees so many mortgages, lenders have to decide whether to foreclose on the borrower, collecting on the insurance policy, or consider a short sale as a viable alternative. “Lenders will never tell you this, but they keep their trusty calculators handy. If they’ll profit more from a mortgage insurance-backed foreclosure than they will a short sale, that’s what they’ll do. And it doesn’t matter how much you offer.”
Constant Communication is crucial
Because short sale transactions have so many moving parts, it doesn’t take much to derail a short sale. For this reason, Hertzog recommends short sale agents rely on an effective system of keeping all parties informed of a short sale’s progress.
“I use Short Sale Genius because it was built specifically for short sales. It’s not as important that you use a specific software application as it is that you develop and implement a system that works for you. If you can’t keep everyone informed along the way, your short sales won’t go smoothly, or buyers could get jittery. If this happens, or the buyer isn't kept in the loop, they could walk away from the deal. Then you'd have to start over from scratch, and hope you can find a new buyer before the foreclosure process plays out.”
Hertzog sees short sales dominating the real estate market for the foreseeable future. He said Phoenix is currently seeing more short sales processed monthly than REOs and foreclosures – combined. “Short sales are currently 27% of closed transactions. In Phoenix, this is huge.”
Hertzog notes that, while short sales can be a great way for real estate professionals to increase their incomes for the foreseeable future, not everyone should try. He recommends only experienced, knowledgeable real estate agents dip their toes into the short sale pool.
“You need to know what you’re doing. Short sales aren’t for brand new agents. Remember, you’re supposed to be looking out for your clients’ best interests. To be honest, until you have some experience under your belt, you should stick to doing what you know – selling houses traditionally.”
Ken Speegle is a direct response copywriter, ghostwriter, and conversational writing specialist. He works with real estate agents, brokers and investors to expand their reach with conversational writing. By working with Ken, his clients are able to focus on their strengths instead of trying to figure out the best way to use the written word to make more money. For more about Ken Speegle, visit him on the web at www.therealestatewriter.com or by email at [email protected]. Ken personally responds to all inquiries.