Buying A Short Sale For Maximum Profit With The Help Of A Realtor

Buying A Short Sale Is A Great Way To Generate Substantial Profits If The Agent Involved And Investor Buying The Deal Work Together!

Short sales make up a significant amount of the inventory available on the housing market and they hold substantial opportunity for generating great profit, but there are some serious landmines in these transactions.

One of the biggest obstacles in buying short sales for maximum profit is the hurdle of educating and getting the Realtor in the deal to cooperate.

Like oil and vinegar, Realtors and investors have not exactly gotten along. They call us names like “bottom feeders” and “snakes”. They feel we are trying to “steal” a property or only submit “low ball offers”.

Yet in today’s marketplace the irony of the situation is that we as real estate investors now are needed to help clean up the mess. You see, because the foreclosure debacle has infected so many homeowners, the proverbial laws of supply and demand dictate the need for liquidators.

I love that term. I love being called in to salvage a deal. Why? Because being able to buy when the market is at the bottom means I can find great deals. Not good deals…great deals. However, the problem is dealing with inexperienced agents who are new to the liquidation game and don’t understand the market we are in.

We call agent after agent and read listing after listing and when we actually get someone on the phone we run into the same problems over and over again.

So in this post, in an effort to offer an olive branch to Realtors who actually want to get deals done, I am going to outline the reality of a short sale and what needs to be done to make sure the deal gets bought and approved by the bank.

Actually let me qualify that statement just a bit. I am going to outline what needs to be done in a short sale transaction if you want to have a successful closing and if you’re an investor…how to have a profitable one.

Most agents don’t want to do the work and take the necessary steps to make buying a short sale worthwhile. Many of my investor associates are simply bypassing the short sales on the market and are relying on the REO and auction markets to get the really good deals.

The reason being is that most agents don’t know how to work with investors and think that everything they hear is a “scam” or “illegal” or “unethical”. This is probably due to the fact that most of us who run an real estate investing business actually put our time and effort in learning how to get deals done, rather than following the crowd and doing just the opposite.

Do you think that I’m being a little bit harsh in my criticism? Well when the national averages in comparison look so wildly different, how can anyone dispute what I am saying? What numbers am I speaking about… well only 14% of short sales successfully close nationwide according to the National Association of Realtors, yet nearly 100% of REO properties close. Pretty revealing stats, you’d have to agree.

Which is made even weirder when you take into account that most short sales you call that are listed, seem to have a contract on them. So what happens? Why are these deals tanking? Are you really saying that 86% of the short sales that fail are the bank’s fault for taking so long? As a professional are you really saying that?

How about a little introspection and a modicum of ego reduction and realizing that you can probably increase your income 200%-300% if you just take the time to learn how to execute a short sale the right way.

So let’s identify some of the biggest problems with short sales failing and not not closing and what you as an investor needs to look for and what you as an agent need to learn.

1. Taking The Listing – While you can pretty much open your front door and find someone who is upside down on their mortgage, that doesn’t necessarily mean that all short sales are created equally. You need to recognize from the outset what kind of Buyer is even appropriate for your listing.

If the house is going to need some work and is missing some key items like a refrigerator, stove…or you know, something vital like windows, you may need to understand that unless you or the homeowner are going to effect some repairs, the property probably isn’t going to be “financeable”.

That means you probably need to be looking for a cash buyer. Yes, there are some loan programs out there that will finance homes that are unable to be financed, you are going to waste a lot of your time trying to fit the square peg into the round hole and then your deal blows up in your face and you’re left wondering how it happened. Well it happened because you did not realize the landmines in your deal.

For that matter, and to raise the closing ratio above the incompetent zone, maybe you should look at listing all of your deals as cash only. You may have to work a little harder but the foreclosing bank may take a lot better notice when you are submitting a cash offer.

Think about that for a moment. What kind of deals most appeal to you when you are selling conventional deals? When you get a cash offer doesn’t it make you seriously pay attention? Then why are you sending banks deals on short sales with a boat load of financing contingencies?

As an investor, make sure you either have cash or your hard money inline and start making cash offers. Hopefully more agents will see this and begin to understand the strength of an all cash offer over one with a financing contingency…even if it may be for less money!

2. The Listing Price Is Wrong – Nothing drives me nuts more than seeing incorrect listing prices on short sales. People listen up…YOU ARE NOW IN THE LIQUIDATION AND SALVAGE BUSINESS! You need to aggressively price your short sale listings.

In order to price your listing correctly it means that you have to be well versed in properly understanding the value of the property. I know that you have been taught to keep the price high and then expect offers below the list price, but that game is for suckers. It’s for losers and it’s a game that is long dead and buried.

It’s not difficult to price a short sale. All you have to do is look for the correct comparables and start your list price accordingly. We are seeing short sale listings priced as much as $100,000.00 OVER the actual value of the property.

It’s absolutely insane. Truly it is insanity. If the last 3 or 4 sales are in the $100,000.00 range, pricing your listing at $210,000.00 means you are setting yourself up for failure. If you are an investor and you run into this type of a deal, don’t even bother talking to the agent. Simply write down the address and check back in 30 or 60 days and get ready to buy the house at auction. It will definitely end up there. Unfortunately you may have to wait until it becomes an REO and buy it then.

But you can pretty much count on it being on the market in a few months! Agents, if you think I’m joking, check some of the real estate social networks out there and see how many agents are lamenting that the bank took a lower offer after declining their short sale. There’s a big reason why that happened.

We offer a course as that includes info on how to list a house and how to be strategic in pricing so I’m not going to go into great detail here, but suffice it to say that I can tell you in 200 plus deals that it has NEVER happened to us…and never will.

3. Short Sale Flipping Is Not Illegal And Can Be Highly Profitable – Yeah…I know that there are some scammers out there who try to game the system but done correctly it is absolutely legal. Agents, perhaps you should sneak away from the water cooler and learn the anatomy of a short sale flip. We’re going to be doing a case study on a short sale and it should give you great insight as to how such deals are structured.

As an investor, you should be trying to structure all of your short sale purchases as flips and the way to get them done is to find an agent who is willing to work with you and show them how you can legally and transparently help them make a ton more money.

We show agents that work with us how they can make as much as 15% of the purchase price and how they can do so with complete confidence that they are not doing anything that even remotely crosses into any aura of impropriety.

4. “The Bank Will Never Accept Your Offer” – Investors, if you hear this spoken from an agent, say thank you, hang up and look for another deal. The agent who mutters this statement has already screwed up this deal so bad that it is more than likely toast. In fact if you are a homeowner and hear your agent say this, you may want to start packing and ready the bankruptcy paperwork. You’re toast!

When we hear that from an agent it’s like a neon blinking sign of incompetence. The only statement worse is “the bank’s already approved the price”. Either of those two statements coming from a real estate agent spells doom for the deal. Simply move on and like I said above, ready yourself for the auction or the REO phase.

So now I have probably ticked off a few agents and they are thinking that we have no idea what we’re talking about. So let me explain it very clearly. We NEVER ask the bank what they will take. That question NEVER gets asked. If you ask that question you’ve already lost the game.

In fact, other than sending in an LOA, we don’t have any communication with the bank until we’re ready to bring them in for negotiations. By the time we bring the bank into the loop, we have already managed the listing, strategically aligned the price, received and executed an all-cash offer, done some other very necessary paperwork and research, sent in our corroborating 100 + pages of documentation and THEN requested the BPO. Then AFTER we have managed and coordinated the BPO with great influence…that’s when the games really begin.

If you are having ANY discussions with the bank relative to “what they will take” prior to the BPO being completed and successfully managed, then you are wholly missing the boat on short sales.

If you are talking to the bank about anything other than the LOA until it’s time to talk turkey, then you have more than likely blown your deal. Am I wrong? I have one thing to say. Only 14% of short sales succeed.

One of the big reasons this ineptitude is taking place is because agents don’t want to take the time to get these deals done in the best way possible. They’re outsourcing these deals to uninterested third parties who are running short sale mills.

Here’s a hint…if someone tells you that they got a 10-15% discount and they acted like they have done something heroic, laugh…and I mean laugh heartily. You see, my 14 year old niece could get a 15% reduction on any deal approved.

To make the really big dollars and to see your closing ratio shoot through the roof, you need to take some very defined steps to orchestrate your short sale transactions. If you do, I will PROMISE you that you will see your income rise exponentially.

After all of this time and with tons more foreclosures and short sales coming in 2010, isn’t it time to realize that you are actually cheating yourself out of a lot of money by doing short sales wrong?

If you’re hanging out with people who are also ineffective and you keep hearing everyone talk about how long it’s taking and that the bank won’t respond, maybe you need to look at the company you are keeping.

Success breeds success. I would hate to hang out with those who lament and bemoan the short sale process. Wouldn’t you rather associate yourself with the crowd busting their bank accounts and having a good deal of fun doing these transactions one after the other?

Seems a pretty easy choice, but it’s your choice to make. In upcoming posts we’re going to delve into the manner in which an agent and investor can work together in cohesive fashion and make a lot of money together.

Hopefully you’ll get something out of our short sale case study and turn things around. You’ll be amazed when you experience the bliss of short sale success.

Short sales, foreclosures boost sales
Press-Register – al.com (blog), on Sun, 14 Mar 2010 04:26:33 -0700Short sales and foreclosure sales are as hot as the pre-Hurricane Katrina condo market, Realtors and agents say, and the distressed inventory train could …

REOs and Short Sales Account for 50% of California Home Sales … http://pilartobias.posterous.com/Foreclosed homes taken back by lenders and distressed short sales accounted for nearly half of all residential home sales in California in 2009, according to a market report released this week by the California Association of Realtors …

St. Louis Post-Dispatch, Jim Gallagher column: Short sales bail out owners who … Trading Markets (press release), on Sun, 14 Mar 2010 17:06:06 -0700… County and past president of the St. Louis Association of Realtors. Bell’s case was unusual because the bank approved the short-sale fairly quickly. …

Underwater mortgages: Who picks up the tab? 33 KDAF-TV, on Sun, 14 Mar 2010 19:46:34 -0700  That home is now selling under an old practice called, “short sale“, but it is one the Obama Administration hopes to revive through a new program. …

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