I was recently asked by the AREAA foundation to be one of speakers on a short sale panel with a few other short sale negotiators and two attorneys one in which is my Real Estate attorney and friend David Bright. Many of you know and respect him. Those of you who do know him understand along with my company Lotus Realty Group that we are very passionate about educating REALTORS on all facets of the short sale market.
I wanted to share with you some of the questions that REALTORS were inquiring about and give you some of the feedback David and I shared with the group.
1. In regards to a homeowner’s financials, what should we not submit? Do we not show the stocks, bonds, 401k, and checking accounts with large balances?
I want to remind you of what a true hardship is.
a) Change in income due to a pay cut
b) Job loss
c) Divorce
d) Illness
e) Insurmountable damages to the property
If we have a true hardship most likely there will not be huge balances in a checking account or stocks and bonds that are worth much so there is nothing to worry about as you have pre qualified your seller and asked all the right questions. If you have a situation where your homeowner does have stocks and bonds, etc. I would not hide that from the lender. If you do there is a good chance they will find out anyway and you will kill your chances. For example: If your client does not list his assets properly and some are showing on his tax returns as residual income then clearly the lender will question why it was not listed on his or her expense sheet. You want a clean proposal. What I would do is set proper expectation with your client. Explain that the short sale lender may ask for a cash contribution or a new promissory note at a lesser amount. Personally if a homeowner in this situation is not willing to contribute when there financials clearly shows they can, I would not take that on.
2. Can a short sale lender make the homeowner draw from their 401k to pay down there principal balance?
No, they are not allowed to force a homeowner to draw from their 401k however; it will be one of the determining factors when considering the ability to contribute a cash contribution or new promissory note.
3. What do you do when the 2nd lien holder wants more money than the 1st lien holder will allow and the 1st will not allow any other parties to contribute?
It has been my experience that the offer that you submit is going to be one of the determining factors in that decision. I would first make sure you have a strong listing on the property so you have all of your data to support your value. If you submit to low of an offer the 1st lien holder most likely will not be very gracious. 2nd lien holders typically want 10% of the balance.
If you have done this properly and you still cannot get the 1st to cover the full amount the 2nd is requiring then some STRONG negotiating is necessary. You can always go back to the first and argue to at least allow other parties to contribute. At that point, buyers and agent’s may have to come together to make it work. My suggestion would be to set expectation upfront with the homeowner and the buyer that money may need to be brought to the table. This will save REALTORS from pulling from their commissions.
4. Would it be okay to offer 1.5 to 2%% to a buyer’s agent in the MLS on one of my listings especially if I have to pay a negotiator fee?
Well, you can offer whatever you want but this could be very problematic in a couple different ways:
a) The idea is to get agents to bring clients to your listings. If you offer to low of a commission split you may steer buyer’s agents elsewhere. Is it worth that risk in this market?
b) In regards to the negotiator fee you can do it a couple different ways. You can put 2.5% to the buyer’s agent and 3.5 % to the listing agent but you may still run into the issue of buyers agents taking their buyers elsewhere. I always offer 3% on my personal listings. I would simply have a conversation with the buyer’s agent and see if they would be willing to split the negotiator fee with you. I have REALTORS who are very successful in doing that. The idea is not to focus on an l% negotiator fee if you are outsourcing. It is hard to prospect and get listings and do all the negotiating yourself. I have tried it. It is nearly impossible to fully serve your clients this way. Get 30 short sales in your pipeline where you are closing 2-3 listings monthly and I guarantee you the 1% to a negotiator will not be that big of an issue as the negotiator will allow you to focus on getting more listings and expanding your business, close deals and give your clients the best customer service possible.
5. Can I ask for 10% commissions to be granted from the short sale lender?
Short sale lenders are paying out 5-6% in commissions. I have never seen a short sale lender approve that high and quite honestly you do not want to start out the process frustrating the negotiator at the bank.
Extra Tip:
In the confidential remarks I would put the following verbiage:
All lender commissions are subject to lender approval. Any commissions below 6% are to be split 50/50 between agents.
There is no doubt that there are many techniques out there on how to negotiate and put short sale transactions together. My personal experience is that it is an art. A strategic approach with so many moving parts that it is imperative that we are structured, organized and have the proper legal counsel to ensure integrity and ethics for all parties involved.
I have done a lot of growing up in this business. Personally and professionally and I have not done it perfectly. One of the most valuable lessons I have learned recently is we cannot let how others are operating affect you and how you do business or how we show up in life in general. I always know when I am out of alignment. It has an effect on everyone around me. It is easy to get caught up in the currents of life and other affairs.
Insanity, doing the same thing over and over again and expecting a different result. Well, unfortunately many of us learn the hard way but as for me it is much easier and less painful to stay centered in what I know to be the most effective way. The easier and softer way. Everyone around will benefit from that. In a short sale transaction, doing what I know works and not veering off that path will only help to remain effective and efficient.
(Quote) Life brings what it brings. I might be young but I've learnt this: prepare for each blind corner with your strongest shoulder dropped, ready to smash through whatever is thrown at you next. Once the dust clears you will be standing tall, a champion, and a victor. NOTHING will be able to knock you down once you've taken the biggest hits this life has to offer, so come on life, BRING IT!"
Adam Johnson
Call us today and let us show you a system that works to help you expand your business and effectively and efficiently close short sale transactions.
LOTUS REALTY GROUP
PROFESSIONAL SHORT SALE NEGOTIATORS
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