There are three types of homeowners that are candidates for short sales. Each one has its set of expectations and guidelines. It is important to determine which type you are dealing with so you are able to set the proper expectations up front and determine if this is a listing you want to take on. As each will have their own set of battles you will want to choose your battles wisely.
The first type of homeowner is one who has a true hardship and has become delinquent on their mortgage. They have had a change in income or lost their job all together. There may be a divorce or illness. There may be significant damage to the property and they are unable to repair it back to a livable condition. This homeowner has very little or NO money in the bank and may be living off their credit cards which are close to being maxed out. Due to their delinquencies they are already in foreclosure status and a sale date is approaching. This homeowner could be experiencing one or more of these hardships or all of them. Sounds like they could use some help, yeah?
This type is a no brainer. The homeowner will have a lot of questions and concerns. They will need a Real Estate Professional to guide them through the process.
Here are some important things to do while on your listing appointment:
1. Ask all the right questions. You still need to pre qualify them and get all the key pieces of information to help you while negotiating with the bank.
2. Bring your short sale package with you. Go through the short sale package with them and explain the importance of filling it out properly and gathering all the applicable documents.
3. Bring your listing agreement. Have in place the set listing price and 3 price reductions. The financial institutions like to see the home listed within 24-48hrs of taking the listing.
4. Set proper expectations in regards to timelines, the importance of getting requested documents over to you as soon as possible and the possibility of the bank asking for a small cash contribution or new promissory note. The possibility of a contribution request from a homeowner who has a genuine hardship and has NO money is not likely but it is possible. It is negotiable but you do not want your client to have any surprises. This lessens their anxiety level and they will definitely appreciate that.
5. Advise them to speak with a Real Estate Attorney and a CPA for any questions pertaining to deficiency and tax ramifications.
6. If the sale date is a week or two away and the homeowner is 12 months or greater delinquent on their mortgage, you may not be able to help this homeowner.
The second candidate is the homeowner that has not missed a payment yet but knows they are headed that way due to the downturn in the economy. They can see the train coming and want to get off before the impact hits. This homeowner does have some money in savings but it is dwindling down slowly due to having to draw from it every month to cover their bills. They may have some other assets. They may have to take a job in a different location that promises to pay more and for that reason they have to leave. The home cannot be sold traditionally due to the declining values in the neighborhood and they owe much more than the home is worth. I can appreciate these circumstances.
This type is also a no brainer. These circumstances are still considered a hardship and will give you a good argument when negotiating with the bank.
Consider this:
This home owner is NOT delinquent so you are not fighting against foreclosure timelines. Make sure you are marketing this property for a substantial amount of time to show the bank a listing history.
The third type you will run into is the home owner that is NOT delinquent and CAN afford to make their payment along with all of their other monthly bills and have a nice surplus left over. They have a nice checking and savings account. They may have other properties that are cash flowing. The main reason for wanting to short sale is because he or she owes more than the home is worth and they want out. This type is tricky. The bank may or may not work with this type.
Here are some important things to consider BEFORE taking this listing:
1. Clearly this is not a traditional homeowner in foreclosure status.
2. The bank may approve this short sale but it will most likely be on the following terms:
a) The bank may ask for a cash contribution. The amount requested will most likely be more than it would be for a homeowner with a true hardship.
b) The bank may ask for a new promissory note. This may be anywhere between $10,000 to $40,000.
c) The bank may ask for both.
What you want to determine is if the homeowner is willing to do A, B, or C. If they are not willing to do any of them you may not want to take the listing. You will only be wasting your time.
We are not just pre qualifying homeowners on paper but we also want to feel their level of cooperation. If they are not willing to do what it takes to get the job done everyone will lose in the end.
Extra Tip
You cannot give advice on tax ramifications. You need to direct them to a CPA but after evaluating all three sets of circumstances, which type of candidate would MOST LIKELY experience tax ramifications?? Think about it.
(Quote) Working hard and working smart sometimes can be two different things.
Byron Dorgan
REALTORS, what is in your business plan this year? What are you doing to create a system that will allow you to build your short sale business? How often are you out there prospecting and how do you know if you are taking the listings that are going to be successful and not a waste of your time?
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
At Lotus Realty GROUP, helping people ethically succeed is at the forefront of who we are...
Call today to find out how Lotus Realty Group can assist you in closing your short sale transactions or go to WWW.LotusRealtyGroup.com
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