by Dean Edelson
This is how most investors feel about short sales. This is the word on the street. Most real estate investors avoid short sales like the plague. And the reasons are many…
- They take too long
- Getting through to the bank is a nightmare
- The offer’s too low
- Too much paperwork
- Banks lose your file
- Lost buyers due to ‘wait’ time
So, what do you do about all this stuff that happens? Walk away from it? Complain about it? Or do you find a way to work with it, to work around it?
Here’s a fact. 70% of all home sales in Maricopa County are ‘distressed’ property sales. This means short sales and REOs comprise the majority of home sales.
Arizona ranks #2 in the nation in foreclosures. According to Realty Trac, 1 out of every 17 homes is in some stage of default on their mortgage. 1 out of every 145 homes is in foreclosure, meaning the homeowners have received a Notice of Trustees Sale and is headed for auction.
These are HUGE numbers. HUGE indicators of what’s going on in our local market. And this is good news for investors and realtors.
Short sales are not going away anytime soon. No matter what you hear in the media, the fact remains that the number of foreclosures and the number of loan defaults are only going to increase. And no financial or social strata is immune. Folks in all neighborhoods in all kinds of housing are losing their homes every day. This is just the residential side of things. Then there’s the mounting commercial foreclosure market: apartment buildings, RV parks, mobile home parks, land, industrial, businesses.
Homeowners need your help. And a savvy short sale investor can create a win-win situation for all parties involved. (I refrain from loan mods as an option because I’m not a fan…my personal bias).
Banks also need you to short sale properties. The sentiment is that banks make it so difficult to short sale that they’re forcing the foreclosure. And it’s true. We encounter a lot of resistance from the banks. But there are strategies you can use to diminish that resistance and get your short sales through the red tape.
At the top of this article, I mentioned all the reasons investors don’t like short sales. Well, there’re more reasons. The two biggest reasons, in fact:
1. Can’t convince the bank to take your offer
2. The BPO comes in high
These are the biggest reasons why short sales fail. These two items—negotiating with the banks and The BPO–are the biggest drivers of short sale success. If you don’t know how to negotiate effectively, the deal dies. If the BPO comes in high, the deal dies. All the other reasons listed up top are directly related to these two key drivers of short sale success.
Would you like to increase your success rate? Well, you can. By knowing how to negotiate with the banks and how to control and substantiate the BPO, you can skyrocket your short sale approvals.
Effective Negotiation & BPO Strategies
The truth is, most of us never learned how to negotiate effectively. Here are some key points to keep in mind when talking to the banks.
Mindset is Critical. I’m not going to snow you. The banks can make your life miserable when it comes to getting some of your deals through the pipeline. Despite what happens, keep a positive attitude. This will carry you further than anything. Will you lose some deals? Absolutely. It’s a numbers game. Great achievers arent’t successful with everything they tackle. But they do have greater batting averages than those who give up and walk away.
You’re in Control. Most investors think the bank controls the deal. The BIG BANK versus ‘little you.’ Stop giving your power away. No one knows the property better than you. You know the market, all the details of the property, the neighborhood, what buyers are buying, and the TRUE value of the property. You simply need to know how to convey this to the bank when you’re negotiating.
Ask Questions. The tendency when negotiating with loss mitigation…or with anyone… is to blather on and on about YOUR needs, what you want, what your offer is, to get your point across. Cut it out. Start asking questions. And be nice. Start reframing your statements as questions. Because when you do, you get answers. Doing this one thing will set you apart from all the other investors, realtors, and homeowners who call the bank and dump on the mitigators.
Instead of saying, “What do you mean the offer’s too low? This is a great offer!,” ask, “What do you need?” What is your counter based on? If the buyer isn’t willing to counter at that price, what’s the least you’ll consider?” When you ask questions, YOU are in control of the negotiation.
Control the BPO. I no longer use the term “Influence the BPO” because it implies—at least to the banks—that you’re doing something fishy and unethical. So start using the phrase, ‘control and substantiate the BPO.’ Controlling the BPO is crucial. You have a responsibility to do so…for the homeowner’s sake. If you allow the BPO to go off without any contact with the BPO agent, the deal will die. You can kiss the house goodbye to foreclosure.
Here’s why. Most BPO agents are underpaid and overworked. Most BPOs are done in 15 minutes or less. They take a few pictures, walk through the house, do an eyeball inspection, done. They run to the next appointment, get back to the office at 5 or 6p, quickly run some comps, and submit the report to the bank. How can you possibly determine home value in that little time? And many times the BPO agent is not familiar with your market because they’re from out of area.
You know the house better than any BPO agent. You’ve taken photos of trouble spots, talked to the homeowner about any unseen issues—plumbing, electrical, structural, roof—and you’ve taken your time analyzing market values. This is why it’s incumbent upon you to be the contact for the BPO when the valuation is scheduled. And when you meet the agent at the property, substantiate your valuation and offer with the proper documents. Completely ethical…and necessary.
By implementing these tips and strategies, you can increase your short sale success.
Dean Edelson has been a full time short sale investor and negotiator for 9 years. Dean will be speaking at the next Phoenix AZREIA meeting May 9 and at the Tucson AZREIA meeting May 10. He’ll be covering the latest successful short sale strategies and negotiation tactics.