Short Sale Avengers

Before we can define what a Certified Distressed Property Expert is, we need to define what a “distressed property” is. A property can become distressed for a variety of reasons, but the most common is a foreclosure. In reality, any situation that has caused a property owner to have difficulty making mortgage payments or even selling the property is said to be in a distressed state. Simply put, any property which has the potential for a foreclosure is termed to be “distressed”.

Now that we have defined a distressed property, what is a Certified Distressed Property Expert (CDPE)? This is not only a designation earned by a licensed Realtor, but it is also an acronym that signals to the public that the person displaying it has gone through extensive training to assist property owners who are in distress; with the goal of helping families avoid foreclosure. This can be done by negotiating mortgage terms, helping to negotiate a refinance or most commonly, by helping the property owner get out from under the financial burden by selling the property.

Today, far less than 1% of Realtors nationwide have the CDPE training, skill and knowledge to successfully negotiate a short sale. In fact, as of April 2009, there were less than 4000 Realtors in the U.S. out of 1.1 million that had obtained the CDPE certification to enhance their ability to successfully negotiate and close a short sale.

Price and value are not the same when buying real estate. Price is simply a figure; a number; an amount that a given buyer wishes to pay or can afford. Value on the other hand is relative and possibly subjective, but one that generally represents “a lot (of house) for the money”. A buyer purchasing a property for tens of thousands of dollars below the listed price may feel good about the purchase, but may not have received as good a value as a buyer paying the listed price on a property that was priced below market.

As a home buyer or investor today, you are undoubtedly looking for “value” in what you purchase. You are likely asking yourself, “Where are the best values and how can I find them? What risks are involved with buying today and how can I increase my chances of finding the right property at the right price?”

There are four primary types of sellers in today’s market: regular seller sale, bank owned or foreclosure sale, corporate sale and short sale. Value can be found in any of these four types of seller offered properties.

Regular Seller Sales

The best value on regular seller sales is tied to seller motivation and the need to be competitive with the other types of sellers in the marketplace. Oftentimes these properties are in the best condition; a factor that adds “value” to the property. Many of these sellers have aggressively priced their property in order to compete with other types of sellers today. These sales typically offer the buyer more contractual protection when purchasing, as compared to corporate or foreclosure sales.

Foreclosure Sales

A foreclosure, commonly referred to as REO (real estate owned) property, is property that has had a legal proceeding in order to remove ownership/title from the homeowner and convey it to the lender. The lender then, in all foreclosure/REO sales, is the seller of the property. The lender ensures that the previous homeowner is no longer residing in the property prior to offering it for sale.

Foreclosures have been a popular target for many real estate buyers over the past few years. They oftentimes represent a good value because the price is low enough to offset the other risks involved in purchasing foreclosed property. While the price may be low, it may not always represent good “value”. There are numerous risks in purchasing foreclosed property.

What are the Risks of Buying a Foreclosure?

• Oftentimes the condition of a foreclosure is sub-standard and less than average due to the fact that the previous owner had not made house payments for perhaps a year or more, and in such cases, rarely kept up the property with respect to maintenance and repairs
• Standardized purchase agreements are rarely used, and if they are, the lender adds numerous addendums to protect their interests, to the disadvantage of the buyer
• Wording and the terms of purchase agreements are totally one-sided in favor of the lender
• Purchase agreements are only binding on the buyer, not the lender
• Lenders refuse to put money into the property for repairs
• Buyers must accept the property totally “as-is”
• Buyers rarely receives a Warranty Deed, but a lesser assurance of clean title
• Lenders tend to force buyers to use the lender’s title company

• Real estate brokers will soon be coming out with yet another disclosure; one that warns buyers to the risks of buying foreclosed/REO property

Visit www.MinnesotaDistressedProperty.com to learn more about the risks of buying bank foreclosures.

Corporate Sales

Corporate sales result when a homeowner’s employer or third-party company purchases their property as part of a relocation or guaranteed sales program, then subsequently offers the property for sale in the market. These types of sales are much less common today as a result of the economy; as employers do not want to own real estate and have taken a variety of measures to assist the employee in selling the property prior to having to take ownership of it. It is possible to find good value in property that is being sold as a result of a relocating seller, but oftentimes only after the property has been on the market for a while and pricing has become more competitive.

Short Sales

Short sales, which are vastly becoming the best “values” in the marketplace, are where shrewd buyers are now looking. There are pros and cons of buying a short sale property, but when such a transaction is handled correctly by the real estate representative(s) it can be a huge win for the buyer, the seller and even the lender. Visit www.MinnesotaDistressedProperty.com to learn more about the pros and cons of buying short sales.

What is a Short Sale?

If the value of a property – less the costs of selling the property – falls below what the homeowner owes the mortgage company, the property is said to be “short”. If the homeowner wishes to sell, but does not have the cash to cover this shortage at closing, then the property could still close providing the mortgage company, or companies, are willing to negotiate a “Short Sale”.

Short sale scenarios have become quite common today, but successful negotiations to close them have not. In fact, only 20% of the short sales submitted to lenders for approval (by Realtors) actually close, while those submitted by a Realtor holding the CDPE designation close over 80% of the time!

Short sale transactions are very time-consuming and challenging. They require extensive up-front preparation with the seller, myriads of paperwork, detailed analysis, diligent follow-up and effective negotiation. When successful, the rewards can be huge – to the seller, the buyer and the lender!

The Process in a Short Sale

The goal in a short sale is to accomplish a successful closing, while creating a win-win for all parties involved. This begins with an accurate assessment of the seller’s circumstances to determine whether a short sale is probable; and if it is, the property can then be placed on the market for sale.

The property should be listed at fair market value and adjusted as needed in order to attract an offer. Once the buyer is found and an offer successfully negotiated with the seller, the purchase agreement is forwarded to the lender along with a substantial amount of financial documentation that supports the seller’s hardship, as well as market data that supports the sales price of the property.

It is the Realtor’s job to present the detailed documentation to the lender, point out the advantages to the lender of accepting the short sale and facilitate additional negotiations on price and terms among the various parties until an agreement is reached. Effectively and accurately completing this process is absolutely critical. If any of these requirements are not met, or are incomplete, the file is generally not processed or is denied.

Oftentimes a seller has more than one mortgage against the property. When this is the case, the negotiations, complexity and documentation increases almost exponentially.

Not only does the lender(s) need to be persuaded to accept the short sale, but so does the investor(s) that invested in the mortgage note(s). A great real estate agent familiar with only sales and marketing, but not the complexity of a short sale transaction, is not likely to close a short sale on behalf of a homeowner seeking mortgage relief and avoidance of foreclosure.

In addition to the negotiations with the lender(s) and investor(s), skill and effective communication is required by the Realtor to keep the transaction together during the time it takes to complete these negotiations, as buyers get frustrated waiting for the lender(s) and/or investor(s) to provide a response to their offer on the property.

With numerous negotiations taking place simultaneously, it is easy to understand why so few short sales actually close.

Today, less than 1% of Realtors nationally possess the CDPE training, skill and knowledge to successfully negotiate a short sale. In fact, as of April 2009, less than 4000 Realtors out of the 1.1 million in the U.S. had obtained the CDPE certification to enhance their ability to successfully negotiate and close a short sale.

Learn more about Short Sales.