Ah, Short Sales! There is so much public confusion when it comes to short sales and that should be expected since there is also a lot of confusion in the industry as to short sales. Sometimes I read on message boards where buyers are frustrated with time frames and their agents aren’t exactly clear on the procedure and what to expect. This blog is written not only to the public but also to other agents in the industry as a helpful guide of questions to ask before submitting an offer for a short sale property.
What kind of experience does the listing agent/team have with short sales? A Short Sale Certification doesn’t cut it! I have sat in numerous “short sale classes” and none have prepared me for what I see out in the field. Every bank, every bank negotiator, every hardship and every investor is different! Just because an agent sat through a 3 hour continuing education class does not mean they are now ready to handle a short sale. When you or your agent asks the listing agent this question you should hear a definitive response such as “we have closed $10 million in short sales”. (The combined total of the Walker Derby Team has closed close to $100 Million in short sales)
How many short sales have you closed in the last 18 months? Simple question and make sure you aren’t hearing how many they have listed or under contract, you want to know how many have successfully closed.
What is your percentage of successful short sale approvals? This question really piggy backs on question #1 and #2. There has to be extensive short sale experience and closings to answer this question. The Walker Derby Team has a 90% success rate in short sale approvals.
Who is the service provider? This is probably one of the most important questions to ask after you find out the agent’s experience in handling a short sale. Some service providers are amazing with short sales. For instance, Wells Fargo is really an innovator in processing short sales in a timely fashion. We have a 100% success rate in Wells Fargo short sale approvals and all of them have happened in under 60 days from submitting binding contract (many under as little as 40 days). Small banks are also fantastic in handling short sales. In December of 2009 we obtained final short sale approval from a smaller bank in 17 days! Of course where there are good success stories, there are also some providers that struggle with the efficiency of short sales, mainly BOA. I have Bank of America short sales that have taken 5 months to approve (right now that is a healthy average) however I also have some BOA short sales that we have been working for 7 months with still no answer! I could go into a lot more detail on this so I will hold off and do a separate blog about this very subject.
How many liens are on the property? What this means is how many loans are on the property (1 or 2) and whether there are any liens on the property. One loan is much easier to get short sale approval with over two loans. Two loans with the same provider are easier to obtain approval rather than two loans with separate providers (ie. 1st loan is with Suntrust and 2nd is with EMC). The first loan will offer the second loan a “settlement offer” which the second loan may or may not accept. If they do not accept then your deal is dead. Liens such as HOA liens (for nonpayment of HOA dues or HOA violations) are rarely approved by the first loan so the seller may have to pay out of pocket for those. Same with liens with the local city for ordinance for lack of property maintenance or upkeep
How do you handle the contract? Binding or multiple offer? According to the National Association of Realtors, a short sale contract is a BINDING contract and contingent upon final bank approval. That contingency is no different than a financing or appraisal contingency. If the listing agent is submitting multiple offers to the bank and not selecting one to go binding then RUN AWAY! I cannot make that any more clear! There are a lot of great and successful agents out there making this rookie short sale mistake and I assure you, the buyer and seller will gain nothing but frustration from agents that work short sales in this manner. If the EXPERIENCED short sale listing agent feels it is an acceptable offer and the seller signs off on it then it is a BINDING contract, it is removed from active standing and it is submitted to the bank. Multiple offers do nothing but lengthen the timeframe and make the banks a bit more greedy.
If you ever have any questions about the short sale process, we are just a phone call away!
Does Big Brokerage Branding Matter to the Consumer?
Lately I have been reading a lot of blogs asking this very question. To those unfamiliar with the terminology of what I am asking I can simply re-ask as Does it matter to the consumer which company the agent works for: Re/Max, Century 21, Coldwell Banker, Keller Williams or a local mom & pop shop (ABC Realty)? Tons of blogs and video rantings offer different opinions. I will give you mine.
When I came into real estate, I spent my first few years at a local boutique brokerage. Was I successful? Absolutely! Do I think I had to work twice as hard for that level of success with a no name brand? You betcha!
I really enjoy the listing (seller) side of real estate. Therefore I can speak from experience that the first few years at the small time brokerage I spent half my listing presentation strictly on why I could sell their homes just as fast and efficient as those “big name agents”. While I remained the #1 agent in my office for those years, I did encounter two issues that tell me that Branding DOES matter to the consumer:
1. No matter how hard I tried, I could not break the $225,000 housing barrier (meaning sellers with homes valued over $225,000 did not trust my “no name brokerage” with the sale of their home). My first listing call after joining ReMax was for a $450,000 home.
2. While a 75-80% success rate in obtaining the listings I competed for is impressive, since joining ReMax my conversion rating is now over 95%
Let me ask you a simple question. When you go to the grocery store and cruise down the aisles, do you pick up Coke or RC Cola? Kraft Mac & Cheese or the store brand? As a society we tend to put more trust in the brands that we see advertised, hence the “as seen on TV” verbiage on packages as if the simple fact the product was on television gives it more credibility.
Now from this point on the following is my personal opinion and in no way defines all agents but what I feel is a good summary. I may ruffle a few feathers, but oh well – here goes! Not only do I think that consumers like recognizable branding, I also believe that the type of brokerage can define the high/low level of agent production. Do you know that in metro Atlanta, 90% of ALL real estate is sold by the top 10% of agents in town? What that also means is that 90% of licensed agents in Atlanta and suburbs combined only close 10% of all local sales. What most consumers do not know is that different brokerages offer different programs for their agents. Let’s take the no name small brokerage which I will refer to as ABC Realty compared to the powerhouse that I work for which is ReMax.
*ABC Realty spends nothing on advertising which means that the average home buyer or seller will not see their TV ads, drive past their billboards or not find their ABC Realty website anywhere near the first few top pages of Internet search engines. Most of their agents are low to medium producers, they sell a couple houses a year usually from friends or family. Most of these agents are part time and use real estate to supplement their income. The broker does not require expensive desk fees and instead just charges a minimal “transaction fee” for every home they close. Let’s take an average of $69 a month in desk fees and $350 for every deal they close. What this means is that if a couple months go by without selling a house the agent is out a couple bucks for desk fees and that is it. On the other end of the spectrum, if the agent is a top producer and close 10 deals in May at $350 per transaction, they just paid $3500 to work there one month. While there is nothing wrong with working real estate part time (I could only dream of that thing called “free time”) why would a top producer pay so much to work there? There are exceptions to this rule, specifically if a top producing agent leaves their big name to start their own smaller brokerage but once again, still lacks the above mentioned branding. The last tidbit to mention is that most smaller brokerages are not members of their local Board of Realtors. This means that they are not governed by a Code of Ethics and cannot use the term “Realtor”.
*To work at ReMax, it is what I consider “advanced Realtor-ship”. Not many newly licensed real estate agents sign up with ReMax, typically they start out somewhere else and graduate to ReMax once they have proven themselves successful in the game. ReMax charges a large monthly desk fee that is payable whether you close a deal or not. That desk fees helps pay for the TV ads between your favorite shows, the dozens of billboards you pass on your way to work, top search engine placement when you type in Google keywords such as “Marietta GA Real Estate”. What this means is that if a couple months go by without selling a house at ReMax, the agent is out several thousand dollars. In other words, you have to be a top producer to remain at ReMax. ReMax (as well as the other big name brokerages) are all members of their local Board of Realtors which means continued training, Realtor title and following the strict Code of Ethics. Violations can include reprimands, fines and being kicked out of their local board (which means they would have to leave their big brokerage and join a firm that isn’t a member of a Board).
Today I received another lowball offer on one of my listings. The agent wrote on the cover letter that this was a CASH buyer, as if that would soften the blow. This made me realize that perhaps I should write a blog on why CASH is not king and break open this myth! So this is an open letter to all Cash buyers:
Dear Joe Q. Cash Buyer,
Thank you so much for your interest in my listing. I see you have cash that you want to purchase a home with, Congratulations! Sure it is nice that there is not a financing contingency attached to your offer, but what makes you think it makes your offer any better than the other offers I receive? At the end of the day it is all about the NET that the sale brings to the seller. This means:
Sales price – costs (closing costs, commissions, etc) = NET
Cash does not have any effect the net, all it does is make the closing possibly happen a little sooner. Curious how you find that is worth HALF off the list price? Just because you don’t have to qualify for financing doesn’t mean it is a done deal! We still have to get through inspection and your appraisal (if you want one), the soonest we could close is in about a week compared to another offer than will close in 30 days. At the end of the day the seller (whether a homeowner or bank) only cares about their bottom line. Neither myself or my sellers could care less if you have a loan or pay in cash, blood or pennies, what we care about is the net to my seller!
Respectfully-
JWD / Realtor Extraordinaire
On a side note, the risk of the cash buyer is that it is easier for a cash buyer with $250,000 in the bank to walk away from a binding contract losing their earnest money rather than a financed buyer who saved up for months for their earnest money deposit.
Obviously real estate market news is local and it is worth noting that my real estate blogs are for my team’s experience in western Atlanta suburbs (Cobb, Paulding, Douglas and Cherokee counties).
There is definitely a misconception of foreclosure buying out in this market at the present time. Some buyers will listen to their Realtor’s sound advice from the beginning and some will lose a few homes before they accept the reality. The reality is there is NO LOWBALLING on foreclosures!
Yes, I said it! The foreclosure myth is that a buyer can submit a lowball offer to a REO (Bank owned property) and they will gladly accept. What this means is that a home that is priced at $150,000 and the buyer thinks they can buy at $75,000. So sorry to disappoint!
Right now there are two different scenarios we are seeing in the marketplace:
Foreclosures are already being priced well below fair market value and a flurry of offers come pouring in within days (or hours) of it hitting the market causing a multiple bid scenario. For example the foreclosure was purchased a few years ago at $235,000. Current comps in the neighborhood (actives and solds) are ranging from 175k – 215k. The bank has the foreclosure priced at 150k. In a multiple bid scenario it is very rare that the home ends up selling below the list price and many times it sells for ABOVE the list price.
Foreclosures begin pricing at or just below fair market value and when no offers (or reasonable offers) are presented, the bank typically reduces in small increments on a monthly basis. Normally the reductions are dependent on the price point and range between $5000 – $10,000 per price reduction. This becomes interesting because a home can be on the market for a few months and after a particular price adjustment it now becomes the “magic number” and you guess it! A flurry of offers ensue causing a multiple bid scenario.
It’s actually pretty interesting as some foreclosure real estate agents actually post the transaction history for a particular property. For instance, recently one of my team’s Buyer Agents submitted an offer for a foreclosure that had been listed for 6 months! In the six month history the property price had been reduced a total of $40,000 from the original list price and had received 7 offers that the bank rejected. The bank had just reduced a mere $3,000 and that was the “magic number”! We now found ourselves in a multiple bid scenario. We advised our client of the situation and submitted our best & final offer which I must add was above the list price. We were outbid!
Is there room to negotiate with bank owned foreclosures? Yes but it depends on the scenario. Luckily in Georgia it is very commonplace for the Seller to pay Buyer’s closing costs so it is rather common for the bank to agree to that. If submitting an offer and the buyer’s agent can confirm that there are no other offers on the table, I have seen banks agree to anywhere from 5,000 – 15,000 in price reductions (depending on the price point). However in a multiple bid scenario, watch out and get ready to ante up or lose out!
If you are interested in buying a bank owned foreclosure, we would love to assist! The Walker Derby team assists buyers looking to purchase foreclosures in Acworth, Austell, Atlanta, Canton, Douglasville, Hiram, Kennesaw, Mableton, Marietta, Powder Springs, Roswell, Sandy Springs, Villa Rica and Woodstock
One real estate myth that I hear all the time is that buyers seem to think if they go directly to the listing agent (cutting out the buyer’s agent) that they will get a better deal on the home since only one side of the commission will be cut out. This is not always correct!
When a seller signs a listing agreement with an agent to sell their home, they agree to a set commission in which a percentage (usually HALF) would be payable “in the event” of a co-operating agent. What this means is that if a buyer contacts the listing agreement directly and does not have broker representation then technically the listing agent has earned the entire commission.
If you are a buyer and want to run the risk of no representation for a perceived lower sales price, make sure you do your homework! Be upfront with your request, not all agents will reduce their commission. I know of several instances where buyers were disappointed thinking they have negotiated the best deal and risked a lot of pitfalls only to find out at closing that in fact they saved nothing at all. Having an agent to represent your best interests in the largest purchase in one’s lifetime is a FREE service. Sure in the dawn of the internet age you can search for your own properties online, but are you familiar with due diligence (inspection) periods? What about financing and appraisal contingencies? If the seller’s agent is writing the contract I can assure you that the obligation of the agent is to look after the best interests of their CLIENT which in this case would be the seller.
The Walker Derby team has dedicated buyer’s agents who specialize ONLY in Buyer Representation. Contact us for more information!
