Short Sales- Secrets From the Inside

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Presentation about real estate short sales, made to FRE- Future Real Estate Club at Cal Poly SLO in January 2012.

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Short Sales- Secrets From the Inside

  1. 1. Know anyone who has experienced one?14% of all San Luis Obispo County real estate sales in 2011 were short sales. Copyright © 2012 Davies Company Real Estate
  2. 2. Short Sale Definition A real estate transaction, when alender accepts a payoff of less than the amount due on their loan. Copyright © 2012 Davies Company Real Estate
  3. 3. Short Sale PlayersSellerBuyerLenderReal Estate Broker Copyright © 2012 Davies Company Real Estate
  4. 4. The SellerCopyright © 2012 Davies Company Real Estate
  5. 5. The SellerHow did they get from this …to this? Copyright © 2012 Davies Company Real Estate
  6. 6. Typical ExampleYear2005 Smith Bought House for $500,000. $400,000 Loan $100,000 Downpayment2007 Notices property value is decreasing, home worth $400,0002011 Something happens. Lost job, divorce, job transfer, possible medical disaster.2012 Decides to sell, can’t afford payments, property worth $300,000, puts up property for sale as short sale Copyright © 2012 Davies Company Real Estate
  7. 7. Short Sale Math- Part 1The Variables:$500,000 Property Value in 2005$425,000 Loan balance + back due payments+ legal fees for foreclosure + unpaid interest,+ delinquent impound payments, etc.$300,000 Property value in 2012$290,000 Agreed-upon sale price with new buyer Copyright © 2012 Davies Company Real Estate
  8. 8. Short Sale Math- Part 2$290,000 Sale price to new buyer$29,000 Estimated closing costs: Title fees, escrow costs, commissions, home repairs, etc.$261,000 Net proceeds from sale to new buyer Copyright © 2012 Davies Company Real Estate
  9. 9. Short Sale Math- Part 3So what is the Short? $261,000 Net Proceeds from sale to new buyer<less> 425,000 Balance due to Lender <$164,000> SHORT Bank take was $ .61 on the dollar (They wrote off 39% of the amount due to them) Copyright © 2012 Davies Company Real Estate
  10. 10. Seller Foreclosure Timing-(or the short sale clock ticking)1. Usually after several months with no payments, lender files NOD (Notice of Default). Could be sooner or later than this.2. 90 days later, the lender files Notice of Trustees Sale. Sale date, time & location are made public record.3. No sooner than 21 days later, the foreclosure sale can be held.
  11. 11. Seller ConsiderationsInclude:• Do we want to stay in house or move?• Is there a hardship? Pay off the short if they have cash?• Scams?• When to stop making payments?• Neighborhood impact of a short or distress sale?• Shame? Embarrassment? Morality questions?• What are credit, legal, and tax implications of our decision?• Can a sale close in time to beat the foreclosure sale date? Copyright © 2012 Davies Company Real Estate
  12. 12. The BuyerCopyright © 2012 Davies Company Real Estate
  13. 13. The Market Conditions (according to buyers) Copyright © 2012 Davies Company Real Estate
  14. 14. San Luis Obispo County Total Real Estate InventoryDown 50% in Last 15 Months Copyright © 2012 Davies Company Real Estate
  15. 15. Buyer Competition Copyright © 2012 Davies Company Real Estate
  16. 16. Are short saleproperties trashed? Copyright © 2012 Davies Company Real Estate
  17. 17. The Short Sale Process for Buyers Hurry Up… …and Wait Copyright © 2012 Davies Company Real Estate
  18. 18. Offer Process for Buyers- Can take 2-6 monthsA. Qualify with a lender and/or have cash to purchaseB. Find house & make offerC. Buyer and seller negotiate offer, seller accepts offer, subject to lender approvalD. Agent submits offer package to bank: offer, seller financials, required forms (90+ pages)E. Agent pursues approval with each lender and lienholder, sends updated paperwork as months progress.F. Lender makes decision, additional lenders make decisionG. THEN in last 30-45 days Escrow opens, buyer’s deposit into escrow, buyer investigates propertyH. Escrow closes, before the foreclosure sale date
  19. 19. Buyers- What can go wrong?• Low Rates, but lending standards are tight• For new loan, appraisals can come in under price, lender may not approve property• Unexpected monthly expenses: property taxes at old value• Buyer can be asked to kick in $ to deal for seller expenses• Foreclosure sale comes too fast• Lender can reject deal or stall, or even sell loan mid-transaction• Agent not knowledgeable, doesn’t anticipate well• Loans recorded on wrong property• Hardship doubtful or unbelievable? Uncooperative sellers• Sellers sometimes change their minds, due to tax/legal/debt consequences• Inspections can have unpleasant surprises Copyright © 2012 Davies Company Real Estate
  20. 20. Should Some Buyers Avoid Short Sales? Yes. If completing a real estate exchangeIf moving truck is on the way Copyright © 2012 Davies Company Real Estate
  21. 21. The Lender Copyright © 2012 Davies Company Real Estate
  22. 22. The Lender PlayersPrivate Lenders, Not a Bank Copyright © 2012 Davies Company Real Estate
  23. 23. Question: Are lenders a party to the transaction?Answer: No Copyright © 2012 Davies Company Real Estate
  24. 24. Lender MathDo we want the property back?What will we get in a short sale vs. foreclosure?Declining market vs. strengthening market?Do we have the loan paperwork? Or none?Is there a government incentive for us to complete the short sale?Can the buyer close quickly? All cash? Copyright © 2012 Davies Company Real Estate
  25. 25. Lender-Who makes short sale decision? OR Copyright © 2012 Davies Company Real Estate
  26. 26. Are there more liens on property? Copyright © 2012 Davies Company Real Estate
  27. 27. The Real Estate Broker Copyright © 2012 Davies Company Real Estate
  28. 28. The Real Estate Broker vs. The Lender Me Copyright © 2012 Davies Company Real Estate
  29. 29. Real Estate Broker RealityListing broker must be director with the strategy, and monitor information to parties.Manage buyer expectations- if buyer’s agentManage seller expectations- if seller’s agentEvaluate property conditions, motivate bank to accept sale instead of foreclosingKnowledgeable about current short sale mattersDefend against inexperienced agents. Copyright © 2012 Davies Company Real Estate
  30. 30. Real Estate Brokers (Dirty Secret #1)In my experience, over 50% of active agents have never touched a short sale. Copyright © 2012 Davies Company Real Estate
  31. 31. Real Estate Brokers (Dirty Secret #2)Most California agents that do shortsales have only closed 30%, the rest went to foreclosure. Copyright © 2012 Davies Company Real Estate
  32. 32. Real Estate Brokers (Dirty Secret #3)Many agents/brokers have lost their own homes because they didn’tunderstand short sale negotiation. Copyright © 2012 Davies Company Real Estate
  33. 33. The Real Estate Broker as Seenby Lender & Buyer & Seller at Successful Close of Escrow Copyright © 2012 Davies Company Real Estate
  34. 34. Short Sale Benefits Seller is relieved of crippling debt and moves on to better life, possibly to buy a home in future Lender avoids further loss Buyer gets property at a fair price Copyright © 2012 Davies Company Real Estate
  35. 35. Davies Top 5 Tips for BuyersOr how to be a smart investor, with any kind of sale, including short sales. Copyright © 2012 Davies Company Real Estate
  36. 36. Tip #1Know what can go wrong Copyright © 2012 Davies Company Real Estate
  37. 37. Tip #2 Know the mathWhat does the seller and lender need tomake the deal be acceptable to them? Copyright © 2012 Davies Company Real Estate
  38. 38. Tip #3Be patient and flexible Copyright © 2012 Davies Company Real Estate
  39. 39. Tip #4Remember all sellers are in same market conditions today There are opportunities for buyers in all types of transactions, not just short sales. Copyright © 2012 Davies Company Real Estate
  40. 40. Tip #5 Buy real estate.Because more estate building, sooner, is better. Copyright © 2012 Davies Company Real Estate
  41. 41. DaviesCo.com twitter.com/dawnadavieslinkedin.com/in/dawnadavies facebook.com/dawna.davies

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