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Kwu Shift Dp Working With Buyers Manual V3.3

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    1. SHIFT Tactic 11: Distressed Properties: Working with Buyers Roger Higle Master the Market of the Moment
    2. Acknowledgments The author gratefully acknowledges the assistance of the following individuals in the creation of this course. These busy agents, leadership, and KWRI leaders and staff gave generously of their precious time to provide insights, data, quotes, and editing time to this project. The distressed properties phenomenon has created a unique set of markets in themselves, while also posing stark contrasts with more traditional markets—in practices, systems, economics, and learning opportunities. The sellers are both distressed individual homeowners and institutions under immense economic pressure from shareholders and the government. The buyers are homeowners seeking move-ups, first-time buyers, and investors with all levels of expertise. Many of the top distressed property specialist agents who participated have literally invented their businesses while building them. Some have practiced in previous distressed markets. Others are newly arrived agents who have boldly pioneered much of what is taught here— about how to survive and thrive in unusual times. Gary Keller Andrew Monaghan Alexis McIntyre John Brophy Rick Brenkus Tony DiCello Joe Bogar Susan Ramsey Linda McKissack Michael Soares Jay Papasan Bryon Ellington Mona Covey Kevin Kauffman Fred Weaver Debbie Gorham Knolly Williams Chris Guldi Buzz Buserini Cynthia Kenner Brandon Green Debbie Zois David Reed Moe Paknia Joe Iuliucci Lisa Blake John Yukovich Aaron Rice Rick Geha Gene Rivers Bruce Hardie Tod Barton Stacia Thompson Steve Mangelson Bryan Knight Sherry Walters Leslie Hollingsworth Mary Keith Trawick Tamara Hurwitz Jeff Ryder Katie Nelms Jason Smith Jonas Koffler Kristina Arias
    3. Notices While Keller Williams Realty, Inc. (KWRI) has taken due care in the preparation of all course materials, we do not guarantee its accuracy now or in the future. KWRI makes no warranties either expressed or implied with regard to the information, programs presented in the course, or in this manual, and reserves the right to make changes from time to time. This manual and any course it’s used as a part of may contain hypothetical exercises that are designed to help you understand how Keller Williams calculates profit sharing contributions and distributions under the MORE System, how Keller Williams determines agents compensation under the Keller Williams Compensation System, and how other aspects of a Keller Williams Market Center’s financial results are determined and evaluated. Any exercises are entirely hypothetical. They are not intended to enable you to determine how much money you are likely to make as a Keller Williams Licensee or to predict the amount or range of sales or profits your Market Center is likely to achieve. Keller Williams therefore cautions you not to assume that the results of the exercises bear any relation to the financial performance you can expect as a Keller Williams Licensee and not to consider or rely on the results of the exercises in deciding whether to invest in a Keller Williams Market Center. If any part of this notice is unclear, please contact Keller Williams’ legal department. Materials based on the Recruit-Select-Train-Manage-Motivate™ (RSTMM™) system and the Winning Through Selection™ course have been licensed to Keller Williams Realty, Inc. by Corporate Consulting. KWRI has the exclusive right within the real estate industry to market and present material from RSTMM™, Winning Through Selection™, and any derivatives owned by or created in cooperation with Corporate Consulting. Material excerpted from The Millionaire Real Estate Agent and SHIFT: How Top Real Estate Agents Tackle Tough Times appears courtesy of The McGraw-Hill Companies. The Millionaire Real Estate Agent is copyright © 2003–2004 Rellek Publishing Partners LTD. SHIFT: How Top Real Estate Agents Tackle Tough Times is copyright © 2008 Rellek Publishing Partners LTD. All rights reserved. Copyright notice All other materials are copyright © 2009 Keller Williams Realty, Inc. All rights reserved. Printed September 2009 v3.3 No part of this publication and its associated materials may be reproduced or transmitted in any form or by any means without the prior permission of Keller Williams Realty, Inc.
    4. Table of Contents CHAPTER 1: WHAT YOU WILL LEARN..................................................................... 6 Series Objectives..............................................................................................................................6 Working with Buyers Objectives...................................................................................................7 Graduate Study: Where to Look Next .........................................................................................8 “Watch Out” Alerts ........................................................................................................................9 Tips for You.....................................................................................................................................9 Course References...........................................................................................................................9 CHAPTER 2: AGENTS NEEDED TO WORK WITH BUYERS! ...................................... 11 Why a Buyer Boom? .....................................................................................................................11 Get Your Unfair Share! ................................................................................................................12 Which Way to Go..........................................................................................................................14 Why the Buyer Side? .....................................................................................................................15 Seven Benefits for Buyers ............................................................................................................20 Five Buyer Realities: Keys to Success.........................................................................................22 Great Opportunity to Learn and Earn.......................................................................................24 It’s Your Choice: Choose to Act.................................................................................................31 CHAPTER 3: MINDSETS AND MARKETS .................................................................. 32 Mindset: Distressed Is a Different World..................................................................................32 Market Shift: It’s Everywhere, and Everywhere It’s Different...............................................36 Take a Critical Look at Your Market..........................................................................................46 CHAPTER 4 DISTRESSED PROPERTY TIMELINE ....................................................... 50 Personal Shift—Through the Homeowner’s Eyes...................................................................50 The Distressed Property Process—Foreclosure and More.....................................................55 Know Your State Laws and Regulations ...................................................................................55 The Distressed Property Timeline ..............................................................................................56 CHAPTER 5: UNDERSTAND BUYERS AND MEET THEIR NEEDS ............................... 65 Three Types of Buyers..................................................................................................................65 How to Find and Attract Buyers.................................................................................................67
    5. How to Find Properties................................................................................................................71 Auction Opportunities..................................................................................................................75 Special Needs of Investors...........................................................................................................77 Lead Conversion Real-Play ..........................................................................................................82 CHAPTER 6: BUYER SERVICE................................................................................... 86 Buyer Service Cycle, Distressed Version....................................................................................86 Make Offers That Close ...............................................................................................................87 Closing ............................................................................................................................................99 Some Final Service Suggestions ................................................................................................103 CHAPTER 7: BUYER SIDE EVALUATION AND ACTION PLAN ................................ 105
    6. Chapter 1: What You Will Learn This guide is one of three in a series from Keller Williams University (KWU) called SHIFT Tactic 11: Distressed Properties. guides in the series are: 1. SHIFT Tactic 11: Distressed Properties: Listing Short Sales 2. SHIFT Tactic 11: Distressed Properties: Listing REOs 3. SHIFT Tactic 11: Distressed Properties: Working with Buyers These courses update and replace Breakthrough to Mastery: An Agent’s Guide to Short Sales, Foreclosures, and REOs, which was released in late 2007. SHIFT Tactic 11: Distressed Properties provides an overview of how the distressed property market—the “market of the moment”—works, and how to gain a foothold in short sale and REO (bank-owned property) and win all the business you want. These markets have grown dramatically and they have evolved—and so has Keller Williams Realty’s expertise. Now you will learn from the top agents succeeding in this market as they share their experience and their wisdom. Series Objectives The three-guide series titled SHIFT Tactic 11: Distressed Properties is meant to help you learn how to pursue your real estate business differently—to succeed with buyers and sellers of distressed properties. These guides will show you: • Skills you will need to excel in this market, and how to develop them • Mindset challenges you will face, and how to deal with them • Resource demands that come with doing distressed property business • Action steps to take now, to propel your business forward Canadian Distressed Properties Research calls were made to Keller Williams agents and leadership in Canada. Their comments, and data generated in SHIFT 2 Tour research in early 2009, showed that distressed properties represent a very small percentage of Canadian transactions—in the worst cases, less than 5%. Therefore, these courses focus entirely on US markets.
    7. Chapter 1: What You Will Learn 7 Working with Buyers Objectives At the conclusion of this guide, Working with Buyers, you will 1. See the Opportunity: Understand the power and scope of the buyer side opportunity in distressed properties. 2. Know Buyer Motivation: Understand why buyers need agents to help them take advantage of this market, and how to provide the help they need. 3. Grasp the Market Background and Foreclosure Process: Have a working understanding of distressed markets, how they came to be, and how they affect agents and consumers. Be able to effectively consult about this with your clients. 4. Know What Changes to Expect: Learn where to watch for information on new industry trends and government policies that will change your market. 5. Know How to Be a Local Economist: Know how to analyze your market. Are there likely to be more distressed properties or less? What factors will determine what happens? How may prices be affected? 6. Know Sources of Buyer Business: Learn how to find and attract buyers to distressed properties. 7. Understand Investor Needs: Learn how to address the special needs of investors. 8. Be a Better Partner with Listing Agents: Learn the importance of a winning mindset in cooperating with REO and short sale listing agents. 9. Know How to Improve Offer Acceptance and Close Rates: Learn tips for helping ensure offers are accepted and transactions close. 10. Make a Sound Choice: What aspect of the distressed property business you will focus on—is working with buyers the best option for you?
    8. 8 Chapter 1: What You Will Learn Graduate Study: Where to Look Next These three guides are not the last word on any of these topics. They are offered as strong “undergraduate level” material. They help you define and build your foundation in distressed property. So where do you go to take your learning to the next level? Here are paths you can take after taking this course: To further hone and fine-tune your skills, pursue MAPS Coaching programs for short sales and REO. Offerings you’ll want to check out are as follows: • Short Sale Coaching with Knolly Williams • Working with Buyers with Shon Kokoszka There are a number of vendors—including some Keller Williams agents— who offer certifications and designations connected with courses you can purchase and programs you can attend. Look for Keller Williams approved vendors on MyKW.com and on the KW Distressed Property Community site. On MyKW.com just click the Vendors button, then search for the category “REO, Short Sales, and Loss Mitigation.” The KW Distressed Property Community is a web-based information center where agents can ask and answer questions of their fellow agents and experts of Keller Williams Realty, Inc. (KWRI). If you have a distressed property question that you want answered or addressed, it’s the place to go—to communicate with other agents about issues, learn about approved vendors, and much more. You can access this community through www.agentmountain.com. KWConnect carries a monthly Real Estate Market Conditions and Trends report for agents called “This Month in Real Estate.” Keep an eye on this report for analysis of new developments in distressed property markets. “This Month in Real Estate” is available in both video and PowerPoint.
    9. Chapter 1: What You Will Learn 9 “Watch Out” Alerts Distressed property markets, like all markets, are always changing. In distressed property markets, agents need to be especially watchful of changes. Watch for this icon throughout the guides. It flags an area where you need to monitor change carefully. Wherever possible, we’ll point you to where you can get more information on the topic. Guard your consultant and fiduciary role. Stay on top of the following: • Law: Federal, state, and local laws governing foreclosure and possible solutions for homeowners being foreclosed upon. • Industry Regulations: Your local real estate board and MLS’s standards for listing, marketing, and closing distressed property sales. • Market Trends: Be especially watchful for important turns of events that impact market pricing and sales volume. For example, are defaults in your market increasing or decreasing? • Your Business Mix: Default trends may be especially important to you if your business is currently built mainly on listing and selling short sales, or if you are balancing a mix of traditional and distressed properties business. Tips for You Watch for these tip indicators throughout the guide. Course References References appear when there is more information on the topic in other guides in this series, or in other courses offered through Keller Williams University.
    10. 10 Chapter 1: What You Will Learn
    11. Chapter 2: Agents Needed to Work with Buyers! Why a Buyer Boom? Okay, so what happened? Why are buyers scrambling today to get their hands on what seems to be an ample to excessive supply of depreciated real estate? The answer: There was a boom, followed by the inevitable bust. From 2000 – 2006, according to The Skinny on the Housing Crisis by attorney and business writer Jim Randel, “Home prices across the United States increased by 15 percent per year and 3 million new households became new homeowners. During that same period, mortgage debt rose from $6 trillion in 2000 to $13 trillion in 2006—premised on the belief that housing values would always go up.” As this course will show you in chapter 3, “always go up” never happens. Up markets are inevitably followed by down markets. In the three years from mid-2006 to mid-2009, the median price of homes in the United States declined 30 percent and one in four homes with a mortgage were worth less than the amount of mortgage debt on the property. This value plunge, in the face of continuing low interest rates, is leading to a resurgence of buying—at depressed prices. Many other factors are at work. This course covers them. But today, much of the news is about the buyers. Truth A study by the real estate website Trulia.com and data provider RealtyTrac says that more than 55% of home buyers say they are actively considering buying a foreclosure. In some markets, foreclosures represent more than 80% of all sales. More than ever, buyers are looking for great deals, and are considering buying foreclosed properties. More than ever, buyers need you to help them.
    12. 12 Chapter 2: Agents Needed to Work with Buyers! Buyers in Las Vegas Debbie Zois is an agent in Las Vegas and a Market Center owner for Keller Williams Realty in both Nevada and Utah. She’s operating in the heart of what has been, arguably, America’s hardest hit distressed property market. Statistics go out of date quickly, but Debbie shares an example of the kind of REO volume growth that overwhelmed her market in 2008. “We saw our monthly volume of default notices to owners go from 2,000 a month—which sounds like a big number—to 4,000, then 8,000 and even 10,000 in a matter of about a year,” Debbie says. “Everyone (agents) scrambled to rebuild real estate businesses and build new ones. More than 80 percent of all sales in our market are bank-owned. Short sales are under 10 percent and the remaining few are not distressed,” she reports. “We feel like the REO capital of the world,” Debbie says. She believes that her market may be dominated by distressed property listings and sales for another 4 – 5 years. When asked what happened to make the situation so acute in Las Vegas, she says, “Two main things happened: There was a ton of stated income lending and generally substandard lending practices. The second thing was a ton of new construction that drew amateur speculators to our market. People were coming here and buying new homes as investments that they never planned to rent. They all thought they would flip, but a lot hesitated—hoping to make even more money—and got caught in the downdraft. More than 60 percent of our inventory is vacant. Buyers are buying—and there’s a lot to buy.” Get Your Unfair Share! Like in Las Vegas, low prices of foreclosed properties across the country have created a breakthrough with buyers. It’s called a buyer’s market and finally buyers, previously hesitant about buying in a downward-moving market for fear of timing it wrong, are shifting gears. Pent-up buyer demand is being released. Both individuals seeking homes and investors seeking cash flow and appreciation are appearing in increasing numbers—in some cases creating multiple offer situations for distressed properties.
    13. Chapter 2: Agents Needed to Work with Buyers! 13 Buyers come in various types, with varying motivations, and lots of questions that need answering. Are they experienced investors looking to expand their collection of income- producing rental homes? Or, are they beginner investors—homeowners looking to take their first leap into the rental world? Are they current homeowners who suddenly find they can afford to move up in a way they used to believe was not possible? Or, are they one of the most prominent groups today, first-time buyers, looking to take advantage of a big new tax break and tempted by lower prices than they’ve ever seen? Property is starting to sell. As Gary Keller likes to say, “You need to get your unfair share.” Is becoming an agent who works exclusively with buyers your best plan of action now? What do you need to know about how distressed properties are listed and sold? As banks consolidate and are pressured for time by more and more foreclosed inventory, it becomes harder, but not impossible, to find listing relationships—and easier to go for the buyer side opportunity. As mentioned previously, all three guides that comprise the SHIFT Tactic 11: Distressed Properties series present options for working in distressed property markets. They look at both the listing side and the buyer side—what you need to know, what you need to do, and how to do it. Now is your chance to make a decision about which way to go.
    14. 14 Chapter 2: Agents Needed to Work with Buyers! Which Way to Go As you learn what you need to know and do to succeed, you will see that there are just three paths to follow: 1. Listing Side: Focus on listing short sales or REO—top listing agents tend to specialize in one or the other. 2. Buyer Side: Focus on the buyer side—learn about the opportunities and needs of buyers in this market; learn about short sales, REOs, and auctions—and be able to sell all types of distressed properties. 3. Both Sides: Build a team that works both sides—by listing distressed properties and working the buyer side with a focused buyer agent or agents. Let’s look deeper into why the buyer side is a great opportunity for you now.
    15. Chapter 2: Agents Needed to Work with Buyers! 15 Why the Buyer Side? Any of these paths can lead to a very successful, profitable business. Each has its own special rewards–and some risks. This guide takes the view that the buyer side is the way to go because it is: • Faster – the quickest way to get involved and make money today • Cheaper – there is less financial risk than on the listing side (especially less risk than listing REO properties) • Easier – while you need to know and follow the rules and guidelines that get offers accepted and deals closed, the listing agents have way more to learn and deal with. And most importantly, buyers need you now more than ever to navigate this potentially confusing, frustrating, and ultimately satisfying landscape! What’s working in your favor if you choose to work the buyer side? Besides eager buyers, what makes this the faster, cheaper, easier way to go? 1. There’s ample short sale and/or REO inventory to sell in most markets. 2. There are motivated parties—on all sides of these transactions. 3. Economic stability is slowly returning, with a big push from government. 1. Inventory to Sell in Most Places Working on the buyer side of distressed property sales can be the best part of operating in a tough real estate environment. The reasons have to do with both motivation and money! Institutions and individuals are listing a lot of property for sale, and motivated buyers are starting to gobble it up. Agents interviewed across the country report generally brisk sales of both REO and short sale properties. In some markets, multiple offers on these properties are common. Although the flow of inventory has slowed some, most agents feel that’s temporary—and there is still plenty of inventory. Truth Top REO and short sale Listing Specialists are listing and selling a lot of properties. Top listing performers are reporting doing hundreds of transactions annually. There is money to be made getting these properties sold—right now!
    16. 16 Chapter 2: Agents Needed to Work with Buyers! More Distressed Volume Lies Ahead At the same time that positive economic signs are appearing in some parts of the United States, and in policies boosting consumers’ purchasing power, more foreclosures are showing up in some places. Mortgage Resets Run to 2015 Job losses have joined mortgage rate resets in the mix of lending and investment issues driving mortgage delinquency and resulting foreclosures. “If people don’t have a paycheck, they can’t support a mortgage,” Jay Brinkmann, the Mortgage Bankers’ Association’s chief economist, said in an interview. “The longer the recession lasts, the more people run through their savings reserves, leading to higher delinquencies and higher foreclosures.” Nationally, RealtyTrac and other data collectors are reporting new initial notices of default to homeowners being issued by lenders at record high levels. Source: John Mauldin (The New York Times finance contributor and author, Outside the Box, online newsletter) The Monthly Mortgage Rate Resets chart does not track notices of default, but simply the number of mortgage rate resets scheduled for 2007 through 2016.
    17. Chapter 2: Agents Needed to Work with Buyers! 17 What does the Monthly Mortgage Rate Resets chart show? • Although mortgage rate resets are one factor in the mix driving defaults, the trend is clear. Distressed markets will be with us for at least a few years to come. • Subprime mortgage rates and terms drove the early part of the foreclosure wave. • The later part will be driven by adjustable rate and “Alt A,” so-called Pay Option or Pick a Pay loan resets. Securitized Trust Sales Competing with REOs There’s another wrinkle in the market. Companies representing investment firms that, during the housing boom, accepted large bundles of securitized home loans are now selling a lot of property too. These loans have defaulted. The firms that hold them are putting properties on the market (working through middlemen) at very low prices, and accepting even less. Many of the original holders of these securities were firms that have gone bankrupt or have been sold including Merrill Lynch, Bear Stearns, and Lehman Brothers. In some metropolitan areas, according to The Wall Street Journal (July 9, 2009), the bond trusts that hold these loan portfolios are selling more properties than banks are, at prices that are often substantially lower than bank-owned properties. This creates a short-term risk of depressing prices further. State and Local Government Help for Homeowners and Buyers State and even local governments are adopting their own policies and programs that impact distressed properties. California, as one example, has seen a recent jump in default notices to homeowners again. Default notices increasing is not the same as foreclosures happening, but it is a sign that short sales and more bank-owned property assignments are sure to follow. The law of supply and demand is a pretty simple concept, but California’s situation is a good example of how other factors complicate the picture. In distressed property markets, everything is not always what it appears to be. In the fall of 2008, California passed a new state law requiring banks to take additional measures to try to keep defaulting homeowners in their homes. This came on top of various lenders’ decisions to hold back on foreclosures to see what new U.S. government policies might emerge after the new administration moved into the White House. The California data was released by a monitoring company, Data Quick. Their report points out that the bulk of the new defaulting loans were ones issued at the end of 2006—when the price inflation and buying boom was peaking in California. This further reinforces the idea that, where California foreclosures are concerned, there’s more to come. As an example, local governments like the City of St. George, Utah, are offering incentives to buyers. St. George is offering $10,000 to anyone who buys in their city—whether the property is distressed or not. The incentive is repaid by the homeowner to the city when the property is resold.
    18. 18 Chapter 2: Agents Needed to Work with Buyers! 2. Motivated Parties on All Sides Truth Distressed property markets feel inherently negative. The feeling is deceptive. They are filled with postive motivators for players on every side of the market—private sellers, lenders, buyers of all kinds, and agents. Distressed property is a term with largely negative connotations, and for good reason. Keep in mind that what agents, in particular, need to focus on are the positive motivational forces at work in these markets. If you haven’t read SHIFT: How Top Real Estate Agents Tackle Tough Times at least a couple of times, acquaint yourself now with what it says. It speaks powerfully and persuasively about the power of motivation in any market. The principles SHIFT describes work together to create multiple motivated parties in distressed property markets: • Motivated sellers needing short sales (providing the lender agrees to the price) are one. • Motivated institutional lenders holding REO properties are another. • Motivated investors seeking a great deal—one off, or in volume purchases. They may want to buy rental property for cash flow or investment property they can fix and flip when values rise. • Motivated move-up buyers seeking to step up to that dream home that is suddenly affordable! • Motivated first-time buyers are not unique to distressed markets, but very low prices are especially appealing to these consumers. • Motivated real estate agents looking to build businesses damaged by market shifts that cut their sales volume.
    19. Chapter 2: Agents Needed to Work with Buyers! 19 3. Returning Economic Stability They are also being motivated by emerging positive economic news. A recent CNBC report underscores this phenomenon in major local markets. CNBC reports U.S. cities including Austin, Raleigh, Seattle, and Denver are all experiencing positive economic outlooks that help to energize buying and market stability. Forbes magazine adds larger cities like Boise, Albuquerque, and Madison, Wisconsin, to this list, along with a number of smaller cities with populations under 250,000 in all regions of the country. The report points out that recovery in real estate sales seems to track with logical other positive economic factors including: 1. The U.S. government’s stimulus programs that are beginning to pump money into state and local economies for improvement projects. 2. Apparent return to stability in the banking industry. 3. Steadying private and public employment (corporate profit improvement in many sectors, government job growth) Low, Low Prices Spur Demand Some of the first markets in the country to be hard hit with foreclosures are showing signs of leading the way out of the distressed market. Multiple offers in Las Vegas Rick Brenkus and his wife Teri have run a successful real estate practice in Las Vegas for more than fifteen years. They came to the REO business relatively late, in 2008, but they made the transition with gusto and are on pace to average 400 REO transactions or better in the next year. “Our REO market has shifted recently,” Rick reports. “We are seeing mutiple offers—as many as 10—on well-priced REO properties now,” he says. “Of course that volume is driven by low prices, so the trick is to be positioned to do volume business. Having as many smart buyer agents in the market as possible is very, very important.” Top agents in other markets are reporting similar trends. Lisa Blake, a top REO agent in Denver for the past four years, also reports seeing multiple offers on well-priced REO listings. “We were among the first markets to be hard hit, and so it’s logical that we’ll also be among the first to lead the way out of tough times—and it looks like that’s what’s happening,” Lisa says. “Right now it’s mainly an REO recovery, but that needs to happen before the rest of the market can come into better balance.”
    20. 20 Chapter 2: Agents Needed to Work with Buyers! Seven Benefits for Buyers Truth Agents should know both the benefits and key successes for their buyers and investors. Agents need to be smart, well-educated coaches for the people they represent, in this market as in any other. You can succeed with these buyers, but you must build distressed property-specific knowledge and skills. This includes knowing the clear benefits for buyers who want distressed property—and the top keys for successfully buying it. The difference now is you need to know some rules and phenomena that are different than they are in more balanced markets. Getting that knowledge fast and communicating it well turns you into what SHIFT calls “the local economist”—the agent who helps people see the opportunity in these times. This is what opportunity is made of for buyers, in headline form. You should understand and be articulate about each of these stories in depth—as they relate to your local market: 1. Generally Low Prices All pricing is local but short sale and REO prices do go below the rest of the current market—anywhere from 10 percent to 40 percent less, according to top distressed property agents. 2. Affordability Declining prices relative to income make move ups more affordable. Postponed “dream home” purchases are suddenly possible for people who never expected the affordability levels that exist now. Home affordability in the United States, as calculated by a National Association of Realtors quarterly index, is approaching the highest levels ever recorded. 3. Motivated Lenders Increasing Lending Lenders do not want the liability and cost that come with owning distressed property. If it can be sold short for a price that makes sense in their accounting, they want to do it. If foreclosed property is on their books, they want it gone! And, in many cases, they are willing to do everything possible and reasonable to get that buyer a loan that works— to buy a home they need to move!
    21. Chapter 2: Agents Needed to Work with Buyers! 21 Major national lenders are being aggressive. According to The Wall Street Journal (August 25, 2009) Bank of America and Wells Fargo controlled nearly half of all mortgage originations in the first six months of 2009 according to the newsletter Inside Mortgage Finance. By contrast, in 2007, the top three lenders accounted for 37 percent of all mortgage originations. Countywide, the top mortgage lender for much of the boom never crossed 20 percent. Wells Fargo's market share jumped to 24 percent at the end of June, from 11percent two years ago. Bank of America's share rose to 21percent from 6.8 percent two years ago. 4. Low Down Payment Leverage Financing is available, thought it is harder to get than it used to be. Lower home prices do mean a given amount of cash down builds more equity than before. Example: Your $20,000 down meant 10 percent equity in a $200,000 property. The market has driven that home to $150,000. You buy it, and now have one-third more equity than you would have had before. 5. Motivated Listing Agents REO and Short Sale listing agents—though they cannot make decisions about final sale prices—are highly motivated to get property priced right by banks and asset managers. They are also motivated to attract strong buyer agents who they will train to know the REO or Short Sale selling business. Some listing agents work both short sales and REOs. The majority tend to specialize in one or the other. 6. Motivated Individual Sellers Distressed sellers want out from under their problems. They are not enjoying their situation and want to make changes as fast as possible—especially changes that relieve them of personal, financial, and emotional pressure. Many of them qualify for a short sale of their property. But, even sellers with equity want to move quickly—before the market or personal circumstances put them in a situation they don’t want. 7. First-Time Buyers With home prices and rates low, first-time home buyers have an unprecedented opportunity. In addition, the new $8,000 tax incentive for buyers who have not owned their own primary residence for at least three years is a strong incentive and can jump-start more people to home ownership. More than half of all buyers in this market are first-time home buyers. Watch out: This legislation may be temporary.
    22. 22 Chapter 2: Agents Needed to Work with Buyers! Five Buyer Realities: Keys to Success Truth Tell the truth—about pricing, about urgency, and the details you’ve learned about how distressed property deals get done. 1. Don’t Wait Gary Keller has said in recent Agent Mountain interviews that he thinks, looking across the United States, the majority of price drops has already shown up in the market. If you have a lot of REO sales now in your market, you are seeing close to bottom of the market pricing. Waiting means trying to time the market better, and if buyers do, they will miss the bottom and end up buying on the way back up. 2. Don’t Haggle About Condition In either REO or short sale buying, you and your client are going to encounter the bank- mandated “As Is” Addendum, or some similar disclaimer. This is standard procedure in distressed property markets. Banks are looking for a non-negotiated clean sale. One of the keys is working with buyers who understand—and accept—that reality. This can be a tough concept for buyers and agents raised in traditional markets. “Too many agents try to fight the rules instead of going with them,” says top REO agent John Yugovich, White Lake, Michigan. 3. Have Ironclad Financing, or Cash Buyers must be preapproved in writing and must have documented proof of funds for any cash involved in their offer for distressed property. The old “prequalified” standard means nothing in this market. 4. Follow Instructions on Contract Paperwork Submitting poorly documented financing or cash and sloppily rendered contract forms just won’t work. It’s bad practice anytime, but it’s an even worse error in the unforgiving world of distressed property deals. Everyone is too busy. Listing agents will turn back paperwork to the buyer agent—lenders have made it clear they won’t look at it. Buyers and their agents who generate it must do it right the first time—or they will have no deal.
    23. Chapter 2: Agents Needed to Work with Buyers! 23 5. Read Title Reports Carefully In short sales particularly, where a lender has not cleared the title, there is a risk of liens and claims interfering with clear title to a property. In sales of bank-owned (REO) properties, this issue rarely crops up—the lender as first lien holder will clear all claims in taking the property back from the defaulting owner. But, it’s always good practice to read and understand preliminary title reports. In the distressed property world—because a homeowner’s financial situation have been tight—the risk of not doing so is way higher than in traditional sales. Las Vegas—Building the Buyer Side Debbie Zois is an accomplished REO agent and an owner for Keller Williams Realty in one of the nation’s most acutely distressed markets. In Las Vegas, well over 80 percent of all transactions are bank-owned properties, and another 10 percent are short sales. Debbie and her team sing the praises of First American Title’s Marketing Officer Valerie Grijalva, who spends a lot of her time teaching and counseling REO buyer agents. Her focus: the critical differences between an REO transaction and traditional resale transactions. “We sponsor courses, we generate tip sheets, and I try to be talking with buyer agents all the time,” Valerie says. “Too many agents waste time complaining about bank policies and procedures in REO deals—or complaining about the REO listing agents,” she reports. “I tell them to get over it. This is a different business with different rules. If they will just adapt and adjust, they’ll do very well. There’s tons of opportunity. Everyone wants property to move.” Valerie adds, “If I were an agent, I’d want to be a Buyer Specialist. I’d brand it and market my expertise full bore.” Valerie and Debbie have now joined with top REO agent Joe Iuliucci to form 4REO, a membership information-sharing forum for REO agents. Let’s look deeper into why the buyer side is a great opportunity for you now.
    24. 24 Chapter 2: Agents Needed to Work with Buyers! Great Opportunity to Learn and Earn Most agents agree working with buyers is the easiest way to get involved in the market of the moment. You can learn and earn more quickly than on the listing side—and the commissions tend to be higher for the buyer side, in both REO and short sales. In interviews for this guide, it’s been said many times by top agents—in slightly different ways: “If you think this (distressed property) is going to be like traditional real estate, think again.” This is wisdom hard-won by top agents working this tough market. 1. Learn New Rules and Ways: It’s a Different World! You’ve already seen this is not traditional real estate as you probably learned it. Be prepared to learn new things—standards, rules, and transaction methods. Distressed property markets are governed by some unique rules of the road. They’re definitely different—and you need to learn them as quickly and thoroughly as possible. Markets of the moment get their name because they come and go. They can return again— as overall and local conditions change. Many of the agents who are most successful in these markets get ahead because they recognize “the shift” before others do; they learn what to change about their practice, and how to make offers and closings happen. But even those whose market—or their own awareness of it—develops late can get in the game and dramatically improve their income. In distressed property, like any market, opportunity presents itself—to learn and earn. Be a Student of the Market: Major in Distressed Properties As taught in SHIFT, one of the strongest cards you can play in building any real estate practice is to be a committed learner—with a special focus on the history and current conditions of your local real estate market. Gary Keller, in SHIFT, calls this commitment “becoming the local economist.” Being a great buyer agent in a shifted market means being a student of the market as you would at any time—but with a major in pricing and in distressed properties! Be Self-Educated Learn the market—on your own, and from those who are already mastering it. Read everything you can get your hands on in the news media. They may not have it right, but they are writing what people are reading, hearing, and watching. Before you can truly help buyers in these markets, you must know both the truth about the market and what buyers’ impressions and beliefs about it are.
    25. Chapter 2: Agents Needed to Work with Buyers! 25 Becoming a distressed property expert means you must be a committed learner—the same as you are in your traditional real estate practice. The distressed property business is filled with specialized processes, programs, and tools you need to know to be successful. Learn from Others Opportunities to learn are everywhere. You can get a jump-start with experienced distressed property listing agents—if you are serious and committed. As you will see, no one wants distressed property buyer agents to learn better, or faster, than distressed property listing agents. Learn How It’s Done! John Brophy, Roseville, Calilfornia, is one of the top REO listing and selling agents in all of Keller Williams. John started his REO career doing hundreds of Broker’s Price Opinions (BPOs) because he realized the lending people who read them would see his name over and over again—on quality work. His gamble paid off with hundreds of REO assignments. John’s special distinction is that he’s known throughout his region as a mentor and coach in the REO business. He’s helped dozens of fellow agents get involved in distressed properties—and catch up fast. John knows the business can only prosper if more agents know what they are doing in REO. He says, “All REO listing people I meet at conferences and Family Reunion are talking about the same thing—the problems they’re having with buyer agents who don’t understand what’s going on in the REO business, and what they have to do—and tell their clients.” John adds, “To handle the business we have to do with banks the buyer agent, and what they do with their client, needs to fit into our listing and selling system.” After learning comes earning!
    26. 26 Chapter 2: Agents Needed to Work with Buyers! 2. Earn Truth In distressed property transactions, total commissions tend to be consistently stronger on the buyer side. Market shifts often mean agents with traditional real estate practices see their income threatened. When the shift turns downward-moving markets into distressed markets, there’s a new opportunity to earn—learn the new environment, accept it, and earn within it. Tip! – Buyer Side REO Commissions Are Higher A recent Keller Williams agent survey showed the listing side REO commission tends to run around 1.75 percent, while the buyer side usually sees 3 percent. In a team situation, the buyer agent will be sharing a commission split with the team, but the opportunity is excellent.
    27. Chapter 2: Agents Needed to Work with Buyers! 27 Why the Buyer Side? Sample Commissions Breakdown The Las Vegas market is one of the markets most dominated by distressed property sales. Agents and leadership in that market have worked with vendors to tell the buyer side story with impact—why agents should consider focusing on the buyer side of REO. This table was assembled with data provided by agent and owner Debbie Zois of Las Vegas, and by a preferred vendor, First American Title Insurance Company. Notice the dramatic bottom line difference! Even if the listing agent pays no referral, the buyer side is well ahead. REO Listing Agent vs. Buyer Agent Commission and Expense Breakdown Based on $200,000 Sales Price Listing Agent Buyer Agent Occupancy Check 10 Gas 150 Re—key 100 Time to research properties Property Setup Visit 15 Lockbox - Combo 15 Water On – Deposit 600 Electric on – Deposit 1000 Monthly Water (x4) 120 Monthly Electric (x4) 400 Trash Out/Clean 500 Biweekly Yard (x4) 240 Biweekly Inspection (x4) 100 Electronic Lockbox 75 Interior BPO 75 Collect/convey Contractor Estimate 45 Submit Offers 35 Monthly Marketing Update (x4) 60 Interior BPO Update (60 day) 55 Gas On – deposit 55 Gas Bill 25 REO Trans Fee 125 Reimbursable After 90 Days 3,040 Total Property Cost (550) (150) Sales Price 200,000 Sales price 200,000 2% Commission 4,000 3% Commission 6,000 Outsourcer’s Referral Fee 1.25% (2,500) Commission on HUD-1 1,500 6,000 90% Split 1,350 90% Split 5,400 E&O 37 E&O 37 Commission Before Expenses 1,313 Commission Before Expenses 5,363 Property cost 550 Property cost 150 NET COMMISSION 763 NET COMMISSION 5,213
    28. 28 Chapter 2: Agents Needed to Work with Buyers! Join a Distressed Property Team REO and short sale listing agent teams are building their buyer agent and listing agent resources. Listing agents are consistently frustrated with the mindset and inexperience in distressed property of agents bringing buyers to their listings. They have learned that one of the best ways to meet the challenge of poorly educated buyer agents is to recruit and train their own! Learn who the bigger players are. Approach them about the skills, experience, and mindset you offer—your ability to perform now, and your willingness to learn and do. Buyer Agent Opportunity Andrew Monaghan is one of the top REO listing agents in the Phoenix, Arizona, area. He began in the hotel management business and got started in real estate by joining another top agent’s team. His own team today consists of more than fifteen people—both licensed and unlicensed. They sell REO properties at the rate of more than 300 annually. He tells the story of recruiting a buyer agent. There were two finalists. One took the job, the other agent moved on to another company because, Andrew says, they were having trouble accepting a fifty-fifty commission split. Several months later, he called the first agent—to see how they were doing. “Still struggling” was the report. They hadn’t had a sale in three months. “Meantime, the agent I hired to work with me had done fourteen sales in the past month. Fourteen sales at a fifty-fifty split is not a bad deal,” he points out. And, the opportunity begins with generating leads. “There is so much money being left on the table in this market—you can sign up to do open houses for me—do your homework, walk the neighborhood, invite people to bring people they know,” Andrew says.
    29. Chapter 2: Agents Needed to Work with Buyers! 29 Top Listing Agents Looking to Build Their Buyer Side Many top REO listing agents have realized the sales and income opportunity that the buyer side of their business affords. Joe Bogar, Denver, Colorado, talked with Gary Keller in an Agent Mountain interview about his aha on the power of the buyer side. “My listings have been 76% of my closings, but one thing I’ve learned masterminding with people who focus on buyers is this. Teams doing more buyer side conversions are financially ahead of the curve with about the same number of deals. They are using buyers to accelerate their financial results,” Joe says. These top agents are looking for smart buyer agents to sell their listings. In many cases, they may also be looking to hire capable buyer agents to be part of their sales team. Buyer Agents Are Being Mentored and Recruited Kristina Arias, Mesa, Arizona, is one agent who is taking the bull by the horns when it comes to attracting buyer agents for her team. “People who have not done this business have a hard time understanding why we (listing agents) are reluctant to give relationship referrals, much less active roles in our teams, to more agents,” she says. “We’ve made a huge investment of time and money in our customer relationships. Our customers, most of the time, are big institutions with large networks. If one agent does something damaging that reflects on us, we can lose more than a deal—we can lose scores or even hundreds of potential listings,” she explains. Kristina spelled out a model for how she’s going about mentoring an interested agent (with general real estate experience) during a sort of probationary period. Here are the steps she’s using: 1. Shadowing – Shadow one of the experienced listing or buyer agents for thirty days—watching offers handled, addenda completed, and sitting in on negotiation conversations. 2. Co-listing – Assigning the person as co-listing agent on 3 – 5 listings—handling everything to do with that listing—cleanouts, cash for keys, maintenance and repair, security, showings, and more. 3. Recommending – Recommend that person to a lender or asset manager (one she already has a relationship with) to get listings.
    30. 30 Chapter 2: Agents Needed to Work with Buyers! Buyer Business Can Lead to Listings While the focusing on the buyer side of distressed property can be a lucrative way to get into distressed property—without the up front cost of maintaining REO listings, and without some of the negotiation challenges of listing shorts sales—the buyer side can lead to a listing business too. Take the Buyer Side Path to Listing Assignments Brandon Green, Washington, DC, now lists REO properties for loan giant Fannie Mae in the DC area. How he and his team won this assignment is a great illustration of yet another path that leads through the buyer side. Brandon says he and his team got their first exposure to distressed property by working the buyer side. “I knew what to expect when I decided to go after REO listing assignments because I had already worked the buyer side,” Brandon says. Once he decided, it took him months of relationship building and planning to win his first big relationship. “ I could see that the banks were not always satisfied with the listing people they had. Changes were happening—to get more sold faster. I knew I had a good story to tell once I reached the right people. It took time and many interviews with Fannie Mae. I finally won the account with an interview that happened a long way from here—in Dallas.” Brandon’s pursuit of REO business has been an outstanding example of the “whatever it takes” approach of so many of the most successful distressed property agents.
    31. Chapter 2: Agents Needed to Work with Buyers! 31 It’s Your Choice: Choose to Act Markets of the moment aren’t well understood by people who haven’t been in them. Those who haven’t experienced them need to get up to speed to be successful. For every agent who was in the business in the late 1980’s or early 1990s, depending on location, and recognized the current opportunity early, there are many more for whom distressed property is a new reality. Change creates choices. It’s worth repeating that you have the following three choices to make about how you will excel in this distressed property market. Now is the time to decide and take advantage of this opportunity that may or may not be around for a while. It’s your choice; are you ready to choose? 1. Listing Side: Focus on listing short sales or REO—top listing agents tend to specialize in one or the other. 2. Buyer Side: Focus on the buyer side—learn about the opportunities and needs of buyers in this market, learn about short sales, REOs, and auctions—and be able to sell all types of distressed properties. 3. Both Sides: Build a team that works both sides—by listing distressed properties and working the buyer side with a focused buyer agent or agents. Tip! – Don’t Wait: Get Involved Now Brent Gove is Team Leader in Roseville, California, in the Sacramento area. His market has seen more than its share of foreclosures, and he urges both leadership and agents in markets where REOs and short sales are just emerging to get involved fast! “We got on top of it early when we saw it happening in our area, and I can tell you some of our competitors did not. Now, we’re burying them on market share, financial performance, and agent count,” he says. “We have a lot of agents doing well in this market.” Whichever way you choose to go, it’s imperative to understand the landscape of distressed properties.
    32. Chapter 3: Mindsets and Markets So how did we get in this market situation? And what are people’s perceptions of this market? To be successful with your buyers, you must demonstrate your knowledge and expertise in these two areas; the mindset and the market. 1. The mindsets of the players in these markets – Sellers, banks, asset managers, buyers, and agents all have their own motivations and viewpoints—and they really impact how the business is done. 2. The distressed market phenomenon – It was created by a “perfect storm” of economic and other factors that came together early in the 2000s. You need to know that story and how to relate it to your local market when consulting with buyers. Mindset: Distressed Is a Different World One of the first things distressed property expert agents discover is the special mindsets of all parties involved. They are different from traditional market viewpoints. The following table shows a summary of some of the top points of difference from a mindset perspective. The right hand column of the table emphasizes the importance of studying the distressed market to become the best advocate for your buyers, to bring sales to closing, and to work cohesively with listing agents and lenders. Things are different in ways that impact all the parties involved in a transaction—and the transaction process itself.
    33. Chapter 3: Mindsets and Markets 33 Mindset Map: Traditional Markets vs. Distressed Markets Traditional (Buyer or Distressed Property Market Seller) Market Consumers In Eager and positive about buying Stressed about whether to and how to General or selling. take action given the market on the sale side—and feeling urgency to buy at great prices on the buyer side. Sellers Seeking return on investment and Institutions and consumers seeking equity to power their next home either whatever they can get, or an purchase. escape from crisis. Buyers Seeking the right home at a Seeking the very best possible deal, reasonable price. or a steal. Lenders Generally open to making loans and Lending criteria is dramatically into creating products and policies tightened; loans hard to get. They to encourage borrowing. have also taken on role of sellers of distressed property—either before foreclosure (short sale) or after (REO.). Agents Eager to jump in; generally able to Often poorly-informed about master transaction basics. transaction basics; often not well qualified to coach their clients—or unaware of the need to. Transaction Taught widely, in real estate Only recently being taught. More Processes schools and by brokers. Generally complex, with varying timelines consistent and use standard and requirements. Lenders in board or MLS documents. charge of transaction process. Timelines generally consistent. Special documents required by lenders and agents to protect themselves and clients.
    34. 34 Chapter 3: Mindsets and Markets Your Mindset Must Shift: The E to P Analogy Distressed property business is different—mindsets of all the players have shifted from traditional market views. Making the shift yourself requires some breakthrough thinking. One picture of personal transformation was first introduced by Gary Keller in his “Six Personal Perspectives” It appears in a range of Keller Williams University courses for both leadership and agents, including the course Quantum Leap. Moving from “E” to “P” is shorthand for deliberately shifting from a business style based on entrepreneurial mindset to a style based on a purposeful, or by design, mindset. It applies very well to the transformation agents need to make to become successful in the distressed property business.
    35. Chapter 3: Mindsets and Markets 35 Think of the “E” world as the world of traditional real estate transactions you probably learned in licensing and broker classes—the world that is the comfort zone of most agents. Think of “P” as the world of distressed property listing and sales, where many things are new—markets, mindsets, and transaction processes. The E to P model says there are five breakthrough ingredients that move you above the ceiling. These ingredients define the “purposeful style” you will need to succeed: 1. Clarity of purpose 2. Knowing your options 3. Choosing your model to proceed 4. Putting systems in place 5. Creating accountability for your performance (with an accountability partner) Apply “E to P” toYour Traditional-to-Distressed Transition • Think about activities in traditional markets that represent the way things are normally done—methods that might come “naturally” to people wanting to sell real estate. • Write down what it is specifically about the shift into distressed property sales that requires these things: 1. Clarity of purpose _______________________________________________________________________ _______________________________________________________________________ 2. Knowing your options _______________________________________________________________________ _______________________________________________________________________ 3. Choosing your model to proceed _______________________________________________________________________ _______________________________________________________________________ 4. Putting systems in place _______________________________________________________________________ _______________________________________________________________________ 5. Creating accountability for your performance _______________________________________________________________________ _______________________________________________________________________
    36. 36 Chapter 3: Mindsets and Markets Market Shift: It’s Everywhere, and Everywhere It’s Different In 2009, distressed property sales represented 50 percent of all property sold in the United States. Included in that 50 percent are markets almost totally dominated by distressed sales, and markets where distressed sales are just a small minority percentage of all transactions. The distressed property landscape is varied—the phenomenon is very local. It is like all real estate in that respect. In some states and metro areas, real estate sales are proceeding, despite some market shift, in a familiar pattern. In other areas, the residential real estate industry looks very different than it did several years ago. How long will things look the way they do today? Everyone wants to know, and even the most informed experts are not sure. Government policy shifts, lending industry changes, and initiatives from within the real estate industry all promise change.
    37. Chapter 3: Mindsets and Markets 37 Background: Gary and the “Perfect Storm” Experts say the distressed property wave facing the United States today has been driven by factors more complicated than supply and demand alone. Gary Keller (seen here on www.agentmountain.com) has been a teacher throughout his real estate career. In speeches and interviews, he now refers to the United States distressed property markets as driven by a “perfect storm.” The elements include economics, government policies, consumer choices, and financial engineering by investment companies and lenders. The Six Ingredients of the Perfect Storm 1. U.S. government push for increased home ownership – 1990s U.S. government policies pushed expanded home ownership dramatically. 2. Lender aggressiveness – Lenders chose to make more loans, encouraged by that policy shift. The boom in lending, new home building, and home reselling from about 2000 to 2007 included softened lending standards and a host of new mortgage lending products never seen before. Variable rate, no down, and little or no borrower documentation programs brought people to home ownership under terms they either did not think through or did not fully understand. Author Charles Morris in his 2008 book The Trillion Dollar Meltdown says, “By 2003 or so, mortgage lenders were running out of people they could plausibly lend to. Instead of curtailing lending they spread their nets to vacuum up prospects with little hope of repaying their loans. Subprime lending jumped from an annual volume of $145 billion in 2001 to $625 billion in 2005. More than one third of subprime loans were for 100 percent of home value.”
    38. 38 Chapter 3: Mindsets and Markets 3. Securitizing mortgage loans for giant investors – As lending expanded, financial institutions turned resold home loans into elaborate investment products—sold to institutions worldwide, to generate income for them and make more money available for lending. Critics say the process included strategies to hide the risk to investors that was inherent in the types of loans being made to home buyers. 4. Low interest rates – Historically low interest rates throughout the late 1990s and early 2000s generally spurred lending and borrowing. 5. Building boom – Lending policies and the low cost of money also triggered a boom in residential construction led by national home building companies. Lots of new home inventory attracted as many investors as it did homeowners. Not all the inventory sold. Buyers who wanted to occupy came in with challenging loan conditions, and many investors who bought planned cash flow poorly and could not find tenants who could afford their rents. 6. Decreasing equity – To compound these problems, through a wave of refinancing, many consumers reduced their equity in their home—at a time when the inevitable market decline was about to reduce their home’s value. When the resulting lower equity meets declining market values, homeowners’ equity shrinks fast—and then disappears. Being a top-flight agent for buyers of distressed property starts with understanding what is going on in foreclosure—what precedes it, and what follows it. Distressed property markets fit in the context of normal market movement over time. They are a phenomenon of a buyer’s market, and the special circumstances that come into play when property values experience a sustained decline. How Markets Become Distressed It’s one of the underlying fundamentals of real estate and investment markets generally: things go up and things go down. Then they go up again. Balanced markets—when supply and demand are well-matched—become sellers’ markets when too much demand for inventory available, and then often revert to buyers’ markets when demand eases and supply exceeds the number of buyers available.
    39. Chapter 3: Mindsets and Markets 39 In SHIFT: How Top Real Estate Agents Tackle Tough Times, Gary Keller uses the following market history chart to illustrate the cycles that have happened in U.S. real estate markets—over decades: Note: The end point data for 2009 in the chart is based on NAR’s projections for year- end 2009 inventory and units sold. Nationally the rapid transition from a sellers’ to a buyers’ market began in early 2006. The supply (inventory) and demand (sales) lines crossed somewhere in 2007 and we entered the strongest buyers’ market since the late 1980s and early 1990s. In some places the shift happened sooner; in others it happened later—this is always the case. The current buyers’ market began at different points in time depending on where you are. In any case, it has been in full bloom for a while and it has some time left to run. Because all real estate is local, the answer to the question “how long will it take” will vary.
    40. 40 Chapter 3: Mindsets and Markets A Major Market Correction Several market dynamics drive residential distressed property. To be positioned as an expert, you must study the data and understand how these dynamics operate. The first fundamental idea is pretty straightforward. The law of supply and demand is always at work. Here’s what’s been happening in response to the booming seller’s market (1998 – 2006): 1. Property sales slow—inventory exceeds demand, and value turns down 2. Foreclosures increase as value turns down—a downward spiral happens 3. When prices have fallen far enough, buyer interest rises and sales begin to increase 4. Distressed markets recover 1. Property Sales Slow When supply and demand are roughly in balance, markets tend to feel balanced in terms of price and value. Prices in these markets tend to appreciate, but only in sync with the rate of inflation. Gary Keller’s 2009 Family Reunion Vision Speech included a graph that showed this twenty-year price pattern in U.S. residential markets:
    41. Chapter 3: Mindsets and Markets 41 The Home Prices graph tells several parts of the story. Here are the big messages: • After a relatively long stable period— from 2002-2007 when appreciation in home prices tracked pretty well with the historic 4 percent average—prices got out of whack in a hurry. • The market has been correcting with inventories rising, sales declining, and prices tumbling. 2. Foreclosures Increase The perfect storm of market conditions, described in the opening of this course, contributed to intensify the buyers’ market. The big price correction markets have been experiencing is impacted by the volume of foreclosed properties hitting the market. The chart below shows what happens when foreclosure rates accelerate. Decreasing prices eventually draw increased buyer interest. When prices have decreased sufficiently, things begin to shift again.
    42. 42 Chapter 3: Mindsets and Markets 3. Prices Fall, and Sales Begin To Increase There is a certain tipping point when sales increase, and it’s centered on affordability. That is, when consumers can afford to buy a home, they will. Top agent and owner Gene Rivers, Tallahassee, Florida, compiled data from top metropolitan markets across his home state, and his analysis revealed a very important trend in his market. He noticed that where prices had decreased by, in this case, about 20 percent or more during the past year, sales were increasing again. Conversely, in markets where price declines had been small (not shown), sales were continuing to go down. The study is a clue to how recovery happens. Median Sales Price Real Estate Sales Statewide & Metropolitan Year Year % Year Year % Statistical Areas (MSAs) End End Chg End End Chg 2008 2007 2008 2007 Statewide $187,800 $234,300 -20 124,215 129,855 -4 Fort Lauderdale $278,000 $363,100 -23 6,377 6,127 4 Fort Myers-Cape Coral $158,200 $254,700 -38 8,217 5,723 43 Fort Pierce-Port St. Lucie $153,600 $226,100 -32 4,332 3,376 28 Orlando $201,500 $248,900 -19 16,659 17,143 -3 Punta Gorda $139,100 $186,900 -26 2,530 2,436 4 Sarasota-Bradenton $225,900 $286,300 -21 7,661 8,013 -4 Tampa-St. Petersburg- $169,500 $208,900 -19 23,615 24,310 -3 Clearwater West Palm Beach-Boca $302,800 $369,400 -18 6,953 6,971 - Raton
    43. Chapter 3: Mindsets and Markets 43 Profile of a Market Expert Gene Rivers, is a man for all seasons. In For most of his career, he’s been a top agent in his native north Florida. His success led him to the 7th Level. He and his wife Rebecca, daughter-in-law Kim Rivers, and a handful of other top-performing agents and staff have become one of Keller Williams Realty’s perennial top teams. Gene is also a KWU Master Faculty instructor, and part owner of three Market Centers in north Florida. He’s also a student of the market. The Florida price and sales chart is just an example of the kind of throught and research that Gene contributes continuously— to make his agents and agents across the company better and smarter. Tip! – Create Your Own “Price Change to Unit Sales” Comparison Chart Spotting this trend for yourself—and illustrating it for buyers—is an important market study opportunity. Collect this data to compare cities or towns in your region. You might even try comparing activity in different quadrants or neighborhoods of your town. Experiment with different time periods. Have prices been falling far enough to create an upturn in the number of sales? It’s Not Distressed Everywhere: A Local Market View To round out this section on perspective, it’s important to note that because all real estate is local, there are areas in the United States where a combination of factors is driving buyer demand for traditional resales. These are areas where good paying jobs are plentiful and where younger professionals who are first-time buyers are flooding the market looking for deals. The government’s $8,000 first-time buyer tax credit is a big driver of interest. The New York City suburbs on Long Island, New York, are examples. The Wall Street Journal has published interviews with agents and their buyers there who are agonizing about the strong competition for well-priced suburban family homes. On Long Island while the median-priced $400,000 range is booming for young married and families, the higher end of the market is languishing “due to Wall Street job losses,” says The Wall Street Journal. The median price of single family homes on Long Island in 2009 was around $380,000, down 11 percent from a year earlier.
    44. 44 Chapter 3: Mindsets and Markets Truth In even the most depressed markets, there are often market segments—demographic, geographic, or psychographic—that flourish. As a student of the market, you must know these exceptions in your market. 4. Distressed Markets Do Recover Sooner or later, property values decline in any market to the point where they become attractive again to investors and resident buyers. The challenge is to know when it will happen. It’s up to buyers to turn the market, and it’s up to you to help them be confident and motivated to purchase in this market. SHIFT delivers this message powerfully. Reread Tactic #4: Create Urgency for a primer on buyer mindset and the dynamics that drive buyers back into the market. Two of the key positive factors at work nationally are: 1. Historically low mortgage interest rates 2. Growing home affordability for buyers Historically Low Interest Rates U.S. government policy pressure has helped to maintain near record low interest rates. While some who’ve seen less than 5 percent home loan interest think 6.5 percent plus feels “high,” it isn’t.
    45. Chapter 3: Mindsets and Markets 45 Improving Affordability Data from the National Association of Realtors’ (NAR) ongoing study of affordability is very encouraging. NAR’s measurement of affordability is a standard that is applied market- by-market. The graph below tracks both buyers as a whole and first-time buyers specifically. What Does a Turnaround Look Like? A declining market with few offers can turn very quickly and become a very active market with bank-owned properties seeing multiple offers and fast sales. Multiple offers are happening today in some of the top distressed markets—and sales volume generally is ramping up fast. Remember, interest rates are still low, and buyers, until recently, have not been buying.
    46. 46 Chapter 3: Mindsets and Markets What a Distressed Property Turnaround Can Look Like Tony DiCello, director of MAPS, talks with agents across the country in scores of coaching calls each month. Tony reports that, in Las Vegas—one of the nation’s hardest hit distressed property markets in the last several years—multiple offers on REO listings are becoming common. “Some agents are telling me they’re seeing a dozen or more offers on a new listing,” Tony says. He continues, “Remember, this is in a market where more than 85 percent of all transactions have been either REOs or short sales and where 65 percent of private sellers are in a negative equity situation. Take a Critical Look at Your Market Truth Your challenge in consulting with distressed property buyers is to bring clarity to what looks like an unclear picture. Knowing the national trends sets the stage for the real payoff—The ability to describe the local market picture to buyers. There’s plenty of data available in the Market Snapshot feature in TOP PRODUCER, in reports generated by your local MLS and board, and in regional breakdowns available online from NAR, RealtyTrac, and others. One tool is the Total Market Overview www.TMOReport.com. On the following page is a sample report for the Las Vegas area market from mid-2009.
    47. Chapter 3: Mindsets and Markets 47
    48. 48 Chapter 3: Mindsets and Markets There are several stories embedded in the sample Total Market Overview Report, including: • There is more than one market in this town. Seller’s markets can exist within a buyer’s market—for example, the lower price ranges in this report (less than $200K) clearly show much stronger list-to-sale price ratios and closed unit volume than the higher price ranges. • There are price ranges where “lowball” offers are just not going to work. • Higher price ranges (in this case, more than $400K) may present the very best move- up opportunities for people who are truly qualified. This exercise has two parts: 1. State what’s going on in your local market today. Take a moment to critically analyze what’s going on in your local market today. Write down your thoughts on the following questions, then discuss them with a partner and then again as a class. 1. Affordability is based on sales price, interest rate, and income, What is your median sales price? How has it changed? ___________________________________________________ ___________________________________________________ 2. What is the current interest rate? ___________________________________________________ ___________________________________________________ 3. What is the state of your local economy? Median income? Employment? Growth? ___________________________________________________ ___________________________________________________ 4. What is the current inventory of distressed property? Is it increasing or decreasing? ___________________________________________________ ___________________________________________________ 5. Are both sellers and buyers motivated at this time? Explain. ___________________________________________________ ___________________________________________________ 6. Are first-time home buyers taking advantage of the incentive? Explain. ___________________________________________________ ___________________________________________________
    49. Chapter 3: Mindsets and Markets 49 2. Rate Your Local Economist Skills • What basic elements of the distressed market story can you tell? • Do you know relevant national historic statistics that describe how markets became distressed? • Do you know where your local market stands today? What percentage of sales is distressed? Of those, what percentage are REOs and what percentage are short sales? • What component is traditional resale? Are there any special local stats you can cite—like the Florida example in the course—that show the relationship between prices and sales volume? Important to: Rate Your Perspective? Communication Topic Talking Point Sources Skill Pricing? Urgency? Low 1−5 High U.S. Market Markets always shift Perspective SHIFT chart Trends over time Percent of Sales How dominant are Pricing RealtyTrac; Distressed and distressed sales Mortgage Bankers Trend (State or Assn Local) Historic Average How markets have Pricing Gary Keller 2009 Sales Price Trend been correcting Vision Speech Local Area Your chances of Urgency Your MLS Absorption Rate selling Exceptions: Some sellers may Pricing Your own “Thriving Pocket have above average homework; input Markets” opportunities in from mentors otherwise down times What steps do you take now to improve your skill in knowing and communicating this vital information to your clients? ______________________________________________________________________ ______________________________________________________________________
    50. Chapter 4 Distressed Property Timeline Truth To be effective with buyers and listing agents, you must understand the timeline of distressed properties—from beginning to end—and what happens with homeowners, lenders, buyers, and agents along the way. The fundamental process at work that creates distressed inventory is foreclosure. Foreclosure is a legal process that happens on a timeline. Some things happen before it begins. Some happen after it ends. Foreclosure happens because homeowners—for a wide variety of reasons—stop paying back their loans, and their lender declares them in default. If they do not find another option, they lose their home. Let’s examine all parties and all steps involved in the process, from beginning to end. You’ll get an appreciation for how distressed properties come to exist—both the legal side and the personal and emotional side of it. You’ll see where buyer interest arises. Personal Shift—Through the Homeowner’s Eyes Distressed property markets today as always are more than anything, about circumstances and recent history. Knowing this world from the consumer’s perspective is a key ingredient in becoming an expert. Understanding the human and economic root causes behind distressed property markets goes a long way toward building your credibility.
    51. Chapter 4: Distressed Property Timeline 51 Four Primary Causes of Personal Shift As has become common in this market, a homeowner has an event in their lives that causes a “personal shift.” The primary causes of this personal shift, which lead to distressed situations, are: 1. Negative Equity from Market Shifts 2. Unemployment 3. Personal Crisis 4. Consumer Overconfidence In any of these events or situations, foreclosure is a deeply personal experience. An Agent’s Own Foreclosure Story Knolly Williams is one of the top short sale agents in the state of Texas, and in Keller Williams Realty nationally. He and his team have a very high closing success rate (near 95 percent). Knolly offers short sale coaching through MAPS and is developing additional learning material for agents. His own personal experience with foreclosure led him into the short sale business. “I had a music business for years,” “he says. “When digital recording and distribution exploded, we did not change our business model fast enough. Revenue plummeted and I found myself in default on my home. Eventually a short sale was negotiated for me. It allowed me to get on with my life,” he recalls. Knolly turned to real estate as his next career—and short sales as his specialty. “It was a natural,” he says. “I’ll never forget how it felt to get the help I so desperately needed. Now I help others the same way. I really get where people in distress are coming from. I share my story with them. It helps them be more open with me and get past some of their embarrassment and awkwardness,” Knolly says. Knolly has closed hundreds of short sales since he made his career decision, just a few years ago. Let’s explore the causes one at a time.
    52. 52 Chapter 4: Distressed Property Timeline 1. Negative Equity from Market Shifts A negative equity situation arises when a homeowner finds the market value of their property is less than the amount they owe on their mortgage. When a homeowner purchases with a very high percentage of debt, a relatively small downward SHIFT in market value can wipe out their equity. A homeowner with significant equity can borrow against that equity. When appreciating markets are increasing overall value (and equity), this seems to make sense. But declining markets reverse the process. Unlike refinancing—a personal financial decision—downward market movement leaves the homeowner with a sense of helplessness. Eventually, this helpless feeling can turn to fear if the declining value situation becomes acute. This bar chart illustrates how owner equity can disappear. In this illustration, the down payment was 10 percent and the market shifted down 20 percent. In the shifted market, the difference between value and debt has become negative equity. 100 90 80 70 60 50 Value 40 Debt 30 Equity 20 10 0 -10 Before Shifted Here’s what changed in the chart example: Before Shifted Value Arbitrarily set at 100 Market declined 20%; value now 80 Debt Set at 90—property was Most mortgages pay interest first and purchased with 10% cash down principal later; debt is virtually the same in early years Equity Value was 100 minus 90 owed Turned from positive 10 to negative 10 leaveing 10 in equity
    53. Chapter 4: Distressed Property Timeline 53 2. Unemployment Triggers Mortgage Delinquencies Clearly, significant value declines can create negative equity, and negative equity severely limits whether and how homeowners can sell. But why are borrowers defaulting in record numbers? The Wall Street Journal (May 29, 2009) offers this perspective: Why do borrowers default? Many have assumed it’s because mortgage payments are too high. But a new paper from the Federal Reserve Bank of Atlanta argues that unaffordable loans—with high mortgage payments relative to income from the time they’re originated—are “unlikely to be the main reason that borrowers decide to default.” Instead, unemployment and future home price declines are likely to play a bigger role. The paper looks at loans that are unaffordable from the time they’re originated, and not at loans that may start with low “teaser” rates before jumping higher.) Here’s a summary of their findings. Market Factor Factor Movement Impact on 90 Day Delinquency Unemployment 1 percentage point increase 10% to 20% more delinquencies (i.e., 8% to 9%) Debt to Income Ratio 10% increase 7% to 11% more delinquencies Home Prices 10% decline in home prices 50% greater probability of default By the way, the U.S. Department of Labor reports the length of individual unemployment (measured in weeks) is getting longer. Here’s the picture from 1940 to 2010.
    54. 54 Chapter 4: Distressed Property Timeline 3. Personal Crises On top of all this financial and economic shifting, personal crises happen, as always. Some are about health and family; some are triggered by the slowing economy. Common homeowner crises include: • Unforeseen large medical expenses • Unplanned job transfers • Death in the family • Divorce • Job loss All these events bring financial challenges that may force homeowners to become potential foreclosures in a shifted market. 4. Consumer Confidence Plays Both Ways Much is being written and broadcasted these days about what role confidence, or lack of it, plays in distressed markets and foreclosures. Here are two views you may hear in the marketplace. 1. Naive Confidence Can Help Much is being written about the role of consumer confidence in down and distressed markets—and in market recovery. Experts seem to agree that there is some level of consumer confidence, or exuberance, which is the hallmark of recovering and rising markets. Writers in major news organizations have taken to calling this mindset “naïve confidence”—the willingness to overlook risks in favor of rewards in markets. 2. Overconfidence Can Hurt In a shifted market that has become distressed property-focused, opinions abound about why any or all of the players made the choices they made that contributed to the result. One example of this opinion appeared in The San Diego Union-Tribune, and has been reprinted in other major daily newspapers. It appeared in the Austin American- Statesman on May 4, 2009. The commentary is based on a 2006 book by a professor, Jean Twenge, at San Diego State University titled Generation Me. Quoting the book, “People were very overconfident about what size mortgage they could afford and the same thing affected the bankers who were giving the loans. Everybody was overconfident and didn’t anticipate the downside, so when the downside came it was worse than anyone imagined.” Now that you have a better understanding from the homeowners’ view, let’s look at the complete timeline of events.
    55. Chapter 4: Distressed Property Timeline 55 The Distressed Property Process— Foreclosure and More Foreclosure is a process that happens over varying timelines, depending on local laws. Local timeline differences can have a big impact on important details of distressed sales—so you must know your local foreclosure timeline, and what governs it. The process begins at the point where a homeowner first misses a payment—or knows they are about to do so—and ends after foreclosure, with the sale of bank-owned properties and the possible transfer of properties to the FDIC when banks fail. This process is described on a timeline and definitions that appear on following pages. It includes both pre-foreclosure and post-foreclosure events. Truth Knowing the foreclosure process overall is a great first step. And to do distressed property business in your community, you must know all the relevant local laws and rules as well. Know Your State Laws and Regulations The timeline of the process can be different in some states, so be sure to know your own state laws and regulations, and seek answers if you need them. The foreclosure legal process can be completed in as little as 90 – 120 days. In others, it may extend to as much as 12 months or more. The foreclosure process and state and local laws governing how it happens are a full day class in their own right. Check around. Chances are local title companies, your local board, or real estate schools are offering a foreclosure course. Tip! – Always Seek Local Knowledge If you decide to take a foreclosure course from a national vendor, be alert to whether they have modified it to include steps that are the right ones for your local market. If they have not, you’ll need to get that information from a highly reliable local source—your Team Leader, an expert agent in your Market Center, or a title company are your best bets.
    56. 56 Chapter 4: Distressed Property Timeline The Distressed Property Timeline How to Read the Timeline The timeline chart summarizes the critical details you must learn to be a distressed property expert. This course addresses all of them. Make note of how many steps’ terminology or internal timeline vary according to local law or regulation of some kind. The description of the timeline establishes three categories for the items that appear: 1. Personal Shift (PS) –Things that involve or impact the homeowner directly. For example, the homeowner or individual seller faces a challenge such as a job loss, excessive medical bills, etc., that causes them to be unable to make their loan payment. 2. Market Shift (MS) – Things relating to the status of the property itself or the institution that holds the loan. For example, the market changes, home values decline, lending regulations change, inventory increases, etc. 3. Buyer Interest (BI) – Points of time when buyers become interested in making a purchase of distressed property, arising at a number of different points along the way, indicated by the groups of buyers. Buyer interest occurs at times when a property first shows up as a potential distressed property, and you alert your buyers about its availability.
    57. Chapter 4: Distressed Property Timeline 57 The items in each category are numbered PS, MS, or BI, so you can refer back and forth to the diagram and the descriptions. 1. Personal Shift (PS) These are things that involve or impact the homeowner personally. PS-1: Missed Mortgage Payment(s) The diagram assumes the homeowner occupies the home as their primary residence. The first sign of trouble comes when the homeowner misses a mortgage payment. Homeowners miss payments for any number of reasons. Typically, it happens because of: • Personal crisis – job loss, unwanted and expensive job relocation, divorce, death in the family, or illness resulting in high medical bills. • Market shift – market value declines to the point where the home is worth less than the owner’s loan balance. Truth When one or more payments are missed, homeowners have the right and responsibility to contact their lender to explore what can be done to make the situation right. Lenders often prefer not to foreclose if a better option can be found. PS-2: Notice of Default Depending on the lender and local foreclosure laws, the homeowner will receive a Notice of Default within 60 – 90 days after one or more payments are missed. The notice is a formal letter from the lender advising the homeowner that their loan and ownership are in jeopardy. Default is what causes lenders to trigger the foreclosure process—in order to recover their losses or get the homeowner quickly back on track.
    58. 58 Chapter 4: Distressed Property Timeline PS-3: Deed in Lieu or Loan Modification These are the homeowner’s two main options when they are behind on payments. One course is swift, but risky. The other is slower, but can allow the homeowner to stay in their home. • Deed in Lieu – This is very legal, but may also be very risky for the owner in default. Why? A deed in lieu of foreclosure does not necessarily clear away all other judgments against a property owner. The former owner may think they have escaped further demands only to find other parties (not part of the deed in lieu deal) coming after them for other money they owe. Deed in lieu of foreclosure agreements usually only happen if the parties can agree that the property being signed over has value equal to the amount of the debt! • Loan Modification – The U.S. government is acting to provide new financial incentives to lenders to remake loan terms with distressed homeowners. Some of the early programs failed because the incentive or terms were inadequate. Now the government is helping lenders remake loans in cases where home value may be as much as 25 percent under the current loan balance. Watch for more changes in these programs as the government works to keep more homeowners out of foreclosure and in their homes. PS-4: Intent to Foreclose The lender follows up with a written notice that they will foreclose by a certain date. PS-5: Foreclosure A representative of the lender posts a foreclosure notice on the outside of the property stating that the lender has taken possession and all inquiries until further notice must be directed to them. PS-6: Eviction If no sale has been arranged, and if the homeowner has not walked away from the property before foreclosure, they will be forcibly evicted on order of the lender. A local sheriff or constable typically enforces the eviction.
    59. Chapter 4: Distressed Property Timeline 59 PS-7: Redemption/Reinstatement In some states there are provisions for homeowners to escape foreclosure by making repayment arrangements with the lender to “catch up” on the amount in arrears. That’s redemption. In some states, there is also a reinstatement period that can actually extend beyond the foreclosure date and even beyond a trustee or sheriff’s sale (auction) of the property. In these rare situations, if the homeowner completes catch-up arrangements, a person who bought the home at auction may even have to give it back to the owner. The auction winner gets their money back. 2. Market Shift (MS) These are things relating to the status of the property itself or the institution that holds the loan. MS-1: Conventional Loan A mortgage deed is a contract that states the amount due on a loan to buy the property, the term of the loan, rate of interest charged, and how payments on the balance are to be made. It usually also says what will happen if the payments are not made! Conventional loans come in many different types and sizes—though not as many as before the current distressed property crisis. MS-2: FHA or VA Loan Homeowners can also get mortgage loans from the U.S. government’s Federal Housing Administration (FHA) or Veterans Administration (VA). The loans often have different (frequently tighter) requirements about down payments and property conditions than conventional loans. Another difference—FHA and VA will not approve a short sale unless the homeowner has actually defaulted. Some conventional lenders will approve a short sale without a default. MS-3: Short Sale A short sale is basically a negotiated settlement between the lender and homeowner in which the lender agrees to accept a buyer’s offer for less than the homeowner’s total loan balance. Short sales are a major method for selling distressed property—the subject of an entire guide in this series called SHIFT Tactic 11: Distressed Properties: Listing Short Sales. The guide you’re reading now looks at both short sales and REO sales from the buyer’s viewpoint.
    60. 60 Chapter 4: Distressed Property Timeline MS-4: Trustee or Sheriff’s Sale The trustee sale or sheriff’s sale is a common vehicle for getting foreclosed properties sold to buyers—frequently to investors who are regulars at these auctions. The buyers typically must pay cash for their winning bid—either on the spot or very shortly afterward. The sales are often referred to as “courthouse steps” sales. MS-5: Prelist Auction This is another auction format—usually arranged by a lender that holds foreclosed property. A professional auctioneer is hired and property to be auctioned is listed for preview on the Internet. Sometimes the preview properties are held open briefly so interested parties can go inside. MS-6: Assignment to Asset Manager If there’s no short sale, and no auction sale of any kind, the property will remain bank- owned. The bank will typically turn the property over to either its own asset management arm, or a third-party asset manager. Their job is to manage and market the property. You will sometimes hear the term “M and M Firm” used to describe them. They may list property directly for sale. These are the people who typically turn to specialized REO listing agents to list and sell lender-owned homes. MS-7: REO Listing with Agent Listing bank-owned real estate (REO) can be a big business for distressed property specialist agents, albeit with low profit margins. It is, along with auctions and short sales, one of the three main ways distressed properties are marketed and sold. Listing REO properties is the subject of an entire guide in this seres. It’s called SHIFT Tactic 11: Distressed Properties: Listing REOs. MS-8: REO Purchase This is where you come in—as an agent for the buyer. REO properties are listed on MLS and are sold, usually, with the same standard contract approved by your local real estate board or MLS—with some very important exceptions and additions. MS-9: Bank Fails; FDIC Takes Possession On relatively rare occasions, banks fail. If they are federally chartered, they are taken over by the chartering authority, under the direction of the Federal Deposit Insurance Corporation (FDIC). The FDIC then seeks real estate brokers to help sell the properties, or the FDIC may return to the prelist auction step and try to sell properties before seeking the help of brokers and agents.
    61. Chapter 4: Distressed Property Timeline 61 3. Buyer Interest (BI) Buyers have multiple opportunities along the way to learn about and look at distressed properties for sale. The timeline chart identifies six of these situations: BI-1: Pre-foreclosure Sales Buyers can search the Internet and local legal advertising and records to identify properties that have started down the foreclosure road, but are not yet in foreclosure. BI-2: Short Sales Buyers will learn of short sales on MLS in their area, or via national searches of MLS data. Most MLSs and real estate boards have requirements about agents identifying short sales as such when they are first listed. Short sales, like REOs, have unique features. One of the main things is that short sale buyers, like the agents themselves, will not know initially what price the bank or lender’s asset manager may accept for a sale. There are other complications as well. Refer to the companion guide for more information on short sales, SHIFT Tactic 11: Distressed Properties: Listing Short Sales. BI-3: Trustee or Sheriff’s Sale This “courthouse steps” auction sale is open to the public. Investors who seek to buy property before it gets further in the process often frequent the auctions. These are cash sales. BI-4: Prelist Auction This is another buyer opportunity. Prelist auctions can be large-scale and well attended if they are well promoted by an experienced auction company. BI-5: REO Listed with an Agent Like short sales, these listings go on MLS and are typically noted as REO, real estate owned, bank owned, institutional sales, or some similar designation. REOs listed by an agent on behalf of a bank or asset manager is the subject of an entire companion guide in this series called SHIFT Tactic 11: Distressed Properties: Listing REOs.
    62. 62 Chapter 4: Distressed Property Timeline BI-6: FDIC Sales Under its federal charter the FDIC will assume control, if a bank that owns real estate fails. The FDIC will then either hire a real estate broker and other firms to market or manage these properties, or it will go back to the prelist step first and try to sell that way before going the listing route.
    63. Chapter 4: Distressed Property Timeline 63 How Well Can You Consult About the Timeline? Using the timeline chart as a tool, get with a partner, and you as the agent explain the timeline clearly to your partner who is the buyer. Switch roles and repeat. The chart is detailed. How would you simplify or streamline it for a client? Which points would you emphasize for a distressed property buyer and why? Critical Step or Point Your “Headline” for the Reason You Selected It Selected Buyer on This Point
    64. 64 Chapter 4: Distressed Property Timeline
    65. Chapter 5: Understand Buyers and Meet Their Needs Buyers are buyers, but distressed markets put the spotlight on some special buyer traits and requirements. You must know who the buyers are and what’s motivating them—specifically. Buyers in these markets fall into three main categories. Three Types of Buyers 1. Move-up buyers 2. First-time buyers 3. Investors with different levels of experience Once you know the type of buyer you’re working with, you must find the right property for them. This chapter addresses both finding buyers and finding property for them and concludes with a real-play of live lead calling and appointment setting—including some recommended scripts to use with distressed property buyers in different categories. 1. Move-Up Buyers—The Home They Thought Out of Reach Most people buy a home to be their primary residence—in most cases, it’s their only residence. More and more every day, people of all means are waking up to the huge buyer opportunity in today’s market—particularly in distressed property. This category covers people looking to buy a home they’ll live in. Many of today’s buyers see the market as a chance to move up—and you should be running your marketing to speak to that desire. Any seller today has ample opportunity to more than make up any loss they may have in selling by taking advantage of a great buy!
    66. 66 Chapter 5: Understand Buyers and Meet Their Needs 2. First-Time Buyers—Low Prices Plus Tax Incentives The new $8,000 tax credit for first-time home buyers is helping in distressed markets. First- time buyers are becoming more active—to the point where in recent months they have become more than 50 percent of all U.S. home buyers! First-time buyers are also attracted to the outstanding deals that can be had in distressed property. The smartest buyer agents market aggressively for first-time buyers. Top agents in just about every market acknowledge that first-time buyers are an important part of their audience. Keller Williams agents have some important advantages and tools to use in attracting all- important first-time buyers. UseYour First Home—the Book, and the Marketing Kit Jonas Koffler, of Keller Williams University, helped research the popular book Your First Home, a Keller Williams practical guide to buying for first-timers. The authors are Gary Keller, Dave Jenks, and Jay Papasan. This very readable book covers topics including why you need an agent, advantages of a buyer agreement, nine reasons to buy, and criteria for your search. “The book is a guide that makes a great handout or gift for buyers, but we didn’t stop there,” says Jonas. “We now have a presentation that agents can take off the shelf and use to put on seminars for first-time buyers. We’re also working on a consumer video to tell the story,” he says. Your First Home also comes with downloadable tools for Keller Williams agents that include a loan calculator, a loan application checklist, and a set of predrafted emails you can send to first-time buyer prospects. 3. Investors—Beginning and Experienced While buyers who want a primary residence still dominate, there are plenty of other buyers who seek residential investment property. They see this market as a chance to try owning rental property for cash flow and possible long-term appreciation. Their range of experience in investing is wide—from property owners looking to get into their first rental property for cash flow and long-term return, to more experienced investors looking to add to their existing stable of income producing properties. In some situations, these experienced investors may be looking to fix and flip properties.
    67. Chapter 5: Understand Buyers and Meet Their Needs 67 How to Find and Attract Buyers You’ll want to make yourself stand out to buyers of all types. Model what other top agents do. Use specific techniques (below) to lead generate for buyers of distressed properties. Five Ways to Lead Generate for Buyers 1. Use Best Buy Marketing In a buyers’ market, people want deals. No one is in a better position to point the great deals out than you. Follow this SHIFT teaching point. Create and distribute continuously updated “best buy lists”—on your website(s) and in print. Let buyers know you know the market—and where the best opportunities are to buy now. 2. Be the Local Economist Again from SHIFT, to succeed with buyers you must study the market all the time. Find the best sources of data. Commit key facts to memory. Learn to use the tools. All of these are found in SHIFT Tactic #7: Price Ahead of the Market, and in Tactic #9: Create Urgency—Overcoming Buyer Reluctance: Use the following ideas, concepts, and graphs from SHIFT. • Market history charts and graphs. • Law of supply and demand—Demonstrate the transition from seller to buyer markets visually. • Absorption rates—Chart them; show where sellers stand with their chances of selling. This is very important information for buyers. • In and out of the market charts and the chasing the market chart—Be sure buyers understand that you know what sellers and their agents are thinking! • Market timing illustrations are very effective—like the “where is the bottom?” exercise, or “the pendulum” from SHIFT. • Buying in the safe zone. This is another SHIFT concept. It illustrates how smart investors buy on the trend—without waiting for the turn they can never hope to hit, except with dumb luck.
    68. 68 Chapter 5: Understand Buyers and Meet Their Needs 3. Offer Classes with Distressed Property Emphasis Linda McKissack of Denton, Texas is a 7th Level Keller Williams agent and owner of Market Centers in the Southwest and Midwest United States. She is also a residential property investor. Linda never misses a change to encourage agents to put their real estate knowledge to use by hosting local seminar sessions for buyers. Topics Linda suggests you learn to teach include: • The Millionaire Real Estate Investor: Hold an investment talk based on Gary Keller’s The Millionaire Real Estate Investor (a great resource). Know its message and encourage small investors to get into buying real estate for cash flow and long-term or short-term profit. • SHIFT: Use the excellent teaching outline of SHIFT to educate consumers on what’s happening to their market, and their home’s value—and how they can best benefit financially. • Your First Home: Help first-time home buyers get closer to their dream of homeownership. • Start an Investment Book Club: Use other great real estate investment books including Building Wealth One House at a Time, by John Schaub, to teach investor principles. And, Linda always urges her audience to be aggressive and confident. Even with years of experience, she still says she crams at the last minute to make every presentation as strong as it can be, and to bolster her confidence that it will go well. 4. Get in the Path of Buyers—Open House Opportunities Top listing agents, especially on the REO side, can’t believe how many agents are passing up the chance to use distressed properties to market themselves to buyers who want REO and short sale values. Study the market, know the story nationally and how it applies locally, and get out there in front of buyers. If you don’t, it’s a major missed opportunity. Get into relationships with your local top REO listing agents and offer to hold their listings open. Consider offering a buyer tour of distressed listings. Top REO agent Andrew Monaghan in Phoenix, Arizona speaks out frequently about the opportunities to market and win business that he sees agents passing up every day. “I’m always surprised that more agents don’t seem interested in working with us to market themselves,” Andrew says. “We have a lot of property and we’re more than happy to get as much exposure for it as possible!”
    69. Chapter 5: Understand Buyers and Meet Their Needs 69 And here’s another open house idea from 7th Level agent Bruce Hardie: set up your office temporarily in an open house in a distressed area. Post a sign “Distressed Property Information Center,” or “Get Foreclosure Sale Information Here.” 5. Use Custom Email Campaigns from the MyKW.com Intranet The Keller Williams Intranet site MyKW.Com, under the Marketing tab, provides prewritten email campaigns for both first-time and move-up buyers. Vital Assistance: Help Buyers Find a Loan These are challenging times for lenders. Buyers want to buy, but loans are not as easy to find as they used to be. You’ll need to roll up your sleeves and work for your buyer to find loans. FHA and VA Gaining Popularity While lenders have been watching their balance sheets much more carefully—and tightening lending standards in the process—more and more buyers are turning to government-backed FHA and VA loans for mortgage money. According to the Mortgage Bankers Association, “a primary reason government-insured loans have retained a high share of the purchase market is that these loans typically require lower down payments than conventional loans. In addition, lending standards tend to be tighter for conventional loans, especially for loans that require private mortgage insurance.” REO Lenders Getting More Aggressive Major lenders with a lot of REO inventory have realized selling this property is a huge opportunity to make loans, and they are pushing this with listing agents. Many top REO listing agents shared stories of how lenders are getting aggressive and strategic about generating loans with REO buyers. Some lenders now require that REO buyers—even though they are working with another lender—get qualified though their lending criteria and system. Truth Lenders today are not just loaning money to earn interest. They are selling property that is, or will soon be, a liability for them. They are motivated to sell by helping buyers.
    70. 70 Chapter 5: Understand Buyers and Meet Their Needs Be Financing Smart! If your buyer appears qualified to buy what they want to offer on—at that price—but have only a pre-pproval letter from a lender when they come to you, how will you counsel them? Advice on financing: ______________________________________________________ ______________________________________________________ ______________________________________________________ What if the listing agent insists on having them qualified by one of their own lenders, even though your buyer has already been qualified to your satisfaction? How will you respond, and how will you counsel your buyer? Reply to listing agent: ______________________________________________________ ______________________________________________________ ______________________________________________________ Advice to your buyer: ______________________________________________________ ______________________________________________________ ______________________________________________________
    71. Chapter 5: Understand Buyers and Meet Their Needs 71 How to Find Properties Investor buyers look to you to be their eyes and ears in the marketplace—someone they can count on to steer them to the best opportunities available that fit their investment goals. Investment property is not all on MLS! Here are some things you should be doing to position yourself as the best buyer agent for investors: 1. Network – Network intensively and continuously with the real estate community and property owners. 2. Advertise – Run ads to attract distressed sellers. 3. Search ads – Look for ads by distressed property owners, FSBOs, or properties offering owner financing. 4. Get lists – Get out-of-town owner lists from your local appraisal district or other local government source. 5. Monitor online – Monitor foreclosure lists online. 6. Go to local government auctions – Learn the local process for property auctions “on the courthouse steps.” 7. Preview vendor auctions – Screen vendor “prelist auctions” online and attend their preview open houses, and the auctions themselves. Learn the process and introduce aspiring investors to it.
    72. 72 Chapter 5: Understand Buyers and Meet Their Needs Use a Criteria Filter Astute agents who work with investors are able to find opportunity in foreclosures. If you work with your investor customers to sharply define what their criteria is for a property, you can pass foreclosed properties through that criteria filter to separate the potentially good deals from the flat-out risky ones. In The Millionaire Real Estate Investor, seven categories are listed to help investors and the agents who work with investors refine their criteria. These categories are 1. Location – Location could be as specific as the side of a particular street. 2. Type – What type of property does the investor desire? Single-family home, multifamily property, ranch, land, or other? 3. Economics – Specify the investor’s price range, necessary discount, expected cash flow, and desired appreciation. 4. Condition – What condition should the property be in? Some investors are only interested in properties that need no repairs. Others are comfortable with demolition. 5. Construction – What should the type or state of the roof be? How about the walls, foundation, etc.? 6. Features – What should the basics look like? For example, how many bedrooms and baths should the property have? 7. Amenities – What extras like a security system, fireplace, pool, energy-efficient features, etc., are priorities for the investor? See The Millionaire Real Estate Investor by Gary Keller, Dave Jenks, and Jay Papasan for detailed information and checklists for creating a criteria filter.
    73. Chapter 5: Understand Buyers and Meet Their Needs 73 Don’t Forget HUD Homes A foreclosed property that was financed with an FHA loan does not go back to the lending bank. It goes instead to the U.S. Department of Housing and Urban Development (HUD). HUD typically hires a management and market vendor, a so-called “M&M Contractor,” to get the property sold. HUD homes can be tremendous opportunities for buyers. But like bank-owned (REO) and short sale properties, there are some special circumstances, documentation, and requirements involved with HUD properties. HUD homes are available in every market, but knowing the HUD properties in your market—and HUD’s selling process—requires investigation and study. Bringing a buyer to HUD homes is a specialty you can develop. But, like bringing buyers to REOs and short sales, the effort you make to understanding them will determine how successful you are. HUD Master Moe Paknia is a HUD home specialist in Austin, Texas. When he went into real estate, Moe saw in HUD homes what some agents see in working with FSBOs or expired listings, or specializing in listing short sales or REOs. “When I started asking agents about HUD homes for buyers, I found very few people who could answer my questions— that felt like an opportunity to me,” Moe says. Today, Moe sells dozens of HUD properties every year and he loves the business. “Most of my buyers are either first-time buyers or investors,” he says. “Either way, it’s great to be able to help them find a great deal. And those investors are special because if you help them find a great deal that meets their investment goals, they will call you back when they are ready to buy more!” He also has become a bit of a local real estate celebrity through his local radio call-in show. On it, each week, he announces his top picks for “HUD Home of the Week” and gives buyers tips on whether properties are a more likely fit for owner occupants or investors.
    74. 74 Chapter 5: Understand Buyers and Meet Their Needs Opportunity: Be a HUD Processing Agent Like short sales, the unique character of HUD’s processes and paperwork creates a servicing business opportunity for agents who learn to specialize in buying HUD properties. “I have a good business helping other agents complete their HUD transactions,” Moe Paknia reports. “I market myself as the local expert and agents in my area know they can develop buyers who want to make offers, bring them to me, and I’ll take them to closing for them.” If you want to become a HUD properties expert in your area, a good starting point is to find out who is the area marketing and management vendor for HUD. Contact them to learn their key contact people and the HUD processes, requirements, and paperwork. FDIC Homes The Federal Deposit Insurance Corporation (FDIC) is a U.S. government agency that insures depositor funds up to $250,000. It is also one of the federal agencies that examines and supervises more than 5,000 banks nationwide. The agency’s responsibilities include ordering federal or state chartering agencies to close banks that become insolvent— protecting consumers’ deposits and their future interests. Sometimes, banks that the FDIC shuts down own properties that have been foreclosed. These REOs become FDIC properties, and the FDIC normally finds real estate companies to list and sell them, or takes the properties to auction. FDIC properties are not nearly as numerous as auctioned and REO properties— they are another opportunity for an expert distressed property buyer agent. Truth National real estate companies, including Keller Williams Realty, are working actively—with business partners—to win blocks of listing assignments for their agents from the FDIC.
    75. Chapter 5: Understand Buyers and Meet Their Needs 75 Auction Opportunities The foreclosure wave that has swept across the country has triggered a parallel boom in property auctions. Typically they happen in one of two ways: 8. Local governments (usually counties, sometimes municipalities) conduct smaller scale auctions monthly, usually at the county office building or courthouse. It’s normally called a “trustee’ sale” or “sheriff’s sale.” Here, sales are all for cash—paid by cashier’s check, usually on the spot or shortly thereafter. 9. Large auction vendors negotiate with mortgage holders for access to properties to auction. Because these auctions happen after foreclosure but before lenders take the option to list with brokers and agents, they are called “prelist auctions.” The properties are usually from a specific geographic region—a large metropolitan area for example. The auctioneers charge a fee—often 5 percent – that’s built into the auction price. Sales can be secured for a substantial earnest money cashier’s check and mortgage lenders are in attendance to help with the rest. Auction Watchwords: Be Prepared Whichever type of auction a consumer attends, the watchwords from every expert are to use caution and be well prepared—do your homework on foreclosing properties. Trustee Sales and Prelist Auctions In almost every jurisdiction, the immediate result of foreclosure is that the property is put up for public auction, normally administered by county government. The expression “on the courthouse steps” refers to the typical local government-run scenario: 10. Periodic, usually monthly, auction sales are advertised as required by law—in newspapers and on the Internet. 11. Investors gather at the appointed date and time to make bids on the available properties that day. 12. Typically, auction purchases are for cash only. Buyers come to these events with cashier’s checks ready, hoping to make a winning bid on a property they know they want. A select number of the properties to be auctioned are often available for open house viewing ahead of time in the larger auctions run by vendors. Seeing the property first hand is a great advantage. In the smaller local auctions, this advantage is not in play.
    76. 76 Chapter 5: Understand Buyers and Meet Their Needs Tip! – Agent Opportunity at Auctions Auction buyers are often investors. Agents who work with auction buyers usually have a standing relationship with that buyer/investor and have helped scope out the market for opportunities that are in the pre-foreclosure period. Like many things agents do in distressed markets, patience is required. By the date of the auction, the due diligence—including the all- important title search for liens and encumbrances—has been done and, with the agent’s help, the buyer is ready to get what they want at a great price. Because bidders tend to be knowledgable, there’s competition and offers frequently don’t succeed. Most auction buyers go back to these events every month—to fill their portfolios with property they may fix and turn around, or rent for cash flow. One Keller Williams agent and owner who regularly does business on the courthouse steps of her community is Linda McKissack. Linda and her husband Jim have been buying auctioned properties for years. They know the process and how to bid successfully. “We buy regularly at courthouse steps auctions in our community,” Linda says. “It took us a while to get used to the process. We realized early that we had to do our homework and we had to bid aggressively, but smartly. At auction, you don’t get a second chance and someone else ends up with what you want.” Linda and her husband Jim have more than one strategy for the homes they acquire at auction. Some they repair and resell relatively quickly. Others, they find, are better suited for rental property—used to generate cash flow. Properties not sold to individuals or investors at auction normally are retained by the holder of the mortgage loan that failed—the lender. Lenders often then assign the property to an asset management third-party vendor, or an internal asset management group.
    77. Chapter 5: Understand Buyers and Meet Their Needs 77 Special Needs of Investors Know How to Spot Cash Flow Opportunities Low, low prices can create outstanding cash flow opportunities for investors. At a teaching stop in Detroit, KWU Master Faculty member Bruce Hardie, Spokane, Washington, heard story after story from agents touting the upside investor cash flow in part of their city. “It’s tough to watch markets fall like Detroit has,” says Bruce. “Investors watched—along with the general public—as modest brick three-bedroom homes plunged from $140K to $50K and then to as low as under $10K in a couple of years. But when I asked about rental rates,” says Bruce, “I learned that these homes fetch about $850 a month, with a little fixing up. At a very small purchase price, that’s a big cash flow opportunity for a smart investor.” Offer Tips Linda McKissack offers a terrific list of tips and guidelines that she follows herself, as a residential property investor with her husband Jim. While Linda’s audience has been real estate agents, and her point to them is “why not participate in this market yourself,” her tips work for any investor. Here are a few of them. They’re good advice for any investor, but especially for less experienced ones—people who’ve decided to get involved because they have some cash, and they find the price opportunities irresistible. 1. Save – Save money to invest—live below your means. 2. Go reasonably low – Try to buy at 10 percent or less below market value. 3. Put cash in – Equity is key. Finance with 20 percent down—no zero-down deals, even if they’re offered. Your goal is to build equity and cash flow—not anticipate a killing on appreciation! 4. Use other people’s money – Establish a line of credit to help you buy—local lenders are a great resource for this. 5. Know property management – Know property management principles and laws in your area—hire the best property manager you can find, or do it yourself. 6. Stick with good stuff – Don’t get involved with marginal properties. 7. Require positive cash flow – Do get involved when you can get positive cash flow of at least $200 a month. 8. Multifamily challenge – Avoid multifamily properties unless there is excellent cash flow. They tend to be expensive to operate and don’t appreciate well.
    78. 78 Chapter 5: Understand Buyers and Meet Their Needs Know Investor Tools: Tax-Deferred Exchanges Your local title company probably has an expert or experts in running the so-called 1031 tax- Deferred Exchange process. The name comes from the federal law that governs these transactions. The principle involved is that the IRS—given that the proper procedures and paperwork are used—may allow buyers to defer the tax they would otherwise pay when they sell a property in one location and buy up to three others (within a given range of value, compared to the first property. The 1031 exchange has become a popular way to help investors leverage themselves to own larger numbers of investment properties. Be conversant with the process and know the top title and escrow experts in your area who can handle a deal like this for your investor buyers. Tip! – Use Title and Escrow 1031 Specialists Agents who know distressed property always try to run transactions through title and escrow companies with staff who are accustomed to the unique demands of short sales and bank-owned deals. As a buyer agent, understand that the listing agent—or more likely the lender— will make the call. But it helps your business to know who the proven distressed property service providers are, so you can reassure your clients. Increased Ownership Limit (With a Loan) for Investors There is good news for residential property investor buyers. Both Fannie Mae and Freddie Mac now permit investors to own up to ten properties with loans—up from a limit of four not long ago. And the Federal Reserve, the U.S. Treasury Department, and other agencies admittedly are doing everything they can to keep interest rates down as long as possible. Gary Keller says, “The government understands that a stable housing market—in sales volume and price—is good for everyone and they will continue to try anything they can to make that happen.” (Agent Mountain Radio, March 2009) Recognize Commercial Investors Commercial investors should be on your radar screen too. These days, larger investors and investor groups of all different sizes—who normally buy commercial property—are coming together to do things like: 1. Buying foreclosed residential properties in bulk from banks at additional discounts. Banks are increasingly eager and bigger investors want to take advantage of that. And investor groups are often better able than banks to help
    79. Chapter 5: Understand Buyers and Meet Their Needs 79 homeowners remake their loans and stay in their property—turning the nonperforming asset the investor bought into a performing one again. 2. Buying packages of improved residential lots from builders in financial distress—as investments to hold for resale when markets start returning to balance. There’s Competition for Property: Distressed Sales Off MLS The research firm RealtyTrac recently reported that “more than half of all distressed property sales in the U.S. are happening outside MLS systems.” (National Public Radio, May 14, 2009) Some metropolitan areas where high foreclosure volumes are combined with weak economic conditions have become hotbeds of what is being called “extremely distressed” REO activity. These urban areas include dense collections of property owned by lenders who can’t sell them fast enough. Situations like these are creating new incentives for lenders to sell—and for local government to buy.
    80. 80 Chapter 5: Understand Buyers and Meet Their Needs Volume Buying at Extremely Distressed Prices One example of the distressed property phenomenon in Cuyahoga County, Ohio, has been the subject of a research study by Case Western Reserve University. Published in December 2008, the study focuses on 2005 through 2008 “extremely distressed” properties—those selling for less than $10,000. The report says more than 40 percent of all bank-owned property sales in the county (home of Cleveland and its “close-in” suburbs) in the period studied were in the “extremely distressed category.” The report uses county records to break down who held and sold distressed property in 2008. It says 90 percent of those extremely distressed properties were resold by the buyers within six months of the original sale—for low profit margins. Forty-four percent resold within ninety days. The high turnover and low profitability of these properties suggests several things to the Case Western Reserve researchers: 3. Many of these properties turned over so fast they were probably never occupied during the term of the study. 4. This phenomenon is damaging to the quality of neighborhoods—properties are held by absentee owners who are difficult to trace. Often they are investor networks with no accountability to or interest in the neighborhood, according to the study. Federal Incentives to Local Governments Your investor could be a local government. With the passage of a housing bill in July 2008, nearly $4 billion in grant money was allotted to state and local governments for the purchase and rehabilitation of foreclosed homes. National Public Radio has reported on just one example of the budding new interest on the part of local governments—Cuyahoga County, Ohio’s plans to acquire more than 550 distressed properties from a distributor called REO Clearinghouse. The county already markets its REOs aggressively online for very low prices and attracting additional interest with web advertising on sites like www.usreoproperties.com, www.foreclosurefreesearch.com, and www.bankownedproperties.org. It’s hard to identify specific sellers in these owned by distressed property investor blocs, and the properties themselves have deteriorated severely as a result of owner disinterest. Still, local governments like Cuyahoga County are persisting. Local officials are working to create a “land bank” to use government money to acquire properties in volume, either for the purpose of transferring them to local organizations as housing for needy families or razing them to reduce urban blight.
    81. Chapter 5: Understand Buyers and Meet Their Needs 81 Match Buyer Types with Their Property Needs Can you name each of the major buyer and investor categories? Can you describe what some of their key motivations are in distressed markets and what kind of property you might steer them to as a result? What properties might not be appropriate? Recommended Not Recommended Move Up First Home Investor Goal: Cash Flow Investor Goal: Appreciation
    82. 82 Chapter 5: Understand Buyers and Meet Their Needs Lead Conversion Real-Play Turning leads into appointments is vital to your success in any real estate practice— distressed property buyer business is no different. This is an exercise that will help you become more confident in your calling. It will also help increase your appointment setting conversion rate. This section includes sample scripts tailored to the distressed property market. Real-Play’s Success Track Record Appointment setting “real-play” lead calling exercises were first built into KWU courses with the release of Buyer Mastery and Seller Mastery and Team Leader Boot Camp in 2008. Initial results were remarkable. Participants in the pilot programs for these courses converted more than 40 percent of all calls into appointments! The trend has continued as these courses have been shared with more and more agents across the United States and Canada. The MAPS program BOLD (Business Objective: A Life by Design) has seen similar results in its live lead generation calling programs. So, if you haven’t been part of this kind of exercise before, enjoy the interaction, the energy created, and the benefits for you. Ground Rules and Suggestions Here are ground rules to help make this exercise efficient for you: 5. Have your phone ready. 6. Use a Call Sheet to track your calling and outcomes/success rate. 7. Use a Lead Sheet to help guide you through the conversations you have. 8. Have a calendar ready for appointment setting. Here are some additional suggestions to help energize the process for you: 9. Clear your mind. 10. Say an affirmation out loud, or think about the value of the call you’re about to make. 11. Speak with a positive, upbeat voice. 12. Ask plenty of questions. Drill down to get the answers you need to have.
    83. Chapter 5: Understand Buyers and Meet Their Needs 83 Scripts Here are some sample scripts for lead calling, in these categories: What scripts can you add to this list? 1. Market Expert, Move Up, or Investor • “Our market has really shifted dramatically. Right now, XX percent of all sales around here are distressed properties. The good news is, you can jump on some great prices and get the home you want for investment (or a move up). But there are more and more buyers out there now. So we’ll have to have a good game plan and your qualifications will have to be airtight. Let’s meet and get ready.” • “I know you’ve been thinking about investing (or moving up). Prices have gotten so low in the distressed market here that any of the better deals are getting multiple offers. So, we’ll need to be very clear about what we want, be well qualified, and be ready with our “highest and best” offer when we do act. Does that sound doable to you?” • I (my team) have sold XX properties in the last month. The distressed property market is heating up all over the country. Here, sales are up XX percent over last month (last quarter). I think it’s time for us to meet and set a buying (investing) game plan for you. Let’s meet and set criteria and a buying strategy that fits you exactly.” 2. First-time Buyers • “I know you’ve been thinking about that first home. Well, prices for the kind of property we’ve talked about have never been lower. The best deals are on distressed properties—bank-owned or short sales. If you have your financing totally preapproved, it’s a great time to look. One note, a short sale will take longer to close than a bank-owned property. So let’s get together and be sure we understand your situation and your urgency to move.” 3. Have Empathy But Lay Down the Law • “I know you are eager to grab a great deal in this market. Please understand I’ll do everything I can to make that happen for you. But I can’t succeed without your help. You need to be totally qualified financially, and be able to prove it. And you need to be willing to offer close to the asking price and not low ball. If we lowball, the listing agent and lender will recognize it and the lender will just reject us. They don’t have to negotiate with anyone. There are very few exceptions. Let’s meet and see if you are ready to act.”
    84. 84 Chapter 5: Understand Buyers and Meet Their Needs 4. Process Expectations for Buyers • “I think you know what you want and I’m sure you will make an offer, but if we do, you’re going to need to be patient. Different lenders take very different amounts of time to respond to offers. I will check out the listing agent on any property we’re serious about, and be sure they know what they’re doing. But they don’t control the lender. Too many buyers lose great deals on short sales because they get impatient and walk away. Let’s not be one of those. Let’s meet and do a readiness check before we get started.” • “If you think waiting weeks to get an answer to your offer is going to be a real problem for you, you probably should not be looking to buy a short sale. There are definite price advantages for you at the end, but it takes patience to win that advantage. I can coach you on the process to make sure an offer we make has the best chance of acceptance and closing. Let’s meet and I’ll tell you more about how that works.” 5. Confident Buyers: Have Financing in Order • “Lenders are very serious about getting property sold, especially bank-owned property. No matter how strong our price and terms look to them, unless we also submit an absolute written approval from your lender, and proof of funds for any cash you’ll be putting in, our offer will be turned away. We have to get all our ducks in a perfect row. Let’s get together and I’ll share the details and answer your questions.” • “Distressed property purchases have special requirements when it comes to closing. I’ll advise you every step of the way. For instance, your lender will need to be ready to move quickly if we’re purchasing a short sale. Short sales are the opposite of “hurry up and wait”—first you wait longer than you want to, then we’ll need to be able to close fast. Let’s get together and talk this over—and other key strategies you’ll need to buy successfully.”
    85. Chapter 5: Understand Buyers and Meet Their Needs 85 Appointment Setting Make as many calls as you can in the allotted time. Be sure to record the names and numbers called, and make note of scripts you used—and the all-important results of the calls. The instructor will let you know how results will be reported. Here’s a call sheet you can use to track your progress: APPOINTMENT SETTING CALL SHEET Name and Number Script Reminder Result; Follow-Up –brief note– 1. 2. 3. 4. 5. 6. 7. 8. Results: What Was Your Call to Appointment Ratio? Track your results and evaluate how you did. What went right? What could have been done better? What will you do to improve the next time you’re calling for appointments?
    86. Chapter 6: Buyer Service Buyer Service Cycle, Distressed Version The KWU core course Buyer Mastery introduces the Buyer Service Cycle. The course manual you are studying now, SHIFT Tactic 11: Distressed Properties: Working with Buyers, has already contributed ideas and suggestions to many of the steps in the cycle, for example: • Where to find leads • How to capture and convert them • How to consult with buyers using your market knowledge • How to find proprety for buyers using a criteria filter and other tools .
    87. Chapter 6: Buyer Service 87 This chapter focuses on Steps 5 and 6 of the Buyer Service Cycle—Offers and Negotiation and Contract to Close. As in traditional real estate, this is attention to detail territory—and some of the details are a bit different. Truth Many of the most unique features of selling distressed property happen in the Offer and Negotiate and the Contract to Close (Steps 5 and 6). Knowing these details and explaining them effectively to buyers are vital to your success. Make Offers That Close In distressed markets there is value in good prices—even great prices—but you need to be able to maintain the buyers’ energy and interest while coaching them into the mindset required to get through these transactions. Here’s a quick breakdown of major issues you must know—about both REO and short sale distressed property purchases. Think of these lists—gathered from REO and short sale listing agents—as tools to get offers accepted and deals done. Know and coach your buyer about: • How to get REO deals done • How to get short sale deals done • How to handle multiple offers in either situation How Deals Get Done: REO Be familiar with details of the processes and timelines, so you can coach your buyer about what to expect—every step of the way. Here are the main things you need to embrace, and coach your REO buyer about: • “As is” means as is – Your buyer, as in a short sale, will have to sign one or more documents from the bank clarifying the property is being sold “as is” and what that means (no inspect and negotiate process; inspections are for the buyer’s information only). • Be very patient – The buyer may have to be patient after submitting their offer. It could take the lender 7 – 10 days to approve your offer. The listing agent is not in charge of the process. • Buyers: Be absolutely qualified – Buyers must be well-qualified (preapproved) with proof of funds provided for the cash involved in any purchase.
    88. 88 Chapter 6: Buyer Service John Yugovich - What Being Qualified Means “I learned quickly that, in REO sales, the buyer absolutely must be qualified, or they will not be considered and everyone’s time will have been wasted,” says White Lake, Michigan, agent John Yugovich. His instructions to buyer agents about buyer financial qualification are: • Must have the buyer’s earnest money check in hand—as a cashier’s check—before I will submit their offer. • Must have an approval letter from their lender, with no reservations. • Must have documentation of any cash funds involved. • Financing terms may change subject to appraisalonly. • Offers with clean terms win - Lenders are looking for the cleanest and easiest deal. The fewer contingencies on the offer, the better as far as they’re concerned. Contracts with no contingencies are strongly preferred. • Timelines to decisions are improving - Turn around times in REO are getting better—the best circumstances might be a few days. The outside would be 2-3 weeks—that’s based on a consensus of REO listing agents in research interviews. • The seller in unemotional—it’s all business - Lenders don’t consider emotional letters that accompany an offer. “They’re looking at the bottom line and how quickly you can settle,” explains top REO agent. • Multiple offers happen – They are happening more and more in the most active distressed property markets. Don’t be surprised, and be ready with your “highest and best” offer. See the section below on multiple offers. • Added paperwork is a given - There will be some additional unfamiliar paperwork with the contract. Certain forms will have to be filled out according to the listing agent’s instructions. • Clear title should be assured - Buyers will get a clean title and will be able to purchase title insurance.
    89. Chapter 6: Buyer Service 89 REO Growth Brings Out Buyers Brent Gove; Roseville, California, Team Leader; says agents in markets where REO listings are beginning to grow fast should know REO listings release a lot of pent-up buyer demand. “It’s phenomenal how you’ll see buyer business take off—you can expect interest from the buying public to be high, he says. “We are seeing multiple offers on REOs and I know it’s happening other places too—in Las Vegas for example. I think there’s huge opportunity to get involved now—especially with buyers. Signs in our town that say ‘Bank Repo’ draw big crowds to open houses.” How Deals Get Done: Short Sales • As is means as is - Your buyer, as in REO, will have to sign one or more documents from the bank clarifying the property is being sold “as is” and that means—no inspect and negotiate process. Inspections can be done by your buyer, but only on an FYI basis. • Hold onto your buyer: Timelines will be frustratingly long - Although lenders’ track records seem to be improving, your buyer should still expect to wait from several weeks to several months before they know their offer is accepted and will close. Lenders run offers received through a financial analysis that is bureaucratic and takes time. Buyers and their agents may hate it, but they should know it will happen, and why. • Attention to detail and accuracy are required – Paperwork (as in REO) often must be completed in very specific ways—for specific lenders. Do not blame the listing agent. Follow their instructions. The lender is running the process. Complaining will do your customer no good.
    90. 90 Chapter 6: Buyer Service Tip! – Consult the Listing Agent on All Process Details Just as listing agents need to know what the buyer’s agents know about distressed property processes, the shoe fits the other foot. Top agents may close 80 percent or better of their short sale deals, but across the marketplace, unfortunately, only a minority percentage of short sale listings close. It’s part of your job to help your buyer get the best possible sense of success with a given property. That involves qualifying the listing agent. “As a top buyer agent, you should absolutely contact the listing agent and ask them about the process—particularly in a short sale,” says Kevin Kauffman. “You can tell from their answers—about the status of the seller’s package, for example—whether they know their business and will be easy to work with.” Agent Brandon Green has another perspective, “While there are a lot of things in common, different lenders do certain steps in different ways. Knowing those unique differences can make or break a deal,” he says. • Multiple offers are to be avoided – Understand that multiple offers are generally a bad fit for short sale situations. Lenders need to be kept focused. If you are the listing agent, you’re wise to submit one at a time. If you are the buyer agent, you should insist on this “one offer only” standard from the listing agent. See the section on the following pages that focuses on multiple offers. • Be absolutely qualified and ready to close - As with REOs, buyers are well advised to have their financial duck in a row. Why wait for the property you want, only to find your financing is not in order and the deal falls apart? Besides, unless another offer has broken ground on what the selling bank’s price is, a solid and bulletproof offer from your buyer will hit the target and open the door to short sale approval in the first place. • Be prepared to go slow, then fast - After a longer wait than anyone wants for the approval from the bank, the closing may have a short fuse. It may also not happen on the date that is set. These issues come with the territory—with institutions struggling to handle their distressed property workload. • Short sale streamlining ideas – Watch the marketplace and industry news for new policies and trends emerging. More and more the message is getting through about the time consuming nature of many short sales. Government agencies and lenders are announcing policy changes, looking for solutions that will speed things up.
    91. Chapter 6: Buyer Service 91 Fannie Mae Short Sale Pilot Program Government sponsored enterprises Fannie Mae and Freddie Mac back a predominant percentage of all U.S. home loans—more than 70%. So, the REO and short sale dominance of many U.S. markets has prompted them to seek solutions. At the beginning of 2009, Fannie Mae announced a “pilot program” in two distressed markets—Orlando, Florida and Phoenix, Arizona. The stated purpose of the program was to experiment with the idea of preapproved short sales—working with lenders to establish the acceptable short sale price up front, to make it clear to listing and buyer agents, and the buyers themselves, what offering price would be accepted. Of course, price alone does not determine a solid offer—but establishing it early and openly would remove a big obstacle for agents and their clients. Results of the test program have been closely held by Fannie Mae. Real estate industry representatives have been encouraging Fannie Mae to continue the test program. • Protect your buyer and you—interview the listing agent – Learning to cooperate with the selling process in distressed property is essential to good business practice and a high close rate. But, top agents in short sales say you should not hesitate to be direct and open with listing agents. Your job includes doing whatever you can to ensure that the planned purchase by your buyer will actually close! Kevin Kauffman and Fred Weaver in Phoenix, Arizona make it a standard practice to interview the listing agent on any short sale where they do not have recent past experience with that agent. “The answers to a few questions will tell you a lot,” Fred Weaver says. Here’s what Weaver and Kauffman usually ask: 1. Current number of short sale listings? 2. Number of recent closings? 3. Is the negotiator the listing agent, or a third party? 4. What is the agent’s close rate on their listings, - what percentage have failed and gone to foreclosure? Common sense tells you what to look for. You want to see that the listing agent has some experience. You need confidence that your buyer’s offer will have a good chance to be reviewed and accepted.
    92. 92 Chapter 6: Buyer Service Kevin and Fred take it as a positive sign if the agent says they do their own negotiating in-house. “We’ve had better success ourselves than agents who report using an outside vendor,” Fred says. And, of course, you are looking for a solid close rate—more than 50 percent would be above average. “When it comes to close rates, go online in your MLS and verify what they are telling you,” says Kevin Kauffman. He adds, “Do everything you can to protect your buyer. It’s going to be a long haul, more than likely. Your buyer needs to know there will be a reward at the end—and so do you.” You will quickly learn who the top listing agents are in your area—for both short sales and REOs. Most of the goods ones have probably already posted contract writing and contract-to-close tips and specific instructions on their websites. Some are holding buyer agent classes.
    93. Chapter 6: Buyer Service 93 Truth Absorb what listing agents teach, and do what they say. Your buyers and your business will benefit. Your contracts will be accepted. Your deals will move faster than the deals of agents who don’t pay attention. Short Sale Listing Agent’s Wish List for Buyers and Their Agents – In a mastermind session, top short sale agent Tod Barton of Las Vegas, Nevada, shared his wish list for buyers and their agents. He says following these simple principles will lead to more and faster closings: Price: Short sales are not always all about price—clean offers with ironclad financing can win out over higher offers. Paperwork: Complete paperwork is essential—incomplete paperwork will just be sent back by the lender. Title: Use the listing agent’s recommended title officer—experienced short sale title officers know the territory and help short sales close. HUD-1: Ask the listing agent about the HUD-1 critical lines, and how they should be completed. Prepared to close on a counter: Expect to be asked whether your buyer will close if the bank counters your low offer. If not, you are wasting everyone’s valuable time. Call me first: Call the listing agent first, before writing an offer, to get instructions and any and all questions from you and your buyer answered up front. No lectures please: Short sale listing agents tire of being lectured on “how it should be.” This is not traditional real estate. The lender makes the rules. The listing agent needs to explain them and you need to follow them.
    94. 94 Chapter 6: Buyer Service Handle Multiple Offers Booming foreclosure markets are bringing buyers out in numbers—seeking great buys. Multiple offers are happening in many of the top distressed property markets. Look at what’s similar and different with respect to multiple offers in short sales and REOs: Issue Short Sale REO Chance of Multiple Not likely but possible Very likely in active REO Offers markets What Will Get Listing agent will want to Listing agent will treat this Submitted submit only one—probably part like a traditional sale— the lowest offer first. Higher submitting all, encouraging offers will be submitted later highest and best, and if the low offer fails or the letting the lender decide. buyer walks away. Not all short sale listing agents use this strategy. Process Once submitted, lender is in Once submitted, lender is in charge charge Decision Lender only Lender only—sometimes with listing agent input Top REO agent Debbie Gorham of Manassas, Virginia, says, “Remember highest and best is what counts in the vast majority of REO buying situations.” Responses from banks on multiple offers are improving—turnaround time is going down. But remember that the listing agent is not doing anything to impact turnaround on answers. The lender is completely in charge. Remember too that it’s possible the highest offer may not be the best offer. The REO asset manager may ask the listing agent for input about the offers. Debbie Gorham says of the asset manager, “They’re my clients—I’m always going to tell them the truth about my view of the offers.” Eager buyers and their agents may want to try making a case for their offer in a multiple- offer situation. Banks may listen to alternate appraisals hired by the buyer side, but it may not be an effective strategy. Trying to get these done and submitted in a timely manner is tough.
    95. Chapter 6: Buyer Service 95 One of Many Offers? Handle It! If your buyer makes an offer on a bank-owned (REO) property, you submit it to the listing agent, and the listing agent comes back saying, “I have to tell you we have three other offers on this property,” what will you say to the listing agent? How will you counsel your client? Write your answers here: To listing agent: ______________________________________________________ ______________________________________________________ ______________________________________________________ ______________________________________________________ ______________________________________________________ To my buyer: ______________________________________________________ ______________________________________________________ ______________________________________________________ ______________________________________________________ ______________________________________________________ How should these same communications happen differently in a short sale multiple-offer situation? ______________________________________________________ ______________________________________________________ ______________________________________________________ ______________________________________________________
    96. 96 Chapter 6: Buyer Service Post a Buyer’s Guide on Your Website Listing agents post detailed buyer guides and instructions for submitting offers on their websites. You should do the same for two good reasons: 1. It’s part of your marketing to position yourself as a knowledgeable resource to help buyers find and secure what they want. 2. Any time buyers come to you with an idea of what they need to know to buy wisely, you are ahead of the game and your chances of success go up. Here’s a partial example from Phoenix, Arizona, agents Kevin Kauffman and Fred Weaver. Their business focuses on short sales. This sample appears on both their blog and their website. It is followed by line-by-line contract instructions for the Arizona purchase contract: what the buyer’s agent must write into any offer in specific locations in order for Kauffman and Weaver to give their best assurance that the deal will be considered by the seller’s lender. Sample Web Posting Here’s part of their notice to buyer agents and buyers interested in making an offer—in this case, on a short sale. The details in this example relate to short sale offers and are state specific. This information is provided as an example only of what smart listing agents are doing to be sure they attract offers that close. Notice the attention to specific line-by-line contract details in this second section of the sample Web posting, called “How to Submit a Good Clean Offer.” In the first part of the display, “Terms the Buyer Must Agree To” notice some interesting requirements, like: • The posted requirements are nonnegotiable. • A modest nonrefundable earnest check to keep the buyer in the deal. • Listing agent will commit to only one buyer at a time. • Home warranty purchase by buyer is strongly recommended. • Buyer and buyer’s lender must be ready for a twenty-one day close, following seller’s lender’s approval of the contract. • Seller’s lender will pay all HOA liens and transfer fees.
    97. Chapter 6: Buyer Service 97 Terms the Buyer Must Agree To The Buyer on a short sale listing must agree to the following terms (see our customized Short Sale Addendum below for actual terms and contract language)… 1. Buyer must deposit $500 earnest money with the title company of our choosing and this earnest money is nonrefundable for seventy days (the average amount of time it takes us to get a short sale approved). a. Our Seller only commits to one buyer and we expect the same commitment level from the buyer. 2. Buyer must pay for a home warranty should they want one – the Seller and the Seller’s bank will not pay for this cost. 3. Buyer shall close escrow twenty-one days from issue of the Agreement Notice (notice from Seller and Seller’s representative that the Short Sale has been approved by Seller’s bank). a. We understand that many mortgage brokers cannot close a loan in the current mortgage market in twenty-one days. Please notify us up front if this is an issue for your Buyer as we have several recommendations we can make to meet this deadline. 4. Seller’s bank shall pay for all Homeowners Association fees (transfer fees, liens, etc.).
    98. 98 Chapter 6: Buyer Service How to Submit a (Good, Clean) Offer 1. Include our customized version of the AAR Short Sale Addendum 2. Include an As-Is Addendum with your offer. 3. Page 1 of the contract … a. Line 16: Handwrite “See Short Sale Addendum” where it asks for a COE date. b. Lines 25 – 27: Make sure you check the appropriate boxes for addendums (specifically HOA if applicable) and write-in other addendums (specifically As-Is Addendum and Short Sale Addendum). 4. Page 2 of the contract … a. Line 40: Do not ask for a refrigerator, washer, or dryer to be included in the sale if it is not disclosed in MLS that it is being sold with the property. b. Lines 72-81: Please mark all closing costs as being paid for by Buyer (we’ll address how to ask for those appropriately on page 7 if the Buyer is asking for closing cost assistance). 5. Page 3 of the contract… a. Line 91: Name “Driggs Title” as the Title/Escrow Company. Phone (602) 616-6651. Fax (480) 237-7731. 6. Page 5 of the contract … a. Line 180: Please write “none” 7. Page 6 of the contract … a. Line 262: Do not mark as Seller paid. 8. Page 7 of the contract … a. Lines 304-315: If requesting closing cost assistance please do so on these lines in this format… b. “Seller’s lender shall credit Buyer “x” dollar amount or “x” percentage of sales price towards Buyer’s closing costs including, but not limited to, those costs in lines 72-81 of the contract.” c. Please do not request more than 3% of sales price closing cost assistance. 9. Page 8 of the contract…please always allow 72 hours for response time.
    99. Chapter 6: Buyer Service 99 John Yugovich, Farmington Hills, Michigan, has a very successful REO listing practice in the tri-county Detroit metropolitan area. Distressed properties dominate the market. John has been in real estate for more than twenty years and, until the market turned, his business had been entirely traditional resales. When asked about his top business problem today, John replies instantly. He says, “It’s agents who don’t want to comply with what the lender requires. For some reason, they think they should be in charge—that the traditional rules are the rules. They are so wrong,” he says. “They just don’t get it, and that attitude prevents their clients from getting what they want.” John says it isn’t all agents. “There are some who are smart enough to know what they don’t know. They listen. Their attitude is tell me what I have to do and I’ll do it. Their deals are the ones that usually get done,” John says. Closing Closings have their own unique aspects in distressed property deals. The best way to learn them is to learn from the experts: the people who run the closing. Title and Escrow Perspective on REO Like many other things in the distressed property world, REO closings have unfamiliar qualities for agents without a lot of distressed property experience. These are examples: • Seller elsewhere: The seller is an institution, not an individual, and they are probably located somewhere else. • Lender scrutinizes title: Title commitment or preliminary title reports will be scrutinized carefully by the lender for signs of possible trouble—liens, encumbrances, and even incorrect designated owner. • Time to deal with HOA: HOA demands for payment must be dealt with by the bank and can lead to delays. • Last-minute HUD-1 delay: The seller and their asset manager require up to seventy-two hours for review and process of the final HUD-1—no last-minute changes are allowed. What must agents know when they’re involved in the contract-to-close phase of an REO deal. What will be different and unfamiliar? Unless you’ve listed and sold many of these properties, a tip sheet like the one provided by First American Title Insurance Company’s marketing officer in Las Vegas, Nevada, is helpful.
    100. 100 Chapter 6: Buyer Service
    101. Chapter 6: Buyer Service 101 Title and Escrow Perspective on Short Sales Four things jump out as alerts about short sale closings: 1. Study the prelim: Because the property has not been reclaimed by the lender (as it is in REO), the title deserves special scrutiny because the sellers have probably been experiencing major financial stress. The title company will provide the usual preliminary report of title. As in any transaction, you must read the title prelim carefully—or have a trusted expert in the title business do it for you and your buyer. 2. HUD-1 accuracy: Stay on top of all the HUD-1 details for your buyer. For instance, short sales HUD-1s often contain special line items inserted by the listing agent to cover particular costs. Normally these issues are negotiated between the listing agent and lender but you should be aware of them. 3. HOA dues: In short sales, unpaid HOA dues are often an issue. Be sure these have been cleared. 4. Quick closing: Short sale closings can take buyers and their agents by surprise. Often, it’s been a long wait for approval. Often, in short sales, the lender then wants to close as fast as possible. Short sale specialist agent Knolly Williams, Austin, Texas, teaches buyers to expect no more than 2 – 3 weeks to close a short sale. Your buyer’s lender must be prepared to deal with this timing. Advise your buyers up front.
    102. 102 Chapter 6: Buyer Service Summary: Points of Difference between Traditional and REO, Short Sale, and HUD Here’s a summary of some key points of difference between traditional REO, short sale, and HUD properties. There are variations, but these are the differences you can expect most of the time: Phase Traditional Short Sale REO HUD Defaulting or Conventional, Conventional, Conventional FHA defaulted loan FHA, or VA FHA, or VA Pricing Listing agent CMA BPO or appraisal Bank sets value, HUD and seller contracted by based on listing bank; listing agent agent BPO or an CMA appraisal. BPOs are updated Marketing Listing agent Listing agent Bank direct HUD or a HUD marketing and/or management and listing agent. marketing (M&M) Marketing reports vendor are updated Contracting MLS contract MLS contract, MLS contract with HUD contract with bank bank addendum, addendum or bank contract only Offers By MLS contract By MLS contract; By MLS contract; By online closed sometimes by sometimes by bidding bank contract bank contract Financing 24−48 hours before 24−48 hours 24−48 hours 7−10 days before docs required closing before closing before closing closing Acceptance Seller Seller and Bank Bank HUD Closing Date certain. Date may be Date usually Date certain. Title/escrow postponed. Listing certain. Bank’s HUD’s title company choice agent’s or Bank’s title company company negotiated between title company parties
    103. Chapter 6: Buyer Service 103 Look to the listing side courses in the SHIFT Tactic 11: Distressed Properties series for more detail on contract to close and other distressed property process points of difference. Some Final Service Suggestions Teach, Write, Be a Spokesperson Offering tips is essential. Offering classes takes your expertise to the next level. Classes are a lead generation tactic, but they are a practical buyer teaching tool too. Do what smart listing agents are doing. Teach how to make an offer and what it will take to get that offer accepted. Approach your local or community newspaper about writing an article as well. Get interviewed by the news media. Use the same tactics to portray your expertise—and meet prospects—that you would use in a traditional market. You are the expert. Act like one. See the guide SHIFT Tactic 11: Distressed Properties: Listing REOs for an example of how smart Market Center leadership and agents are offering free classes to buyers and buyer agents. A sample flier promoting one class is included in that course, courtesy of Keller Williams Realty, Las Vegas. Protect Everyone with a Signed Disclaimer Reinforce all this good learning and training with a signed disclaimer for your buyers to sign. By signing it a buyer acknowledges that you have given them fair warning about the process and situations they will likely encounter. This document can only help protect you and the—and it can reinforce the right expectations as the deal goes forward. Lenders protect themselves with written advisories and caveats to buyers. You should do the same. Getting a buyer’s signature on a document advising them what to expect in a distressed property purchase conveys your seriousness, your depth, and your eagerness to help and protect their interests as well as your own.
    104. 104 Chapter 6: Buyer Service The disclaimer can include: • Brief transaction explanation, including who makes the rules and approves contracts • What to expect during closing • Commissions • “As is” • How closing costs will be handled • Financing approval requirements • How multiple offers will be handled • Signature lines for both you and the buyer’s agent If you don’t provide this document, a good listing agent will probably produce one of their own for you and your client to sign! Distressed deals are different—responsible agents want to be sure everyone knows what is going on.
    105. Chapter 7: Buyer Side Evaluation and Action Plan The purpose of this final chapter is to help you decide whether to focus on the buyer side of distressed properties in your business. The challenges listed will help you evaluate your opportunities—and your readiness—and take action. Your choice – is the buyer path right for you, or are you better off focusing on the listing side of REOs and/or short sales? There is no winning score in this evaluation. It’s intended to help you think through what you have learned, and to decide what path best suits you. Here’s what to do: 1. Review the key “challenges” listed below and frankly assess your current ability to meet each challenge on a scale of 1–5. 1 = I have no experience with this. 2 = I am not very good at this. 3 = I am pretty good at this. 4 = I am confident with this. 5 = I am an expert at this. 2. Then, detail what specific action is required to make you a 4 or 5 on every item. How ready are you? How fast can you get where you need to be? How exactly will you do that, for each challenge that requires action? When will you do it? 3. Evaluate your results and decide! Is specializing in the buyer side of distressed properties the best course for you in your market? If so, what are you waiting for? Act on your plan and win with the buyer side!
    106. 106 Chapter 7: Buyer Side Evaluation and Action Plan EVALUATION AND ACTION PLAN Action Step(s) and Time Block to Challenge Rating Do It! 1. I have prequalified myself and am able, ready, and willing to master the market of the moment. 2. I know and can consult on the state of my local economy and the distressed property component of my market. 3. I know the phases of foreclosure and the timelines in my state and can consult about them. 4. I have a USP and Value Proposition that highlight my professionalism for distressed property buyers. 5. I know where to find potential short sale and REO buyers. 6. I know how to work with an investor to develop a criteria filter for them.
    107. Chapter 7: Buyers Side Evaluation and Action Plan 107 EVALUATION AND ACTION PLAN Action Step(s) and Time Block to Challenge Rating Do It! 7. I understand the special opportunities for first- time home buyers and can consult with the Your First Home book and presentation. 8. I understand and can consult about the opportunities for move-up buyers in the distressed market. 9. I understand the potential benefits and risks of buying a property at a public auction. 10. I understand how to recommend and refer buyers to sources of mortgage money. 11. I know the major contract-to-close coaching points to use with short sale and REO buyers. 12. I have a disclosure that I ask the buyer and the seller to sign—one for short sale buyers, one for REO buyers.
    108. 108 Chapter 7: Buyer Side Evaluation and Action Plan EVALUATION AND ACTION PLAN Action Step(s) and Time Block to Challenge Rating Do It! 13. I know how a short sale is negotiated with a lender by the listing agent or a third-party negotiator— and can consult with my buyer about it. 14. I understand how offers on REO properties are handled by listing agents and lenders or asset managers—and can consult with my buyer about it. 15. I’ve got a plan to “touch” and obtain referrals from all my short sale and REO buyers. 16. I get into relationships with REO and short sale listing agents and demonstrate that my business priorities align with theirs. 17. I actively consider the benefits and financial impact of joining a high- performing distressed property specialist team as a buyer agent.

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