The other day I spoke with a real estate rookie who was very upset about a short sale deal he found and was negotiating. As we spoke he unraveled his negotiation nightmare for a home that could have made him a pretty penny on. What were those nightmares and how can you avoid the same horrors that they encountered? I will let you in on some little known secrets that the pros do to make it look so easy. Sit back, get a drink and pay attention!
Why do investors complicate the short sale anyway? Is it really that complicated? Are there really 100 ways to do a deal people? Listen; let's get back to the basics.The deal is simple: With basic negotiations you get the bank to accept a lesser amount than what the current home owners owe as payment in full on a property. Let's look at an example, you find a property worth $190,000 that has a $200,000 mortgage balance. You work with the bank to negotiate a discount on the payoff. The bank agrees to accept $100,000 as payment in full. That's it folks.
Can it really be that simple? You bet! The key to be successful is understanding who is involved and what their motivation is. There are 3 parties to every deal; 1. The homeowner. He doesn't want his home foreclosed and he obviously is having financial problems. 2. The bank. They really don't want to foreclose and own your home but they also have no other choice unless they accept an offer for less than what is owed. 3. The retailer. This is either an investor or a home buyer who wants to live in the home. To avoid the nightmares that rookie encountered, you need each of these items to agree.
Negotiating with the homeowner: Be sensitive. They are losing their home. They probably have other creditors and collectors hounding them as well. Be understanding to the fact that this is a tragedy to them. This is where they have lived for however long and have many memories, special moments and joy. This is not just "business" to them, as some would say. Don't be like the rookie investor I mentioned because he treated it like just another deal and really upset the homeowners. Look, the homeowner wants out. They want a solution, now it's time to come to the table and help. Explain the short sale, get a contract and get busy.
The bank. Are you kidding me? Take less money than what is owed to them? That's right. Banks do not want to foreclose and own your home. What they want is to lend money on a home. They are in business of wholesale lending not buying and selling. On average it will cost the bank $30,000 to foreclose and then sell a home. That's time and a monetary loss. Why not skip the time aspect and just deal with the loss? The cold hard fact is that banks wholesale money and the banks motivation to accept less money to clean up the accounting books so they can borrow more money at a cheaper rate in order to lend it out at a higher rate! Wow! That's right. Banks do not lend their own money! The bottom line is the bank needs these homes off of their books and you just have to find the right button for them to give it to you at a lower price.
Investor/homeowner. The main negotiations will be with the bank. The homeowner obviously has a say in what they would like to have happen and as long as you are following the previous advice they will work with you and then this is where you come in to negotiate with the bank.
In order for a bank to take a lower pay off amount you must build a case. The better the case you can build for the bank the better your chance to get the bank to say yes. Attention to detail! Information information information. Compile a file of items to send to the bank. You will send the bank the signed contract with you and the seller showing them what you are willing to do. Get an authorization form signed by the seller so you can work with the bank yourself. Send them a hardship letter from the owners with proof of hardship. Send bad sales comparisons, bad pictures, detailed list of repairs, crime reports, bankruptcy information and just whatever you can find to show why they, the bank, does not want to foreclose and own this property.
You will need to get a mortgage statement from the homeowner so you can have the loan number and other relevant information you will need in speaking to the bank. Submit the documentation to the lost mitigation department as fast as you can. From there be sure to be friendly with the bank representative because they are just doing their jobs and they are people too. Again, the rookie investor forgot he was dealing with real people at the bank. Those employees are not the big bad bank people that they are perceived as. They are doing their job according to the guidelines they have been given. Remember that you catch more bees with honey.
There is no delusion when it comes to the possibilities of the real estate investing when done correctly. It works and it's profitable. Avoid the nightmares of bad negotiating, be educated and prepared and good things will happen!
If you like what you have read here in this article then you may like what we have put together to help beginning real estate investors succeed. Join me and my group of real estate professionals as we weave our way through buying Homes For Short Sale.
To your success!
Cheers,
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