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                      iSucceed Press Release
Have You Covered All The Bases
HAVE YOU COVERED ALL THE BASES

Aliso Viejo, CA – October 20, 2008 We’ve touched on the contingent liability issue in the past but as the market has changed its complexion the risk has increased.  One of the areas of uncharted waters that agents are finding themselves in concerns the short sale.  This is a transaction that contains more “what ifs” than any other, and along the way there are plenty of doors to potential legal troubles.

 

What makes the short sale a troublesome area is not the concept but the actual process – it is fraught with unknowns and delays.  You know – the sort of things that tend to raise the emotional level, which can result in unmet expectations.

 

I guess one could probably create a long list of things to do to set up a wall of protection but there would always be something missing that a creative lawyer would come up with.  Perhaps the very best advice in this area is to just walk carefully and think each step through from the buyer’s perspective.  The reason I am not emphasizing the seller here is that chances are you are coming in from the buyer’s side and the lender’s legal department, for all intents and purposes, is calling most of the shots.

 

So, with that caveat in mind, here are a few cautions you need to make sure your buyers fully understand … and that means you should disclose the risks in writing.

 

First and foremost, they need to understand that short sales take longer to close. It is guaranteed that the lender will cause delays to analyze and approve their reduced lien payoffs.  If your buyers are in anyway contemplating a 1031 exchange you need to be very careful and ensure that you don’t get caught up in their timeline requirements.  Most short sales take anywhere from 5 to 10 weeks longer than a normal sale.

 

Be certain that your buyers understand that the ultimate sale price will more than likely be somewhat fluid and may not be tied down until the lender has completed a full analysis.  For this reason it is critical that the buyers are fully aware of all the comparable sales and listings in the market.  And when the buyers make their offer they need to realize that the lender is not looking at the sale the same way they are. 

 

Short sale buyers are looking for a “sweet deal” and tend to approach the negotiating process with that mindset.  The lender, even though it is looking at a potential repossession, is not pre-disposed to just dump the property.  As a result in many cases the counter offer will come back way out of the buyer’s ballpark.  The best thing you can do is to prepare the buyers in advance with solid market statistics and a caution that the process may take longer than they anticipate.  Try and learn as much as you can about the lender’s history with short sales and tutor your buyers.  The process can also be complicated by multiple offers, which are sure to exacerbate the lender’s delay.  Here again it is important to school the buyers on the necessity of making an offer that has an attractive price and terms that are still within their budget.     

 

Prepare your buyers for the fact that many lenders will only negotiate verbally and until the final deal is committed to writing and signed by both parties there is no deal.  This one has gotten a lot of agents in trouble.  “He said – She said” has brought more folks into the courtroom than anything else.  Cover your … bases … in writing wherever possible.  

 

Lenders involved in short sales are really only motivated by one thing – avoiding the cost of foreclosure and putting the property on their REO list.  They, unlike most buyers, have no emotional investment in the property as they are dealing with many others in the same situation.  As a result you need to prepare your buyers for the fact that the lender is looking for every opportunity to reduce expenses. 

 

And here is the one place that can get you in trouble.

 

In most cases the lender will come back with that little phrase that should perk up your ears … “the property is sold as is.”  You better make sure that your buyer understands exactly what “as is” means and that they have consulted their attorney, hired a good inspector and are prepared to deal with the consequences of any hidden problems.  Don’t set yourself up for an after the fact case of buyers remorse at your expense.

 

And finally, work through “all” the commission issues with your buyers – be totally transparent here.  Make sure that they understand the potential for the lender to reduce or cut your fee out of the deal and you will need to look to them to include it as part of the purchase price.  And while we are at it, what if you have an accepted deal from the lender on the buyer’s terms but it is net of your fee? 

 

We discussed that one in a previous article and the bottom line is – don’t allow your commission to stand in the way of an accepted offer by the lender.  If you go back to the buyers and add on your fee to get them to raise their price you are on very thin ice.  If they don’t agree to the price and walk away you just put yourself on the chopping block; according to a number of attorneys.  Does that mean the deal gets made and you don’t get paid?  Yes – that’s better than getting taken to court that will most likely cost you far more than the fee.  All the more reason to anticipate that in advance and come to an agreement (in writing) with the buyers concerning your commission.

 

The bottom line is to disclose, disclose and then disclose some more.  Make sure that you counsel the buyers to consult with their attorney and accountant and hire a qualified inspector.  And in keeping the whole short sale in perspective, make sure that they understand that it isn’t for the feint of heart.  They will need to be flexible and patient and prepared to do their homework.

 

And above all – get as much as possible in writing in advance.  It will pay huge dividends if problems come up after the fact.

 

Have we covered all the issues?  No, but hopefully it’s gotten you to thinking.  If you want to learn more about the short sale process to determine if it’s a market you want to work in, you should take a look at the Accredited Short-Sale Professional (CSP) course from RealtyU.  It is available online and you can learn more by Clicking Here  

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