Is it me, or is it the short sale system???
I have been working short sale homes now for about 3 years, ranging in price ranges from 1 mil, down to 30k. During those 3 years, I've worked probably about 60-80 properties, and closed on only FOUR. Over those 3 years, I continually see people professing that they have an 80% closing ratio, and average 30k profit per deal. My average profit on the 4 success' was about 10k.........and that was on the higher end homes too. I had a 600k home that I made 10k, and a 30k home where I made 10k. Don't get me wrong, I'm happy that I closed on what I did, but are the numbers that I'm hearing out there from other people for real, or is it me? Marketing/exageration is out there, no doubt, and I don't have a clue if my figures are typical. Personally I feel like they're terrible, and why I continue to do this I don't know.
Here's a real life example of 95% of my deals: Home is 200k, my offer is 155k. We go thru all the short sale paperwork, then the BPO (and yes, I met them at the house with low comps, repair estimates, etc.) comes in at 195k. They turn down my offer, won't counter my offer, and the property ends up going to foreclosure............a waste of 2-4 months of dealing with the homeowner and the mortgage company.
Is this typical for most of you out here? Let me know. I appreciate any feedback.
Replies to This Discussion
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Permalink Reply by Eddie Kearns on
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Actually I think there's more folks who get these kind of results, but I'm the only one who will admit it. As far as "negotiating" a short sale, that's exactly my question. Where's the negotiation? They come in with a high BPO from the agent, or the appraiser, and that's about it for the negotiation. There is none. It's all based on the BPO, as far as I can tell. If you can get better results, you want a job? What's your track record?
Come on people! I know I'm a horrible person, and I'm not doing my part for world peace. I'm looking for some constructive criticism here, not a lesson on my personal character. If you are getting good results, tell me what you are doing to get them. That's what I'm looking for here.
Here's a question: I agree that my closing ratio is terrible, but I didn't do anything different on the 4 that I did close, than I did on the 50+ that I didn't. Why? If you have a good ratio at closing short sales, tell me what you are doing. By the way, I did have a "negotiating company" a couple of years ago, but all they did for the large $$$ that I paid them up front was fax my paperwork to the lenders. 0-30 with this company, which by the way, came highly recommended. That's why I shy away from negotiating companies, but if you have a recommendation, I'd like to know who you use.
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Permalink Reply by Joseph Alfe on
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First, never pay up front! second, I don't think you are a bad person, I always defend good investors. Third, you are dead wrong. IT IS a negotiation. There is so much more than submitting a package, so much nuance in the process. There is a strategy I employ that is custom to each deal. Also, like it or not, as soon as the investors see that you are a flipper, they will kill the deal, EVEN IF IT IS AT A PRICE THEY WOULD ACCEPT WITH A NORMAL BUYER! Let me ask, are you using a normal real estate board contract, or trying to follow the Guru's and use an option, modified option, trust, etc....If you are, that's a huge issue because the lenders see that and will kill the deal. What happens if there is a deed restriction, do you walk?
Lastly, are you using your own cash or transactional funding?
My approval ratio? Out of several hundred closed in 2011 was north of 95%
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Permalink Reply by Sheyenne Schultz on
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That's a horrible closing ratio. Although some of your offers might be low...I'm also from the school of not giving lenders high offers to begin with because they'll just take it and run and come in higher. It's a poker game. And the reason many agents want u to come in higher is because it's that easier and faster to negotiate...right? YES!
If the lender is coming back AFTER the appraisal or BPO and NOT coming down to your price.....it seems to me from what you described here is that you are just shrugging your arms and saying OH WELL, and giving up and walking away and going to the next.
Have you ever disputed the BPO/appraisal value????? You never give up when bank tells you no. It's your job to then go back in and do a VALUE Dispute and show WHY the price needs to remain at or near where you came in at? of course, it was your job to do the math backwards in repairs, etc...to see how you determined that price to offer in the first place. If you were just picking a low figure out of your hat...that's a dangerous game to play. However, if after doing all the math, your price was JUSTIFIED..that's a different story. You have to remember, the banks aren't there to SEE the property, half of them are across the country sitting in front of a computer and spitting out figures and ratios, etc.
It's your job to be their eyes, ears, nose...etc. and SHOW them and DEMONSTRATE why they are incorrect in their figures and WHY YOU are correct in your calculations. You need to show comps, pictures of damages....repair estimates from licensed general contractors with costs to repair or replace items, mold, flooding, structural etc..and get inspections from licensed inspectors DISPUTING THIS...even appraisals from actual appraisers from a law firm...I do this with several who've ordered this to show banks are wrong on the seller's side...to show their lender.
Once this has been done, I've always gotten banks to come down to these lower prices if they were truly justified.
It sounds like you're taking on too many owners short sales and just throwing lowball figures out there and when banks say NO to your prices, you're just moving on without WORKING these files to get them closed.
Or just folding at the first NO from the lender.
Sorry to say, but you're not a person who is invested in helping SAVE a person from foreclosure. You're coming from an investor standpoint in that if you can't have something at your price then NEXT and leave these poor people in foreclosure.
You need to decide if you want to be a full time investor and have a savvy person negotiating these sales and if you walk, at least someone is still trying to help these homeowners with another buyer that WILL pay that price OR decide to be a person that HELPS owners SHORT SALE their home and not FORECLOSE their home.
Pick a side and stay there.
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Permalink Reply by Alan Martin on
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not typical at all. We very rarely lose a short sale deal. Most we see through to a successful sale. We did $23 million last year ,half of which was in short sales. Approx. 90 SS deals in 2011 generating around $190k in commissions. What is needed is a genuine wish to help folks that cannot help themselves. Word gets around when you do a good job. Many of our short sales leads are passed to us by short sale sellers that we have helped.
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Permalink Reply by joe beauchamp on
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HA! Some good answers here, but also a strong reminder to watch what you ask or you'll get blasted. Speak about being professional.. Where is that passion about the $25BB settlement which turns into banks using it to pay themselves instead of helping homeowners? (As if $25BB is anything compared to the damage done anyway.). And none of us do this to get paid? And the banks don't have bad valuations? Where did I put that grain of salt..? :-)
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The day of wholesaling shorts sales is over. It's not what it used to be. Most of us that were doing it have already shifted. Unfortunately the people facing foreclosure in my area will be hurt by the "no Flipping" rules, especially the lower price point home.
We have plenty of inventory here that is not a short sale that buyers are steering clear of short sales - again people trying to sell short sales will suffer.
For investors the cheese has moved again...it's time to shift.
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Permalink Reply by Bonita (Bonnie) Seide on
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Something is wrong with this picture. Does the seller have a hardship? Are you getting the lender to approve the seller for the short sale prior to getting the contract? or are you waiting for a contract and then sending the package in? You should not be surprised with the pricing if you do all the comparables on a weekly basis... prices change over time. I am sure you know all this, but just checking on your process....we are successful with closing shortsales, but are very involved with the seller and their lender prior to a contract.
Maybe either give up on doing short sales or team up with someone who knows the process better. You are doing yourself and definitely the seller a disservice if this is happening.
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Something is wrong with this picture. Does the seller have a hardship? Are you getting the lender to approve the seller for the short sale prior to getting the contract? or are you waiting for a contract and then sending the package in? You should not be surprised with the pricing if you do all the comparables on a weekly basis... prices change over time. I am sure you know all this, but just checking on your process....we are successful with closing shortsales, but are very involved with the seller and their lender prior to a contract. Maybe ask someone who is more familiar with the process to team up with you.
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I am closing a SS next week that was started by an agent who never met or spoke with the client. It was all e mail and the goal was to sell low and rent back to sellers. The first problem was that the agent did not know the property values in the area. Although there was a definite hardship the property was worth at least $40K more than the offer she took. Sellers were trying to do a Mod & then HAFA. Her part in this wasted precious time and by the time the 1st lien holder had denied the offer for price, the letter on the 2nd had expired and the loan had been moved to a collection agency for the 2nd. I took it over and actually explained HOW a SS works, got a valid buyer and explained to HER how a SS works and moved forward. HAFA had to be abandoned due to collection agency for the 2nd wanting to get paid. BPO had to be challenged with FACTUAL comps, and Auction Sale had to be postponed. All this extra effort and time wasted because the first agent has no idea what she is doing. Hurt the seller and made my job harder. I got this clean up job because of another one that I had prevented from Foreclosure under similar circumstances. Not only did everyone have to sign an Arms Length Agreement, the lender asked for a HANDWRITTEN letter from the buyer stating she wasn't flipping it.
If you aren't doing this to HELP then stay out of them.
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Permalink Reply by Eric Mieles on
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Eddie,
I'll give you a little more "Constructive" critisim. I often say this to as many people as I can that the prices you see on a short sale are "Fake"
They are not real and they represent some ones' opinion at that given moment in time. If you have not done your due diliigence, valuations, cma and other things to determine what the MV is for that particular house you are just shooting in the wind.
May agents will use TACTICS in there marketing. An agent that is either not educated about short sales, has a different motive than just purely out to help or both will take a short listing and just make up a listing price. He may see what the area prices are for the active sales and undercut the whole community in hopes to get an offer fast or get buyer leads to call so they can say "WOW thats and amazing price" and he can then either write it up or sell them another home.
He you come, you see list price, you then make your investor offer and you then expect the bank to approve something that's 50cents on the dollar so YOU can have a good spread. However you didn't take into consideration that the agent who originally priced the home was way off and essntially the list price was fake.
Now your upset and you then have another failed offer. Maybe you should either
A. Work with an very competent ss pro who will tell you upfront (You're crazy with that offer) or help you find a home that you can realistically deduct from the price the needed reapirs so you can create the spread you need and can show the potential "VALUE" you will add to the home for a realized equity gain.
B.Stop wasting your time and others with low ball offers
C. Find another trend or strategy to realize the potential investor profits your seeking. What if you purchased a run down ss and were able to get it for 70% of MV. You then have a 30% equity position. You offer seller financing for a investor to come in and fund the rehab. You take 20% upfront as down payment and offer terms to the new buyer/investor (Higher interest rate). He takes 45 days to rehab then sells to a new great first time homebuyer for higher MV due to the value that was added into the home. In 60 days total the new buyer cash you out and realize your return, the invesot leveraged in for minimal out of pocket, the new buyer has an amazing new home and the community has a higher value.
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Permalink Reply by Marcy Moyer on
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According to Bank of America, and most banks agree the definition of a short sale is "Selling a home for MARKET VALUE" but the bank agrees to a short pay off on the loan amount that they are owed."
So Eddie, you see by definition you are not going to succeed. Banks are not approving short sales because they feel that it is a morally the right thing to do. They pay for all the staff to process, the appraisals, bpo's, etc because it is in their best interest to sell a home at or near market value rather than foreclose, even though the market value is still at a loss for them. If you do not give them a financial incentive to accept why would they? So if you are asking for a 25% discount, and overall they save 12% by accepting a short sale there is no incentive for a bank to take your offer. They can probably foreclose and sell for a 10-15% discount and come out ahead.
In my market the flipper investors are the ones buying foreclosures that can not get financed because the home is in such bad condition or they buy in bulk. They fix up the homes and then re-sell to someone with cash or conventional financing. No one is buying and re-selling without any rehab and even doing rehabs on short sales is very rare.
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Marcy, are you aware that nationwide, the average short sale discount from market value is over 20%? Most GSE's will allow a 10%+ variance from bpo.
Lender absolutely will approve very steep discounts if you know what you are doing and on certain properties.
Case in point: I have closed around half a dozen greystone 3 units on the West side of Chicago for investors in the last few months. Most had balances over $250,000. Most has tenants and cash flow of more than $2,000/month.
What did I get these approved for? Average price closed was around $40,000. Full releases to sellers. BPO's all were around $125,000 (true market value)
Maybe I'm just that good?
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