Short Sales 101

     Having a Short Sales 101 understanding is very important in today’s market.  As you probably have recently seen, short sales have become an integral part of the real estate industry.  In fact, it was recently reported that some 20 million borrowers are upside down in their homes and will need a short sale in order to sell.  Further, the Wall Street Journal estimated that 20% of all closings in America involve a short sale. 

 

     Just a few years ago, most people in real estate had never even heard of short sales.  And that is the problem.  There is very little accurate information about short sales and therefore, most people are doing them incorrectly.  How I am so sure?  I have personally negotiated short sales on more than $45,000,000 in residential real estate and I coach and mentor people all across America on how to achieve financial freedom with short sales.  I know what I am talking about here.  What I am about to share with you is what I consider to be short sales 101.  My hope is that after reading this, you can begin approaching short sales the right way, whether you are a homeowner who needs to do a short sale on your own property, you are an investor looking to make big money with short sales or you are a real estate agent trying to figure out how to make short sales a profitable part of your business.  Oh, and one more thing.  I am going to shoot you straight here.  I may step on a few real estate professionals’ toes with this concept (like agents) but you deserve to know the real story and that’s exactly what you are going to get.      

 

     Short Sales 101 is all about the offer.  This is where most people get the short sale all wrong.  Let me illustrate.  By the way, I am assuming you know what a short sale is.  If you don’t, see the article What is a Short Sale?  First, a homeowner recognizes that they owe more than what their house will sell for, or are in foreclosure, or both (especially in California, Florida and Las Vegas.)  Second, the homeowner logically assumes that their best course of action is to contact a real estate agent.  Third, the real estate agent will then proceed to “list” the property by putting it on the market.  All seems normal, but behind the scenes, there is no short sale.  The reason is that a short sale does not begin until the bank gets an offer.  The mere act of putting the property on the market is, in fact, not the solution at all.  The solution is making a short sale offer to the lender.  And that’s Short Sales 101 from the perspective of someone who knows the business.

 

     Here’s how the scenario typically plays out; with the market the way it is, the average struggling buyer’s agent (the person who drives people around to show them houses all day) is not going to take their clients to short sale listings because they know that it can take upwards of 3-4 months before the deal closes (if it closes).  First, many buyers are not in a position to wait 4 months to move into a new home.  And second, most buyers’ agents are really hurting financially right now and showing their coveted buyer a house that won’t close for 4 months will not help their short term financial needs.  I may have just enraged some buyers’ agents out there who are offended that I would accuse any licensed professional of such a selfish action, but like I said before, I’m giving you the straight talk here and that is exactly what happens in the real world.

 

     The reason why Short Sales 101 is the offer is because when an offer is made to the lender right away, the short sale process begins.  Without an offer, nothing happens.  Further, not only is an offer needed, but the correct offer is vital in order for the short sale to begin.  I would suggest that the best person to help be a real estate investor.  In rare cases, you may also find some savvy real estate agents who can make the offer as well.  For the sake of time, I’m unable to discuss what constitutes a correct offer, but the key concept to understand is that an offer must be presented to the lender.

 

     Once the correct offer is submitted, the lender will then go about the process of evaluating the short sale amount they will accept.  Once they have completed this, then you’ll know what the lender will accept.  Finally, the investor who made the offer can buy it; or if he/she can’t make it work for whatever reason, you could then market the property on the MLS at a lower price and with the bonus to the prospective buyers that you can close quickly.  This will eliminate the 3-4 month wait time (because you have already done this part).  And that is Short Sales 101.  

ATTENTION HOMEOWNERS

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