How to Get a Buyer Prepared to Close a Real Estate Short Sale Transaction

Whether you are the listing real estate agent or an investor, perhaps one of the most important aspects to a short sale is to make sure that the buyer on any given property can actually close, and that they aren’t just wasting everyone’s time. With tighter lending guidelines these days, buyers are not only taking longer to get mortgage commitments, but some are having a tougher time even getting loans to begin with. And so, it is very important that you make sure that your buyer is a legitimate one, and that you prescreen them accordingly. After all, what’s the fun in spending months on a short sale only to have it collapse because the buyer can’t close in time?

Prescreening Your Buyer

When making sure that the buyer can actually close, you’ll need to be aware of several different things, and have answers to the following questions:

• What type of loan is the buyer applying for?
• What types of repairs are needed on the property?
• If the buyer were to start working on their loan today, how quickly can they close?
• How much time will the foreclosing lender provide for the buyer to close?
• Is the buyers’ loan being originated by a mortgage broker or a direct lender?

Why are these important questions? Because their answers can make or break your deal plain and simple.

If you’re working with a buyer that is applying for an FHA loan then you’ll have to be aware that the homeowner may need to repair some things on the property prior to closing. Reason being, it is an FHA guideline that the condition of the property is to be up to their standards.

One important thing to understand…foreclosing lenders typically only allow 30 days for buyers to close after they issue their written short sale approval letter. And so it is very important to always keep that in mind as you prescreen each and every buyer you bring in. If you’re dealing with a buyer that needs 45 days to close, then you’ll need for them to start their loan application process before you get written approval from the foreclosing lender or you will find yourself asking the Lender for an extension to your short sale acceptance letter.

It is important to know if a buyers’ loan is being originated by a mortgage broker or a direct lender. Mortgage brokers are becoming an “extinct breed”! The bottom line is that mortgage brokers are being unjustly accused and are targeted as one of the main contributor to the housing crisis. The remaining few are having a challenging time getting someone to purchase the loans they originate. If the buyer is going through a direct lender the chances of closing have greatly increased! Keep in mind that direct lenders can either hold the loan themselves or sell it in the secondary market!

If you’re unaware of the answers to these questions, then the best case scenario is that you’ll get lucky and it will close. The worst case scenario…the deal will collapse completely with no hope of resurrection. And so, don’t assume that the buyer will always be able to close, and that your involvement isn’t necessary in their loan commitment process. Your involvement is critical! Keep in mind, the buyer has no idea how short sales work, and doesn’t understand that if they can’t close by a certain time then they won’t get the property.

Educating Your Buyer

In addition to prescreening them and making sure they can qualify for the home, it is also your job to educate them. Most buyers come in and submit an offer knowing that it is “subject to lien holder/short sale approval.” But most of them have no idea what that means, or what is involved in getting that approval. Nor do they understand that they can’t take their sweet time getting their loan commitment. Many of them may have only 3 or 4 weeks to close. This is also part of what you’ll need to do as you progress through the short sale. Make sure that every buyer you work with understands clearly that the foreclosing lender is in the driver’s seat. Too many buyers think that they’re running the show, but that is simply not the case. If the lender doesn’t like their offer, or feel that they’re taking too long to close, then they can simply squash the deal.

Additionally, you’ll constantly be updating the buyer as to the status of the short sale, and may have to explain with frequency that each step of the process takes some time, since most of the buyers you find will be extremely impatient. That’s no problem though; just make sure you clearly set their expectations up front. That way, you’ll get a sense of where they stand and hopefully secure them as a solid buyer or at least avoid wasting time if they aren’t all that interested in the property.

When getting a buyer prepared to close on a short sale transaction it is extremely important to set proper expectations and to make sure they have the ability to actual close the transaction! I know it is not supposed to be your responsibility to pre-screen the buyer but the unfortunately truth is that not every buyer’s agent knows that lending guidelines are changing a daily basis. We encourage all our visitors to ask questions or leave a comment in the section below, We hope to hear from you soon!

Dealing With Irrational Real Estate Agents

In the course of all the short sales you will take on, you will likely encounter some highly irrational real estate agents. But fear not! You can work successfully with them, despite all their grumbling! The key is to build rapport with them, to get the point across that you are all on the same team and NOBODY gets paid without the help of the other!!! That way you will establish a sense of togetherness, and not encourage a sense of “me against you.”

One of the best ways to establish a team atmosphere is to discuss the fact that everyone involved is working hard to get the deal done. As the short sale negotiator, you are working to build a relationship with the lender(s) and get the debt down so the contracted buyer can purchase the property (were it not for your negotiations the buyer would have to buy the house for the total debt on the property, not the discounted value that happens to be fair market value, which would cost them dearly). The buyer’s agent is working to get their client into a home of their dreams, and the listing agent is doing whatever they can to get a buyer. Make sure you stress the fact that everyone needs each other, and if they don’t work together the deal wouldn’t go through, and you want to make sure to use phrases like “we are all working hard” or “we’ll all have to make sure we continue to work hard so this deal closes.” That way you’re sending the message that all of you are equally necessary, and therefore all deserve to get paid.

Speaking of getting paid, you’ll want to make sure to explain to them, that again, it is your work in negotiating the debt to allow the buyer to purchase the property that is also enabling them to get paid! This is something that real estate agents easily forget. As soon as an agent you’re working with starts giving you an attitude, make sure to remind them of this!

Once they’ve realized that you’re responsible for them receiving a paycheck, they may still grumble about how much you may be receiving, when compared to them. If you arrive at this point, the best way to respond is to explain that on this particular deal you may be out-earning them, however on your last two deals you only made a few hundred dollars, while they likely cleared several thousand dollars. This is not merely to argue with them, but to make the point that each deal needs to be approached with the same amount of hard work. And the reality is, some will yield bigger checks than others, but it will all balance out in the end.

Remember, you will likely be seeing this agent again. The key is to get them to become a team member, not an opponent! We encourage all our visitors to ask questions or leave a comment in the section below, We hope to hear from you soon!

The Importance of prescreening your end buyers financing.

Hi guys, this is Bob Lachance from North Shore Enterprises with your Pre-foreclosure Tip of the week! This week I will be going over the importance of pre-screening your end buyer and their financing.

Just so I am clear, this blog has to do with a traditional short sale where we buy a property (via a short sale) then we resell it. Here are 3 points to look out for while pre-screening you end buyer’s financing:

Point #1

If you are buying a property with the intent on reselling it within 90 days of your purchase, then make sure your end buyer does not have an FHA insured loan. The reason being is that an FHA insured loan requires title to be seasoned for 90 days.

Point #2

If you are buying a property with the intent on reselling it within 90 days of your purchase, make sure you disclose to the end buyer’s lender that your intent is to buy it via a short sale and then resell it for a profit. This is exactly what we do and it makes the transaction smoother and it will allow you to make sure this does not blow up at the closing table because the end lender had an issue.

Point #3

If your client is only putting down 5% on a conventional loan, make sure to ask the loan officer if the county that the property is located in has been flagged as a “declining market”. Around 90% of all Counties are flagged as “declining markets”. The main reason we want to know this is because the buyer will have a very challenging time getting mortgage insurance (MI) unless they put down another 5%!

With that said, I’ll see you next week with the latest news from the trenches!