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AFTER BANKRUPTCY: APPLYING FOR CREDIT
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The Ultimate Short Sale Secret
Buying foreclosures can be extremely profitable for real estate investors. However, most of these homeowners are mortgaged to the hilt. They have no equity, and big loan payments. In fact, many actually owe more than the property is worth!
Most investors will walk away from these deals because they see no obvious profit. However, you can “create” your own equity by negotiating a “Short Sale” with the bank or lender.
Why Short Sales Don't Work
However, even experienced investors fail to create successful short sales, because they do not know the most important secret of all when doing short sales. Without this secret, an investor with the greatest negotiating skill will fail. Without this secret an investor armed will all the right paperwork with fail. And without this secret, even an investor with an air-tight case of low value including repair estimates, etc. will fail.
It's not that negotiating, paperwork, and a convincing case are not important. It's just that you've overlooked, the most important element that lenders use to determine what they will take for a property in default. It is therefore
The Ultimate Short Sale Secret
Ok, I won't keep you in suspense. Here's the secret: In order to get big discounts from a lender on a property facing foreclosure, you must control the Broker's Price Opinion. (BPO).
What is a BPO? In short, it is a value appraisal. When a short sale package is submitted to the bank, they send out a real estate agent or Broker to the property to judge its value.
The broker or agent handling the BPO is working with the bank. Their job is to simply visit the property and give their opinion on its value “as is”.
And here's the key: it's a broker's price OPINION! And since opinions are subject, you have the ability to Influence that opinion. Learn how to do that and you can create $10,000's in your bank account with little effort.
Step 1: Do Your Own Research
Before you're ready to influence the BPO, you'll have to start out with doing your own research and preparing your short sale package effectively. What should you include?
By this time, you should have already done a walk-through of the property. If you have not done so already, inspect the property (preferably with a home inspector or real estate broker of your own) and gather the following:
·Photographs of the inside and outside of the property. This should include room-by-room pictures, cracks in the ceiling, other states of disrepair, you get the picture.
·A list of repairs that are needed, from normal wear-and-tear to major improvements. Get an estimate for these repairs - try for the highest bid you can obtain!
·Information on the neighborhood, local economy, and other local factors that can lower the value of the home. Offer specific negative information about the property. This can include local newspaper articles or information from the Vital Statistics office in your state. (You should be able to access these from a local library.)
·Information about the family. Remember, the Brokers and Loss Mitigators are people, too. Photographs of the family, information about their hopes, and concrete evidence of how this short sale will help them move on with their lives...
Now you're ready to make an offer. Submit the paperwork with your offer in writing by fax to the loss mitigator with whom you are working.
Now, follow up with the loss mitigator. Make sure that they have received all your paperwork and offer. This is extremely important. It sometimes seems that lenders have a special fax machine design to eat your paperwork. If they haven't received it, fax them again, immediately.
Step 2: Influence the Broker's Price Opinion
When you are on the phone with the loss mitigator, mention that the BPO agent is to contact you, before going to the property, because you are the only one who has the key and can let them in. Follow this up with a fax, so they have your contact info in their file. If the BPO agent goes out there without you - you're sunk.
If possible, take the package you have prepared for the short sale and bring it with you to the property to meet the first agent performing the BPO. The goal here is to make sure that the agent sees it through your perspective. Remember - in the real estate world, agents typically try to get the best appraisal values possible, because they have a cut of the action. Most homeowners trying to purchase a home need top value in order to qualify for the loan.
With a short sale, however, the agent is simply doing a job, not necessarily assessing the value of a property they are getting a commission from. Sometimes the first BPO is
simply based on a “drive-by”, which basically means that they're looking to see if the property is still occupied and they want to make sure that the broker's price opinion is still line with what they believe the value of the home is.
If possible, do the walk-through with the agent and point out flaws and repairs. Be assertive, but don't annoy them.
This agent is experienced and does this kind of work for a living. Usually, agents and appraisers are asked to value properties at the high end of the scale. It is unusual to ask for low numbers, so it is important that you meet the agent at the property. Plead your case and ask for the lowest BPO possible.
Step 3: What to do if the BPO is too "high"
If the bank rejects your short sale because of the BPO, you're going to have to challenge it. If the BPO agent did a drive by and did not call you, you can build a case that the lender did not get a true value because of the serious damage within the house itself. If you have photos, now is the time to send them along with your rebuttal.
If you believe the comps are inaccurate, make sure you have your own to support your case. The info should be pulled from an accepted database.
Request a second opinion. Remember - don't haggle or ask to speak with a supervisor. You don't want to get your file 86'ed by loss mitigation because you are overly aggressive. They're in control during this part of the game. All of your negotiations should be in writing and done by fax, unless they tell you otherwise.
The purpose of your next conversation is to make the bank question the first BPO. Banks
are not in the business of losing money, and an incorrect BPO can come back to haunt
them. It's your job to convince them to sell lower without sounding like you're trying to
“steal” the property from them.
Many banks will tell you that a second BPO is too expensive. Most BPO's only cost
around $75.00, but the cost can be as high as 700.00 for an FHA or VA loan. Tell them
that you'll pay the expenses and meet the agent at the property. You want to be listed as
the contact person.
·Get a second opinion. Meet the new agent at the property and plead your case, using any additional research you've pulled up as well as the other materials your previously presented. It helps is this agent is local and familiar with the property values in the area.
·Take all of your paperwork and give it to the loss mitigators and agent.
·Sell your case. There should be a difference in the BPO's and you can now tell them that the price is simply too high.
·Use the sympathy factor - Everyone in foreclosure has a sad story to tell. Make sure the BPO agent knows their story. And tell them, that you're trying to buy the property as an investor to help out the homeowner and save them from foreclosure, but you need the value to come in at or near (the price you need).
Remember to emphasize anything detrimental to the home value. If the house is ugly, you can tell them that the inside of the house looks just as bad as the outside. An interior BPO is the only way to reflect the true value of the property. It's important that you stress the value of the interior inspection and do what it takes to make sure the bank agrees to it.
Step 4: Close the Deal
Sometimes the second BPO will be drastically different and the bank will agree to negotiate down. You will still have to go back and forth, until you guess the lowest amount the bank will actually accept. If that meets your requirements - Congratulations.
However, if after a second BPO, the bank won't budge, it may be time pass and move on to the next deal. 30% of BPO's simply don't go through because of refusals to negotiate on the lender's end. That leaves you with 70% success with your other short sale properties. If you have presented all of your price factors and they still disagree with your offer, then it may be time to move on.
In fact, it may be for the best.
With mortgage fraud and refinancing, many foreclosed properties are leveraged at 125%. It's best to make sure that the property has at least $20,000 in standing equity. If you need help in deciding what price to accept, check out our Deal Evaluation Tool at www.InvestorWealth.com.
The next article will help you make the most out of your profit, by teaching you the best exit strategies when it comes to cashing out of preforeclosures.
About the Author
Go to www.InvestorWealth.com for these Real Estate Profit Secrets:
* Super Success Short Sale Secrets (*Best Course)
* Deal Evaluation Tool
* Free Teleseminars on the latest and most effective real estate profit techniques
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