DEAN GRAZIOSI: DEAN GRAZIOSI REAL ESTATE

Experienced real estate investors are extremely organized individuals.  While transactions seem procedurally repetitive, investors know that each transaction is unique.  What might be a stumbling block with one transaction is not the slightest problem with another transaction.

There are many obstacles that can be thorny to resolve in a short sale.  Taking the time to identify potential potholes before negotiations begin can reduce some of the stress but even then there always seems to be one more roadblock that needs attention.

If you have engaged in short sales before, you have some idea what to expect.  You also know how important it is to hold the delicate fabric between the lender and the homeowner together.  While the lender is calling the shots, you need the homeowner’s cooperation to bring about the sale.

Neither the homeowner nor the lender is likely to pay for any inspections your lender requires, so you should be prepared to meet these obligations.  However, one sticky wicket that can be a problem is the commission.  To the lender, everything is negotiable, including the listing agent’s commission and the commission to the investor’s agent.

If the lender approved the use of a listing broker, they will pay that commission.  If the investor has an agent, the listing agent and selling agent will need to work out their shares.  Problems can arise when the listing agent says the listing commission does not cover the investor’s agent.

That can result in the investor paying the selling agent, which can be a significant amount.  To avoid this problem, the investor should inquire about the amount of the commission and how it will be distributed before moving forward on the property.

Investors who wait until the closing can be surprised.  This is just one of many easily resolved stumbling blocks.  By addressing the commission up front, the investor eliminates one problem and keeps everyone working together. 

When it comes to commissions, never allow a surprise to erupt.  Clear up all the details before making any move on a property.  Assuming that because the commission was handled one way in one transaction is a dangerous assumption that can be easily clarified on the front end.

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Pre-foreclosure residential short sales can be very profitable ventures.  The idea of buying low and selling high has immediate potential in just about every county in the United States.  With $1 trillion of REO inventory expected to be back on Fannie Mae and Freddie Mac books and with several billion dollars in REO inventory scheduled to land in the laps of private lenders, short sale opportunities have never been more abundant.

For short sales involving properties backed by Fannie, Freddie or the Veteran’s Administration, the new Home Affordable Foreclosure Alternative Program (HAFA) offers viable opportunities for smooth transactions.  A subdivision of the Home Affordable Modification Program, (HAMP), much of the heavy lifting has been performed by the government.

In addition to setting the stage for the investor, HAFA carries some attractive financial payouts for both the buyer and seller.  Inasmuch as the selling price and the relocation arrangements are clearly established under HAFA, sellers are often easier to work with than sellers of conventional short sales.

However, successful negotiations with private lenders in pre-foreclosure sales provide solid profit potential. The investor should begin the process by meeting with the seller and establishing the seller’s willingness to stay the course.  If the seller is not committed, the investor should move on without hesitation.

Assuming the seller is motivated, the investor then must connect with the lending institution’s short sale contact.  All future communication should involve this individual.  Each private institution will have its own shirt sale package.

Once the investor has the package, the package should be completed thoroughly.  Do not create time gaps.  Dot every “i” and cross every “t” before returning the package to the contact.  If questions arise, call the contact to get explanations.

When the package is complete and the investor is pre-qualified, the process begins in earnest.  At this point, the contact will arrange for the procurement of the Broker’s Price Opinion.  The BPO is the main figure in negotiations.  The lender will want to sell as close to the price opinion as possible.  There is some latitude but not a lot. 

The investor must be ready to walk away if the BPO is out of line or does not allow room for profit. That lack of emotion is one of the advantages of being an investor.  Use it to your full advantage. 

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