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Manage episode 203926070 series 2281689
During this episode we will discuss three critical ingredients that must be present so you can make sure your Short Sales get approved by the Seller’s Lender.
The Three Critical Ingredients for a Successful Short Sale
What are the three critical ingredients for getting your next short sales approved? You know we’ve all done it, as least I have. We bought a cake mix, thought we were following the instructions. Preheated the oven like it said on the back of the box. Got out the mixing bowl, measured out the water, measured out the oil, mixed everything together, put it in the oven, baked it and then realized, and this is the embarassing part, we forgot something. What was the something we forgot? One ingredient. The eggs. I remember thinking this myself, I did everything else but I forgot that one ingredient. How could one ingredient really make that big of a difference? It didn’t turn out to be cake, it was something else.
In short sales, well they’re kind of the same. If you skip one of the critical ingredient, you’re probably not going to get the approval from the bank that you were hoping for. The sad truth about short sales and approvals is that lenders have a tendency to inadvertently mislead agents. Now I don’t mean that they do it on purpose. They don’t intend to do that. But what they tell you is you need to get them this and you need to get them that, and then get them this and this and that and that, and then we’ll get you an answer.
Not a problem. Then you go out there and get them this, this, this and whatever else and you send it to them and what happens? You don’t get an answer. So you call them and you call and you call and you call, and you feel somewhat cheated. You feel like you followed the instructions just like you were told to do and then, ouch, nothing. What do you do?
Well I’m going to tell you the same thing I’ve told thousands of students over the year, that in most cases you probably are missing one of the three critical ingredients that must be present if you intend to get an approval from the lender. Skip any one of these and you might as well just give up. And just by leaving out the egg, it might look like a cake, but it’s not going to be cake, it’s not going to taste like cake. So what are these critical ingredients?
Number one, you need to give the lender proof, I mean underline the word proof, that your sellers, these are the people that owe the money, your sellers are deserving, deserving. Now proving that your sellers deserve a reduced payout from their lender, this is the same lender that lent them the money. Keep in mind it’s the same lender that gave them the money. It’s the same lender that was promised, at one point, that they’d be paid back the money. To prove that these sellers, those are the borrowers, that these sellers are deserving, is like proving credit worthiness in reverse.
Let me say that another way. Proving that someone should be given a bonus, a free ride, a discount, a reduction, call it anything you want to call it. They borrowed the money, they spent the money, they agreed to pay back the money. And to prove that they’re deserving of some forgiveness, some reduction, an approved short sale, is kind of on the same lines as the opposite of being approved to borrow the money. So you have to be able to prove this. You need to prove that they deserve some kind of an exception.
Sellers, or borrowers, call them whatever you want, are not entitled to a reduction in their debt. There is no entitlement. They need to prove they’re deserving. You need to prove they’re deserving. How do you do that? One of the most common ways to prove that they’re deserving is to focus on the hardship, a financial hardship. A financial hardship such as loss of a job, which seriously would reduce their income. Or maybe the death of a loved one, or a divorce, a catastrophic financial issue is going to put them in a place where they may be deserving. And it has to be something that you can prove that isn’t about them not wanting to make the payments but that they cannot make the payments, it’s not a choice. Because if they could make the payments they should.
So is it because they can’t afford to make the payments? And maybe they afforded it but they did it at the loss of everything else, that they didn’t buy their meds, they didn’t pay for the electric, they didn’t take care of the car, they didn’t pay their insurance, they didn’t maintain the house. Proof that they are deserving has to be sound, it has to be honest. How do you prove someone cannot afford a house?
Well think the opposite. How do you prove you can afford the house? If you were taking a buyer out there to get them into their first home, how would you prove that the lender should lend them money? You’d have to make sure they have a job, you’d have to make sure that they have income, you’d have to make sure that they have some fall-back, some history, some credit worthiness and the same deservingness in reserve. In order for them to prove that they cannot afford the house they have to prove that they don’t have the income. They have to prove that they don’t have any money in the bank, they have to prove that they have nothing to fall back on.
There’s another popular way to prove that someone’s deserving and this doesn’t necessarily have to be because they can’t afford the house so much, as the value of the house continues to go down. This has become new over the last couple of years. And what’s the risk if the house keeps going down? Well since it’s the collateral for both parties, the collateral to the lender for the loan, and from the owners point of view how long do I want to really keep this asset if it’s going to continue to go down in value? But you have to be careful here.
Just because the home is not worth what they owe on it does not make the lender a bad guy. Too many times you’ll hear folks blame the lender and say, “hey, the lender’s owed all this money but the house is really not worth it, I should just walk away from the house.” Well, there’s probably nothing written in the loan document that says if the loan balance is lower then the value that you can just walk away. Think about cars, most cars that have loans have loans that exceed the value of the car. With that in mind, it’s still possible that even if they have some money in the bank, even if they have some income to be able to afford it, if the house is truly underwater and heading down in value. I’ve seen it happen more today then ever before, where the bank will consider a discount of the loan, so that the sellers can get the house out from under them and stop the declining value.
So ingredient number one, critical ingredient, you need to prove that your sellers are deserving. Critical ingredient number two. You have to be able to prove to the lender that the property is only worth X. I’m going to say X because X would be whatever value you say it’s worth. You see, lenders are very pragmatic. They deal in black and white, there is no grey. If you were on the borrowing side, remember back with those buyers? They found the house they love, now they have to arrange to borrow? Lenders aren’t shy about asking for everything under the moon short of taking a DNA sample.
They’re skeptical. They don’t believe anything, you have to prove everything; and that’s just how they work. I mean you fill out a loan application, they want to make sure that was you that filled it out. You say you have a job, well they want to verify you have a job. They don’t take your word for it, they want proof. You show them a pay stub, they’re going to call and verify it’s really yours, they’re going to verify it’s real, they’re going to verify the employer exists. And when it comes to what the house is worth they’re not going to take your word for it. Yeah, sure, we want to pay this amount for it, we think it’s worth that amount. No.
What are they going to do? Proof, call it an appraisal. Now you’re on the other side doing the opposite. And you have to do the same thing. But it’s in the opposite, because now you’re asking the lender, this is the same lender that lent these sellers the money to buy the house. These are the same lenders that gave them the money that they signed a piece of paper that said, “we’ll pay it all back”. But you’re going to ask the lender to approve a discounted payoff, a reduced payoff, based upon the fact that number one these folks are deserving, and number two the understanding that you sold the house for the highest price possible. But how do you prove that you sold it for the most? Because if you haven’t sold it for the most, shame on you. You didn’t do your job. You have to be able to not only sell it for the most but prove that you sold it for the most.
Number one for starts you have to have it sold. Because if it isn’t sold how do you say you sold it for the most? You can’t, and you have to have it sold to a real buyer, a buyer that not only can demonstrate the ability to buy, by way of a pre-written, pre-approval for a loan with no conditions and no contingencies. Buying it as is, no repairs made. Not only this but you need to have comps and a breakdown of the repairs that the property’s going to need, so that the lender knows if they take possession of the house what kind of a challenge it’s going to be for them to sell it. You need good, solid comps.
I recommend that you have a narrative written, explaining what’s going on in your local marketplace. It’s almost as if you have to do, I don’t know I’m going to say don’t do this, don’t do this anti-ingredient, because if you ask me how do most agents not prove that a house sold for the most? Well this is something that your’e probably not going to hear in many other training programs, but I know that the lender has a team of loss mitigation negotiators, that have been trained to do something. And if you’ve done any short sales you’d know this. But in order for them, the lender, to prove that you sold it for the most or not prove that you sold it for the most, they’re taught to ask every agent a question. They come back to you as they always will and they always have, and they’ll say to you at some point in the transaction negoatiation process they’re going to say, “hey you, agent, you need to go out there and sell the house for more. We need more.” Your response is either going to convince them that you sold it for the most or convince them that you didn’t sell it for the most. If they say you need to sell it for more and you agree to do that you have pretty much, by affirmation, you have confirmed that you can. Whether you really can or can’t is irrelevant. But the lender’s negotiator will say we need to get you to sell it for more.
Here’s what I would put on your notes in capital letters. “DO NOT OFFER TO SELL IT FOR MORE. DO NOT INDICATE THAT YOU WILL GO OUT AND INDICATE THAT YOU WILL GO OUT AND SELL IT FOR MORE. DON’T EVEN GIVE IT AN EFFORT”. You have to give the conviction that says, no I can’t sell it for more. I can sell it for less, but that’s the most we can sell it for. If you waiver on that you might as well just throw ingredient number two out the window and hope that your cake tastes like cake.
So you have to prove that the selller is deserving, you have to prove that you sold it for the most, and then final critical ingredient number three. And this by far is the one most agents don’t even know about.
You have to prove to the lender that you are competent. What? Competent? Why is this a critical ingredient? Well here’s the thing about competence. It can be demonstrated in just a couple of ways, but incompetence can be demonstrated in so many ways. Most agents repeatedly display signs of incompetence, without even knowing it. For example, paperwork. There’s a decision that every agent has to make. And when they don’t really know what they’re doing they go to the lender for guidance. And they say, “hey Mr. Lender, what kind of documents would you like us to send you, in order to get the short sale approved?” Naturally the lender says, “well we need A, B, C and D”. What do they do? They go out and get A, B, C and D, they send it in and then they wait.
Well there’s a problem with that. The lender is going to give you what they think they need. But what they really need is much more than that. You see, if we were to take it away from this example and go into a different situation like a listing appointment, if you want to prove that you’re competent on a listing appointment you should go in and start with, get there on time. Because if you get there late it’s a lack of respect which is going to reflect on your incompetence. You should always follow a step by step process. Don’t go on a listing appointment just willy nilly doing it as you go, shooting from the hip. You should go in with a step by step process. What do you do after you ring the doorbell? Smile and greet them, get them to the kitchen table, sit down, get them to sit down, ask them some questions.
You should always have a prepared presentation. And you should be able to display an obvious concern for your sellers by being able to ask question. You should be able to gain their respect, treat them with respect. You should always have a process, a step by step process, to ensure the results, presentation and ask questions to get to the conclusion. And have an answer when they ask the question, “so what do you think we should do?”
But see in a short sale when it comes to dealing with a lender how do you demonstrate competence? Well you can’t go there and do a powerpoint presentation. But you could do what might appear to be similar to that. It’s called paperwork. Paperwork is the proof. You have to use paperwork to prove that your sellers are deserving of some kind of discount or a reduced payoff. You have to deliver paperwork to prove that you sold it for the most money possible. You have to deliver paperwork to prove that you’re competent. Paperwork is more important than price. Paperwork is the most important key aspect of the entire process.
In fact I remember I did an interview a couple of years ago, with one of the Bank of America level 2 negotiators. I had asked her, “what do you give as the number one reasons why short sales don’t get approved?” And she said, “it’s really simple”. She said “I’ll give you number one and number two and number three if you want me to”. She said “number one reason short sales don’t get approved is paperwork”. I thought wow, paperwork. Number two, give me that one, because I’m thinking it’s something else. And she said, “nope, number two paperwork”. By then I caught on. What do you think number three was? Paperwork. See, paperwork is the reason deals don’t get approved. Not price, paperwork. Not the commission, paperwork, not price.
So what am I saying? It’s the paperwork. You need to make sure that you’ve got the paperwork. You know what you need. If you don’t know what you need I have a checklist on the site. Go to www.theshortsalepodcast.com. Download the document checklist. But make sure your paperwork’s right. Put it together professionally. Do it as if you were putting together a resume. Add a cover page, a table of contents. A financial summary that points to what you’re asking the lender to do. And make sure that you get it all there. Make sure that they get it, and make sure that you’re able to paint the right picture with the paperwork. More ways of proving your competent? Treat the lenders employee’s with respect. Don’t yell at them, don’t scream at them. If they can’t find your file be polite, be respectful, call back again.
Provide them with not what they ask for but what they need, which means everything. Go above and beyond. It’s just like baking a cake. If you leave out the eggs it would be like leaving out proof that your sellers are deserving, or leaving out the proof that you sold it for the absolute most possible, or leaving out the proof that you’re competent. Add these ingredients. Not only will your cake look like a cake, but it will taste like a cake. Most importantly you’ll get your short sales approved and you’ll be able to get them closed and be able to get out there and help more distressed sellers.
Thanks and Happy Learning,
Scot Kenkel, Instructor
P.S. What do you think? Leave your comments below. Thanks.
The post SSP 007 : Short Sale Help: The Three Critical Ingredients for a Successful Short Sale appeared first on How to Sell More Houses.