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This is the second of three parts where I’ll share with you some tips to help you to get more short sales listed, sold and closed.
Selecting the Best Buyer Part II
This is the second of three parts. In the last episode, number 11, we left off explaining what to do once you start getting offers. The goal is to go from listing to sold to close and not from listing to sold to canceled short sale.
To increase your odds of going from sold to closed, instead of sold to canceled, we need to avoid the landmines, these are the negative components. The landmines that are typically contained within the purchase agreement, or the purchase offer. We want to get rid of those, whether there current landmines or future landmines. Now, future landmines, we want to make sure that we get a buyer that’s getting a good enough deal that they’re willing to do what we tell them to do, they know what they’re getting into, and there willing to spend money to make sure they know what they’re getting into. One of the most challenging landmines involves something as simple as the inspection.
Here’s the scenario. The after repair value as we said before was $150,000 in our example, you put it in the MLS at a $108,000, because that represented a fair price in a whole sale valuation. Remember, we went through that in a previous episode. You got an offer at $100,000. So, it’s a little bit less than the price you’ve got it listed, and, keep in mind that we expect to clean up the offer, because we’re not going to expect to accept the initial offer as a trend. We’re going to use a counter offer in order in order to clean up any of the landmines.
The first landmine that is common is the buyer is asking the seller to let them wait until the lender has approved the short sale, before they do their property inspection. This is a landmine, sounds reasonable if you’re not thinking about it and yet they’re a problem here. You’re going to clean up in the counter offer, but let me repeat what the buyers are saying. they’re saying “look we want to buy the property at this price and we want you to let us the buyers wait, until got an okey-dokey from the lender on the short sale. Then if they give you the okey-dokey, then we’ll proceed with our inspection.”
Now, here’s what you’re going to do. You do not want to allow the buyer to convince you that this in normal. Don’t let the buyer’s agent convince you that this is normal. In the counter offer, you may be fine with the price, because remember I said it has to be a good enough deal that they’ll stick around. You want to make sure that in a counter offer, that you ask the buyer to remove the inspection contingency, or complete their inspections within 10-14 days, whatever is standard in your area, of this sellers acceptance. You do not want them to be allowed to wait until the end of the transaction to do their inspection. Understand this about as-is, if you’re buying it as-is your buying it as-is. If you let the buyer until the lender approves the short sale, then you’re going to find yourself renegotiating the price after they do their inspection. I’ve seen it before; you don’t want to do that.
More importantly, you could also be guilty of fraud. This is the part most agents don’t think about; because effectively gone to the lender and you said “hey Mr. Lender, yeah my sellers can’t afford it and my sellers owe all this money and my sellers, they’ve got the property sold to this buyer who is real and the buyer is buying it as-is.” But that isn’t really what you’re saying it. The lender isn’t going to read the fine detail language in the contract that says “inspection put off until lender approves it.” When the lender approves the short sale they’re assuming your buyer is real, remember I said those are the characteristics that the lender is looking for. If the agent for the buyer tells you that the buyers don’t have the money to spend on an inspection, I would hope that you don’t fall for that; because this is a common landmine. Find a new buyer.
Here’s another component that I’ll strongly urge you to add, in order to make sure your buyer knows what they’re getting into, and willing to spend the money to find out. In addition to putting language into the counter offer that says “no we want the buyers to go get their inspection done now,” which is absolutely critical, add another item, which is to require them to go ahead and order and pay for a lender appraisal of the property in advance, and send a copy of that appraisal to you, the listing agent.
Before you say “That’s silly it doesn’t make sense”, understand the benefit to the buyer they’re buying a $100,000 piece of property don’t you think it would be in their best interest to know what it’s worth and to know what kind of condition it’s in before you spend 90 days trying to work to get this deal to go together. Of course it makes sense. It makes sense that they do their inspection, and they do an appraisal. The benefit to them is they know what it’s worth. It doesn’t matter if it’s worth more than what they’re willing to pay for it. But the real benefit to you, is that you will already have a copy of the appraisal in case another popular landmine happens and That’s the valuation differential.
This is what occurs when the lender order their evaluation, because at some point the lender has to feel comfortable that they buyer is real and the buyer is paying a fair price. How do they feel comfortable? They’re not just going to take your word for it. they’re going to do a BPO or an actual legitimate appraisal. When they get their value, and they’re sitting there looking at the appraisal, it may or may not be what you think it is. They’ll use that though, to negotiate the price. Unless you’re prepared by already having an appraisal in your hand, you have nothing to defend yourself with. I know that. We’ve been through this 1,000 times with those agents that we actually work with to negotiate their short sales.
Don’t think that just sending a few comps is going to bring the valuation down to your purchase price. At this stage of the game, only a bona fide lender appraisal will work. If your buyer tells you, if your buyers agents says “no they don’t want to spend the money on an appraisal”. I’m hoping that you think to yourself wait a minute. So, got a buyer whose buyer $100,000 something or another, and you’re telling me that they don’t want to spend $400 to make sure it’s worth what their offering to pay for it. Are you crazy? That’s the way I want you to think about it. If they don’t want to get an appraisal my recommendation is that you find a new buyer.
Why? Because logically they’re buying something that they don’t really know. They should have an expert evaluation on both the condition and the value, other than yours or the buyer’s agent. If they refuse because they don’t have the money, that should tell you everything you need to know. Find a new buyer. If they refuse because they don’t want to spend the money, well find a new buyer. Because as I said in the beginning you want someone who is getting a good enough deal that they’re willing to do what you tell them to do. You don’t want any buyer to make a mistake. You want them to know what they’re doing and be willing to spend the money to do it. So, landmine number one is the inspection being put off, no.
Landmine number two, demand that the buyer order an appraisal or lender appraisal. They’re going to have to get one anyway so have them get it through the lender they’re going to go through. Then there’s the third most common landmine that is the buyer asking for seller paid concessions. It goes something like this, remember the after repair value was $150,000, buyer made an offer of $100,000, because you had it in the MLS at $108,000. They asked to delay the auction, but you fixed that with a counter offer. Where you require them to get not only their inspection out of the way; but you also required them to get an appraisal and delivered to you within a certain period of time. But, the buyer also asked for seller paid concessions.
They want the seller to pay 3% towards closing cost and pay for a home warranty, and more. Now listen closely as I go through this, and it’s just like I said for the first two common landmines. Any amount of seller concessions agreed to between the seller and the buyer, any amount, will dramatically increase your odds of going from sold to canceled, instead of sold to closed. Why? Well, Let’s give you the illustration and just use a home warranty as an example. Let’s say that your buyer comes along and offers $100,000, you took care of the inspection, and you took care of the appraisal, but they want this seller to pay for a home warranty.
So the buyer asks for it, and you think nothing of it. So, you tell the seller sure That’s no problem. But, the lender for the seller they’re looking at the amount of sold price minus all allowable closing costs, to determine their net discounted pay off. The lender for the seller is most likely going to look at any non-essential costs coming out of the sales amounts; such as a home warranty and they’re going to knock that off. They, the lender, they may and pay for a home warranty and more. Now listen closely as I go through this and it’s just like I said for the first two common landmines any amount of seller concessions agreed to between the seller and the buyer, any amount, will dramatically increase your odds of going from sold to canceled instead of sold to closed. Why? Well, Let’s give you the illustration and just use a home warrant as an example. Let’s say that your buyer comes along and offers $100,000, you took care of the inspection, and you took care of the appraisal, but they want this seller to pay for a home warranty.
So the buyer asks for it, and you think nothing of it. So, you tell the seller sure That’s no problem. But, the lender for the seller they’re looking at the amount of sold price minus all allowable closing costs to determine their net discounted pay off. The lender for the seller is most likely going to look at any non-essential costs coming out of the sales amounts such as a home warranty and they’re going to knock that off. They, the lender, they may be fine at $100,000 sale price but they may very well disallow the cost of a home warranty. But, remember the seller agreed to it contractually, the buyer agreed to it contractually, but if the lender for the seller says no way what you have is a voidable contract. The buyer is expecting it, but the sellers not allowed to provide it unless of course the seller pays for it outside of closing, but they don’t have any money.
So, who do you think is going to end up paying for the warrant? That’s right you guessed it, you. See the best solution to avoid this landmine, is to get rid of any and all seller paid concessions. In fact you would be better off to adjust the price down even further from $100,000, before agreeing to pay even $1 of seller concessions. Here’s a tip. Don’t let the buyer’s agent convince you that they’ve done and that they’re going to keep doing it. I know they’ve done it. Just because they did it, just because they’ve done it before, doesn’t mean that it’s going to make your deal any easier any better. My understanding, my belief, my experience has been simply this; any seller concession is going to create a challenge, it’s going to take longer and decrease the odds of success. Why would you do that? Get rid of them.
How do you get rid of them? Counter offer. So, when the buyer asks for the seller to pay X number of dollars in closing cost, or pay for a home warranty, or pay for a lender title policy blah blah blah whatever it is. Counter offer with no. If you have a really good buyer and they’ve got the money, they’ve got the credit, they’ve got the demand. Maybe you’re going to have to give them a concession by lowering the price a little bit, because it’s better to have a clean contract than to have it all messed up with a lot of conditions. In the next episode we are going to discuss even more common landmines to avoid.
Thanks for Listening and Happy Learning,
Scot Kenkel, Instructor
P.S. What do you think? Leave your comments below. Thanks.
The post SSP 012: Short Sale Help: Selecting the Best Buyer Part 2 appeared first on How to Sell More Houses.