By: Jeanette Joy Fisher
For decades, real estate investors have been making millions helping people in financial trouble. One method that many investors don't fully understand is the short sale.
As a real estate investor, you'll run across a number of homes that are currently in foreclosure and in which the seller has no real equity. That typically means that if you want to buy the property, you'll have to negotiate with the lender directly. Since lenders are often willing to take considerably less than retail for foreclosure properties, such transactions are generally referred to as short sales, and though they can be frustrating, short sales can generate significant profits, as well.
One of the most frustrating parts of short sales is simply locating the person with the power to negotiate the sale. Although the names vary, most lenders have a department that handles short sales. You'll probably spend a considerable amount of time on the phone while you're referred back and forth within the organization until you finally find the right person. However, once you've found that person, you can often negotiate an attractive deal.
But why would a lender sell a property at a below-market price with special terms? The answer is pure economics. A short sale allows the lender to avoid a number of the costs they typically incur during the foreclosure process, such as attorney’s fees, eviction costs, property damage, and the costs of listing with a real estate agent. So, to get a good buy, your task is to convince the lender that it’s in their best interest to accept your offer.
The first thing the lender will be concerned with is how much the property is worth. To find that out, they will generally hire either a broker or an appraiser to physically inspect the property and then offer a price opinion. You may be able to help your cause if you can offer your own price opinion, based on pertinent sales information in the area.
It will also be helpful to provide as much negative information about the property and the area as you can. Be as specific as possible about the drawbacks to the home, the neighborhood, the local economy, or anything else that will show the home in the worst possible light. You can also provide bids from contractors as to how much it will take to repair or upgrade the home, in order to further illustrate how much the lender will be saving by selling the home to you.
The lender will also want to know about the current borrower's situation. This may require you to work with the borrower to create what’s called a hardship letter, giving intimate details on how difficult it will be to continue making the mortgage payments. It can be a time-consuming and tedious process, but it can pay big dividends. The lender will often require a written contract between you and the seller to make sure the seller doesn't make any money on the sale. Your first bid may be rejected, but you can often get a better deal than you'd get with a regular seller, because lenders have no emotional attachment to the property.
Short sales can be frustrating, but they also offer the potential for excellent profits.
