Short sales have greatly increased in popularity over the last decade. No more than 10 years ago, very few investors really knew what they were, or how they worked. Today, they serve as a main source of deals for investors of every level. While short sales have declined ever so slightly in popularity over the past few years, they are still a viable option. The key to closing short sale deals is to follow every step to a “T”. One unsigned document or one missing date can put your offer on the bottom of the pile. With so much competition, it is important to get the ones you really want. Regardless if you are a short sale expert or looking for your first deal, here are some tips to help you close more short sales:
1. Find a distressed property: A short sale occurs when a lender agrees to take less than what is owed on the property to complete a transaction. They do this for a number of different reasons: the market could have greatly declined in value, the property is distressed and needs work or the homeowner is facing foreclosure. Banks are not in the business of being property owners, and would love to get a fair offer to complete a transaction. The first step of any short sale deal is to find a distressed property. There are a number of ways you can market to these types of owners. Even though short sales have been popular for a few years now, not every homeowner is aware of all their options. They may have heard of a short sale, but they may not really know what it is and if it applies to them. As long as the homeowner owes more than the home is worth, you can start the short sale process. Everything starts with finding owners and properties that fit the bill.
2. Contract and authorization: Just because you want to buy the property and the seller is willing to sell it to you doesn’t mean you have a deal. Simply because the lender is taking less than the full amount owed, they need to approve the transaction and the purchase price. To get the ball rolling, you need a signed authorization from the seller to begin communication with the bank. This authorization allows you to submit documents on the seller’s behalf and talk to a negotiator. Without this updated, signed authorization, you will not be able to proceed. This document also allows you to seek out a negotiator that will be your point of contact throughout the transaction. Before you submit any additional documents, you need this authorization signed by the seller.
3. Document collection and submission: This is the most important step in the process. What you send and how you send it can make all the difference in what happens next. Some banks have lender specific forms they require that can be printed right from the website. Others have a generic list of documents they need to get. Whatever it is they ask, it is important you have every single item included in your submission. All banks ask for a financial worksheet completed by the seller. They do this to verify that the seller has had a legitimate hardship and is not just looking to get out from the property. In addition to the worksheet, you will also need to obtain bank statements, tax returns, pay stubs and a hardship letter explaining how they got in their current situation. There may also be forms and additional items requested.
You should include any comparable sales that are in line with your value. Also, you should include pictures with a cost of repair. There is certainly a lot of paperwork that is required from the seller. It doesn’t do you any good to send most of the items. You need to have every single document, including the signed contract at the time of submission. Only once you have everything should you send it all over. It is important to find out the preferred method of your lender. You should include a cover letter, and a way for the lender to contact you if they need anything. This step can take some time, but it is important that everything is done right if you want to proceed with the transaction.
4. Follow up: One of the knocks on short sales is the amount of time it takes to complete the transaction. It is not uncommon for a short sale to take anywhere from six months to a year. While this process has improved over the last few years, it still can be lengthy. You need to walk a fine line between staying on top of the deal and annoying the negotiator. Two days after submission, you should follow up and make sure that your offer has been received. If so, you need to wait for the negotiator to seek out a value. Lenders have their own internal valuation systems that will give them an idea if your value is far off. If it is in the ballpark, they may move forward and order an appraisal. Once received, it will give you an idea of where you stand.
5. Counter offer and acceptance: In a perfect world, the lender will accept your offer and you can immediately move to closing. What usually happens, however, is that they lender will either counter or flat out reject your offer. If they counter, you need to establish just how high you will go. It is tempting to get the property at any price based on the amount of time and work you put in. You need to fight this temptation, and walk away if the counter offer is too high. There is nothing saying that you can’t counter the banks counter offer. They are often willing to bend a little if your offer is strong enough and you can close quickly.
Short sales are time consuming and can be very frustrating, but can also give you quite a return. All you need is one or two transactions out of ten to make it worth your while.
See more at: http://www.fortunebuilders.com/5-critical-steps-to-take-into-your-first-short-sale/