Today’s multiple listing service is full of short sale listings all across the country that are missing the most important part of a successful short sale; cash offers from individuals that can close quickly! Unfortunately, most investors are too focused on negotiating one short sale at a time instead of systemizing and exponentially growing their negotiating power and closing ratios tenfold.
Most investors start out by mailing out marketing to the notice of default or notice of trustee sale lists, expecting to get a three to four percent response rate on a consistent basis each month. Most investor’s can expect to probably turn half of those leads into a potential deal with the majority of the deals being short sale leads. So if you mailed out 1000 letters or postcards, you would get around 30 phone calls and that would lead to around 15 potential short sales of which you might close one to two of them.
The only problem with this system is that you have to spend the time visiting with the homeowner, collecting documents (that’s a whole problem in itself), and then getting on the horn to the banks and getting auction’s delayed and negotiations started. I don’t know about most, but this time on the phone and dealing with home owner’s start to drain most people and become something that investors absolutely start to hate!
The best way to solve this problem is to hire a loan processor. Since processors are contract employees, they are used to being paid on closed files and making somewhere between $300 and $500 a closed file. If you have a couple realtors working with you as a buyer’s agent, you could easily offset that cost by having the realtors credit that fee out of their commission or have the bank pay for it on the Hud-1 at closing. This frees up a ton of time while having a processor spend their time on the phone doing the negotiations for a considerable amount less when you figure in what your time is worth.
You now need a way to offset your marketing time and reduce the time spent dealing with the homeowners. Go a different way than what most gurus’ will tell you what to do. A lot of speakers talk about being able to buy properties or find deals without using realtors. Realtors are an excellent source to find properties and short sales. In most markets at any given time, there are over 150 listed short sales that have been on the market for over 90 days that are listed for $250,000 or less.
You should chose properties with a longer the time on market to eliminate the non-motivated sellers and focus on properties that weren’t new and sellers (and realtors) that were desperately looking for an offer of any sort to stave off foreclosure. When you contact the listing agents with your offering (cash offer at 65% of current market values, close in 14-21 days from banks final acceptance), they are very willing to submit the offers.
When you suggest that they let you control the negotiations with your processors (since processors are paid to be on the phone), while making sure that the agents are still kept in the loop along with favoring the greedy side of the agents concern for getting paid for their time, they will often be happy to work with you!
Agents have their place, but their time, like yours, is worth a lot more hour than sitting on a phone. After doing this for a couple of years, I’ve only had a handful of realtors turn down the chance to hand over negotiations to my team. Most of them realize will realize that what you offer doesn’t cost them a dime and that giving up $250 to $500 of their 2 ½% or 3% commission is a small fee to give up the headaches and monotony of dealing with the loss mitigation and mind numbing that comes with short sales.
So give up sending out postcards and yellow letters and start sending out email blasts to listed short sales at $250,000 or less. It is amazing to see the responses that you will get! Out of every 100 emails that you send, you should get anywhere from 12 to 20 responses. On average you should be adding 15 deals a month to your pipeline.
You can often find several part-time realtors that you can post on the sales contract as your buying agent. You can often negotiate with them that they credit half of their commission to you at closing or cut you a check outside of closing. This places money into your pocket at closing or gives you less money to come out of pocket with at the closing table!
You should often consider keeping the existing listing agent on as the new listing agent offering them a potential double commission for the same property. This plays directly into some of the listing agent’s greed and will often overcome any other objective that they might have in turning over the short sale to you. When you think about it, it makes sense to keep them on as the selling agent as they’ve already done marketing for the property and have built a pretty good buyers list for the property.
You can also utilize the agent’s buyer list to help you find retail buyers for your other properties. After a few months of work, you can now have a pretty turn-key short sale system that keeps your pipeline full of deals. You should be closing about four properties per month along with keeping your processors happy. If the listing agent’s get a higher offer, don’t mind letting them close with the higher offer as long as your processing fee is paid (half of the $1000 is yours). This allows you to make something on every file that you touch.
So in review:
1. Hire a processor to handle the negotiations.
2. Market to listed short sales that have been listed for a while.
3. Work with a couple part-time agents as your buying agent and have them split commissions to help cover closing costs.
4. Keep the existing listing agents on to re-sell the property.
5. Charge your service to other agents for $1,000 (just in case they sell the property to a higher retail buyer)
6. Utilize the agent’s buyer’s list to help you sell more properties.
If you utilize this same process that I now teach to a lot of my students across the country, you to can have a full service automated short sale business, while avoiding the headaches that investors run into trying to be solo act. What makes more sense, closing four times the amount of deals or struggling to close one deal a month? Money talks!