Realtor FAQs
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REALTOR COMMISSIONS
Our goal is to negotiate a purchase price with the lender that is suitable for us to purchase the property. In the negotiation it is our intent and goal to have the lender approve a full 3% commission to the selling agent. But please take note - there will be TWO transactions and your main commission is realized from the second transaction.
More Info in the Commissions Section at the bottom!
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THE SHORT SALE PROCESS
Our goal is to make the process as streamlined and quick as possible.
Q.1 How will this process work?
My offer to the lender will be 45 percent of the current mortgage totals. If the lender accepts my offer an approval letter will be issued stating the accepted price and I will close on the property in 30 days.
If my offer of 45 percent of the current mortgage totals is declined and the short sale lender requires me to raise my offer above 70 percent of the ARV, I will not be able to purchase the house; there is too much risk.
In this case I will continue to negotiate with the lender while the Realtor markets the property to find an end buyer. Once a buyer is found and the Realtor places the property under contract, I will then finalize negotiations with the lender. In this example I will need to conduct a simultaneous close: I will purchase the property and immediately resell it to the end buyer on the same day.
Q.2 How long will this take?
A typical short sale transaction will take between 2 – 6 months depending solely on the short sale lender and how quickly they process the short sale offer.
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REAL ESTATE AGENT RESPONSIBILITIES
The agents we work with are an integral part of the process.
Q.1 What are my responsibilities in the process?
You have five main responsibilities when working with us on a short sale:
1) Lead Acquisition: gathering the appropriate documentation for the short sale package from the seller.
2) Identifying a price for the subject property that will allow it to sell quickly.
3) Assisting in the process of finding a buyer if needed.
4) Keeping your client informed on what’s happening with the negotiation.
5) Informing the investor of a BPO if it’s been ordered and the BPO agent contacts the listing agent instead of the investor.
Q.2 What about my fiduciary responsibility to the lender?
By having a seller sign a listing agreement the listing agent takes on a fiduciary responsibility to the seller, not the lender. The lender simply has a lien against the property. In no way does the real estate agent have a fiduciary responsibility to the lender. The listing agent needs to do what is in the best interest of the seller. The first priority is to sell the property so that the foreclosure process is stopped.
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BENEFITS OF SHORT SALES
There are many benefits to a short sale - it stops the foreclosure and enables the property to be sold at a competitive value while getting the agents full commissions.
Q.1 How does this arrangement benefit your client?
Right now your client has a property that will not sell because the asking price, due to what is owed on the balance, will not be sustained by the current market. If you are unable to sell their house it will go through the foreclosure process and be sold at auction.
If this occurs, your client’s credit will be severely damaged for seven to 10 years. Likewise, the bank may file a deficiency judgment for the difference between what was owed on the property and what it sold for at the sheriff’s auction.
When we negotiate a short sale, we do so with the understanding that the lender accepts our offer as full payment. Some lenders may want to file a deficiency judgment despite the approval of the short sale. If this should happen, you and your client will know in advance and will be in control to make that decision.
Q.2 How does this arrangement benefit me?
You earn a commission on a house that you otherwise would not be able to sell due to market conditions and your business benefits as a result.
Q.3 How does this benefit you?
I have two exit strategies:
1) I either buy the house at a low enough price that I can rehab and sell;
or
2) I make money by negotiating the price with the bank and taking a small spread between what is negotiated and what the Realtor sells the property for to the end buyer.
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SHORT SALE DEAL SUBMISSION
A quick and easy process.
Q.1 How do I submit a deal to you?
Use our easy short sale submission form or call us directly at 973.996.2167.
Q.2 What paperwork do I need to fill out?
Mortgage statement (one per loan)
Authorization to Release Information
Option Contract for Purchase & Sale, including:
Option Contract for Sale and Purchase
Notice of Option Contract for Sale and Purchase
Affidavit of Understanding
Hardship Letter
2 Years of Full Tax Returns – W2’s are not acceptable
2 Recent Pay stubs
2 recent months Bank Statements
Freddie Mac Borrower Financial Information (Budget form)
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SHORT SALE NEGOTIATIONS
We pride ourselves in our negotiation skills.
Q.1 How much of a discount can you get?
This depends on the BPO. The real question being asked is this: How low can you get the BPO so that I can re-list the property and sell it quickly so that I get paid? The list price and the time line to sell the property will depend solely on the value assigned to the BPO.
Q.2 Who will actually be negotiating the short sale?
An associate of Blue Sky LMS or one of our affiliated companies that specialize in facilitating these transactions. They are experts at working with the lenders to get short sales approved and have completed hundreds of these transactions.
Q.3 Can I negotiate the short sale and handle the process?
No. As a short sale expert I will handle the entire short sale negotiation process and inform you of any updates from the lender.
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LISTING AND SELLING PROPERTIES
The end game.
Q.1 What price should I list the property for once it’s ready to resell?
Once the lender orders a new appraisal or an interior Broker’s Price Opinion (BPO) we will have a better idea of what the short sale lender will allow as their net proceeds from the sale.
The list price or re-list price will depend on the BPO value and the state of the market. The goal is to list or re-list the property at an aggressive price so that the property sells within 2-3 weeks.
Q.2 How does the bank determine what they will sell it for?
The lender will order an interior Brokers Price Opinion (BPO) or appraisal to be conducted by a third party broker/ appraiser. This BPO is the fair market price that this agent feels the property is worth in as-is condition. This report with the value will be sent to the short sale lender. The short sale lender will then sell the property for between 80-100% of the new BPO value.
Q.3 How do I handle the listing arrangements if the property is on MLS?
If the property is currently on the MLS it should remain listed until the BPO is completed. The price should be adjusted down to a price where it will procure a buyer within 2-3 weeks. This will also help with the interior BPO valuation once it’s ordered by the lender. A new listing agreement should be signed with the homeowners and investor on the same agreement.
If my initial offer is accepted, the other offers (if any) will be declined. If my initial offer is declined, then we will use the most promising of the back-up offers and sell the home to this “end buyer” through a back to back or double closing.
If the real estate agent has control of the property, but it is not yet listed, the property is to be considered an "exclusive" listing until after the interior appraisal (BPO) is completed.
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Broker's Price Opinions (BPO)
The "hinge" of the short sale.
Q.1 How might the listed price on the MLS influence the BPO if it remains listed near the payoff?
If the property is removed from the MLS, know that previous listing history is available to those that have access, including brokers, and appraisers (in other words those individuals who conduct BPO's). If asked by the appraiser, we will explain that the price on the MLS reflects the amount needed to cover the balance. In some cases we may ask the listing agent to provide a letter stating this as well as what measures were used in an attempt to sell the property.
Q.2 How will a high active listing influence the BPO positively or negatively?
Oftentimes appraisers will look at the listing price and appraise accordingly because they assume that the house has a buyer who is going to pay the price (this is what appraisers encounter for most of their business); therefore, we convey the above message - that the listing price reflects an attempt by the real estate agent to get a high offer in order to pay off the balance . . . otherwise, it's going to auction.
Furthermore, the real estate agent is fully aware that the property will not sell at that price but listed at that number because they are not familiar with short sales and did not want to get into a bank negotiations unless they absolutely necessary.
Q.3 Does it make sense to re-list the property at a low number to get a favorable BPO?
No. The listing price should remain at fair market value. When a property’s listing history fluctuates up and down in a short amount of time, unwanted attention my result.
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CLOSINGS
The final quarter.
Q.1 If this is going to be a back to back close, what happens with lender seasoning requirements?
Lender seasoning requirements occur on loans in which the lender has a 12-month seasoning requirement. About 60% of lenders have seasoning requirements and 40% do not.
These are approximate numbers.
In cases where the lender has a seasoning requirement the contracts (option contract) are set up specifically to allow the closing to take place and work with lender seasoning requirements to fulfill them. The Notice of Option Contract is filed specifically to put the investor/buyer’s option contract on title.
This Notice of Option Contract is fulfilled when the 1st closing takes place. In this manner the property can be re-sold to the end buyer without a seasoning problem.
Q.2 How is the closing process structured?
Think A (seller) to B (investor) and then B (investor) to C (end buyer) If there is one transaction the closing will be a typical purchase and sale. Seller (A) to me (B).
If there are two transactions the closing will be a purchase and re-sell in the same day: otherwise known as a back to back closing. The property moves from Seller (A) to me (B) then from me (B) to the end buyer (C).
On the first transaction from A to B the purchase price and HUD 1 will reflect the purchase price, commission and closing costs that were negotiated in the short sale with the lender by the investor. The seller signs the HUD 1 as seller and I will sign as the buyer. The A to B transaction will be FULLY FUNDED and closed by me as buyer. The Realtor who referred the property will receive a commission as the listing agent for the seller; I will represent myself on the A to B transaction.
On the second transaction from B to C the purchase price and the HUD 1 will reflect the purchase price, commissions and closing costs that were negotiated with the end buyer. I will be the seller.
The end-buyer may pay cash or obtain a loan from a non FHA funding source.
Once both transactions have been signed and closed, both deeds will be filed. Once the deeds are filed, both transactions will fund. The proceeds checks will be issued to the short sale lender (short sale), the private lender (funding source for 1st transaction), the title company (closing costs and title insurance) and the investor/trustee/LLC (difference between the purchase and the sale).
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1099’s & DEFICIENCY JUDGMENTS
We ALWAYS negotiate for a non-deficiency judgement!
Q.1 What about the threat of 1099’s and deficiency judgments?
Regarding 1099’s, if the homeowner can show that they were in “the red” or insolvent during the time the short sale took place, the taxes that are as part of the 1099c can be avoided.
Please see IRS tax code section 121 form 982. Also see IRS publication 523. Lastly, check with a competent tax adviser who can give tax advice regarding these matters.
The potential for a deficiency judgment will be made known to all parties prior to a short sale being approved! If the short sale lender requires a deficiency or unsecured note, it will be the homeowner’s decision whether to move forward on a short sale.
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COMMISSIONS
Our goal is to pay the Realtors involved a full 6% commission: 3% to buying agent and 3% to selling agent. All offers are submitted to the lenders with a 6% commission. There are times when the lenders cut this commission down to 4% or 5% as a requirement of their short sale approval.
If we purchase the house outright, the commission structure is traditional.
If we perform a back to back closing, the commission structure is as shown in the following scenarios.
Scenario 1 - Blue Sky LMS brings property to be listed with an agent. Investor is not represented in A-B transaction:
1st transaction: No commissions paid.
2nd transaction: 4% commissions
Scenario 2 - Property brought to Blue Sky LMS with you listed as agent. The investor is not represented by the listing agent:
1st Transaction: 3% to selling/listing agent
No buyer’s agent
2nd Transaction: 3% to you as selling/listing agent
3% to buying agent for end buyer
CLICK HERE to Contact Matt Silver 973-996-2167
