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The author gratefully acknowledges the assistance of busy agents, leadership, and
KWRI leaders and staff who gave generously of their precious time to provide
insights, data, quotes, and editing time to this project.
Many of the top distressed property specialist agents who participated have literally
invented their businesses while building them. Some practiced in previous distressed
markets. Others were newly arrived agents who have boldly pioneered much of what
is taught here— about how to survive and thrive in unusual times.
While Keller Williams Realty, Inc. (KWRI) has taken due care in the preparation of all
course materials, we do not guarantee their accuracy now or in the future. KWRI makes
no express or implied warranties with regard to the information and programs presented
in the course, or in this manual, and reserves the right to make changes from time to
time.
This manual and any course in which it is used may contain hypothetical exercises that
are designed to help you understand how Keller Williams calculates profit sharing
contributions and distributions under the MORE System, how Keller Williams
determines agents’ compensation under the Keller Williams Compensation System, and
how other aspects of a Keller Williams Market Center’s financial results are determined
and evaluated. Any exercises are entirely hypothetical. They are not intended to enable
you to determine how much money you are likely to make as a Keller Williams Licensee
or to predict the amount or range of sales or profits your Market Center is likely to
achieve. Keller Williams therefore cautions you not to assume that the results of the
exercises bear any relation to the financial performance you can expect as a Keller
Williams Licensee and not to consider or rely on the results of the exercises in deciding
whether to invest in a Keller Williams Market Center. If any part of this notice is unclear,
please contact Keller Williams’ legal department.
Material excerpted from The Millionaire Real Estate Agent appears courtesy of The
McGraw-Hill Companies. The Millionaire Real Estate Agent is copyright © 2003–2004
Rellek Publishing Partners, Ltd. All rights reserved.
Material excerpted from Shift appears courtesy of McGraw-Hill. Shift is copyright ©
2010, 2009 Rellek Publishing Partners, Ltd. All rights reserved.
Copyright Notice
All other materials are copyright © 2016 Keller Williams Realty, Inc. or its licensors. All
rights reserved. No part of this publication and its associated materials may be
reproduced or transmitted in any form or by any means without the prior permission of
KWRI.
Note: When calling or emailing prospective customers, comply with federal and state Do Not Call (DNC) and spam laws and the policies of your local Market Center.
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Series Objectives................................................................................................................. 7
Working with Buyers Objectives ..................................................................................... 8
Graduate Study: Where to Look Next ............................................................................ 9
Getting the Most Out of This Experience ................................................................... 13
Why a Buyer Boom? ........................................................................................................ 15
Get Your Unfair Share! ................................................................................................... 16
Which Way to Go ............................................................................................................ 17
Why the Buyer Side? ........................................................................................................ 18
Seven Benefits for Buyers ............................................................................................... 21
Five Buyer Realities: Keys to Success ............................................................................ 24
Great Opportunity to Learn and Earn .......................................................................... 26
It’s Your Choice: Choose to Act .................................................................................... 32
Mindset: Distressed Is a Different World ..................................................................... 33
Take a Critical Look at Your Market ............................................................................. 44
Personal Shift—Through the Homeowner’s Eyes ...................................................... 48
The Distressed Property Process—Foreclosure and More ........................................ 52
Know Your State Laws and Regulations ...................................................................... 53
The Distressed Property Timeline ................................................................................. 55
Three Types of Buyers .................................................................................................... 63
How to Find and Attract Buyers .................................................................................... 65
How to Find Properties .................................................................................................. 69
Auction Opportunities .................................................................................................... 72
Special Needs of Investors ............................................................................................. 74
Lead Conversion Real-Play ............................................................................................ 78
Buyer Service Cycle, Distressed Version ...................................................................... 83
Make Offers That Close ................................................................................................. 84
Closing ............................................................................................................................... 93
Some Final Service Suggestions ..................................................................................... 96
From Aha’s to Achievement ........................................................................................ 102
Don’t Forget Your Evaluation!.................................................................................... 103
This guide is one of three in a series from Keller Williams University (KWU) called
SHIFT Tactic 11: Distressed Properties. The course manuals in the series are:
SHIFT Tactic 11: Distressed Properties: Listing Short Sales
SHIFT Tactic 11: Distressed Properties: Listing REOs
SHIFT Tactic 11: Distressed Properties: Working with Buyers
SHIFT Tactic 11: Distressed Properties provides an overview of how the distressed
property market—the “market of the moment”—works, and how to gain a foothold
in short sale and REO (bank-owned property) and win all the business you want.
These markets can grow dramatically as they evolve with ever-changing market
conditions. Now you will learn from the top agents who have succeeded in this
market as they share their experiences and their wisdom.
The three-guide series titled SHIFT Tactic 11: Distressed Properties is meant to help
you learn how to pursue your real estate business differently—to succeed with buyers
and sellers of distressed properties. These course manuals will show you:
Skills you will need to excel in this market and how to develop them
Mindset challenges you will face and how to deal with them
Resource demands in the distressed property business
Action steps to take now to propel your business forward
Research calls were made to Keller Williams associates and leadership in Canada.
Their comments, and data generated in the SHIFT 2 Tour research in early 2009,
showed that distressed properties represent a very small percentage of Canadian
transactions—in the worst cases, less than 5 percent. Therefore, these courses focus
entirely on U.S. markets.
At the conclusion of this guide, Working with Buyers, you will
See the Opportunity: Understand the power and scope of the buyer side
opportunity in distressed properties.
Know Buyer Motivation: Understand why buyers need agents to help them
take advantage of this market, and how to provide the help they need.
Grasp the Market Background and Foreclosure Process: Have a working
understanding of distressed markets, how they came to be, and how they affect
agents and consumers. Be able to effectively consult about this with your
clients.
Know What Changes to Expect: Learn where to watch for information on
new industry trends and government policies that will change your market.
Know How to Be a Local Economist: Know how to analyze your market.
Are there likely to be more distressed properties or less? What factors will
determine what happens? How may prices be affected?
Know Sources of Buyer Business: Learn how to find and attract buyers to
distressed properties.
Understand Investor Needs: Learn how to address the special needs of
investors.
Be a Better Partner with Listing Agents: Learn the importance of a winning
mindset in cooperating with REO and short sale listing agents.
Know How to Improve Offer Acceptance and Close Rates: Learn tips for
helping ensure offers are accepted and transactions close.
Make a Sound Choice: Discover what aspect of the distressed property
business you will focus on—is working with buyers the best option for you?
These three guides are not the last word on any of these topics. They are offered as
strong “undergraduate level” material. They help you define and build your
foundation in distressed property. So where do you go to take your learning to the
next level? Here are paths you can take after attending this course:
Distressed property markets, like all markets, are always changing. In distressed
property markets, agents need to be especially watchful of changes.
It flags an area where you need to monitor change
carefully. Wherever possible, we’ll point you to where you
can get more information on the topic.
Guard your consultant and fiduciary role. Stay on top of
the following:
Law: Federal, state, and local laws governing
foreclosure and possible solutions for homeowners
facing foreclosure
Industry Regulations: Your local real estate board and
MLS’s standards for listing, marketing, and closing
distressed property sales
Market Trends: Be especially watchful for important
turns of events that impact market pricing and sales
volume. For example, are defaults in your market
increasing or decreasing?
Your Business Mix: Default trends may be especially
important to you if your business is built mainly on
listing and selling short sales, or if you are balancing a
mix of traditional and distressed property business
The tools of the Career Growth Initiative are a synergistic system that fuel the Four
Conversations with evidence.
V i s i o n T o o l s
Listing Management: A yearly plan for profitability through growth in market share.
Listings (Monthly): Monthly tracking with adjustments to help you achieve your yearly goal.
Pipeline (Buyers/Sellers): Identify on a daily basis whether your activities will turn your goals into reality.
V a l u e a n d V a l i d i t y T o o l s
Agent Trend: Report that tracks your growth in market share and critical
levers in your business to assess performance and opportunities.
Agent Language of Real Estate (LORE): Provides evidence of your value
by comparing the growth of your business to that of your board, your
subdivision, your Market Center, your Region, etc.
Local Expert: The story of your expertise to underscore your validity to clients.
T h r i v i n g T o o l s
GCI: Track your GCI against your expenses to identify your Break-even Day. INSTRUCTOR:
Walk students through the Growth Initiative tools and the four conversations.
TELL: Your CGI focus will lend to your validity as the Local Expert. If you haven’t
met with your TL to set up your CGI Calculator, please get with your TL!
Lis t ing
Management
L is t ings
(Monthly)
Pipel ine
(Buyers /Sel le rs) VALUE GCI
Agent
Trend
Agent
LORE
Local
Expert
When you are able to quantify and communicate the benefits of the value you
deliver, you will create a Wall of Value in your business that attracts listings and
creates closings.
C o m m u n i c a t e V a l u e
Look for ways to share your Wall of Value to grow your business:
Listing and Pre-Listing Presentations
Buyer Consultations
Marketing materials
Conversations with allied resources
For more, go to the Career Growth Initiative page on KWConnect.com
There are often three types of people in a typical training class. Which one are you?
Has to be there, doesn’t want to be there, and doesn’t know why
they’re there.
A day in training is better than a day on the job.
Excited and curious about the new knowledge, skills, and tools
they will discover in class.
Instructor:
Review the
three types of
learners. Point
out that
Prisoners and
Vacationers
don’t get
much of
anything out
of class.
Explorers who
embrace
learning for
earning sake,
participate
fully, and
commit to
implementing
what they
learn are the
true winners
in class.
Remind them
(and yourself)
that this is a
DOing class!
Okay, so what happened? In 2006 the real estate market began experiencing what
would become an historic shift in real estate values in the United States.
From 2000 to 2006, according to The Skinny on the Housing Crisis by attorney and
business writer Jim Randel, “Home prices across the United States increased by 15
percent per year and 3 million new households became new homeowners. During
that same period, mortgage debt rose from $6 trillion in 2000 to $13 trillion in
2006—premised on the belief that housing values would always go up.”
As this course will show you in chapter 3, “always go up” never happens.
Up markets are inevitably followed by down markets. In the three years from mid-
2006 to mid-2009, the median price of homes in the United States declined 30
percent and one in four homes with a mortgage were worth less than the amount of
mortgage debt on the property.
This value plunge, in the face of continuing low interest rates, leads to a resurgence
of buying—at depressed prices. Many other factors also come into play, and this
course covers them. Market shifts have occurred in the past and, in the ever-evolving
world of real estate, they will shift again. This course will help prepare you to work
with buyers of distressed properties whenever a shift occurs.
In a shifted market, buyers look for great deals and consider buying foreclosed
properties—and they will need you to help them.
Low prices of foreclosed properties across the country create a breakthrough with
buyers. It’s called a buyer’s market and finally buyers, previously hesitant about
buying in a downward-moving market for fear of timing it wrong, shift gears. Pent-
up buyer demand is begins being released. Both individuals seeking homes and
investors seeking cash flow and appreciation appear in increasing numbers—in some
cases, creating multiple offer situations for distressed properties.
Buyers come in various types, with varying motivations, and have lots of questions
that need answering. Are they experienced investors looking to expand their
collection of income-producing rental homes? Or, are they beginner investors—
homeowners looking to take their first leap into the rental world? Are they current
homeowners who suddenly find they can afford to move up in a way they used to
believe was not possible? Or, are they one of the most prominent groups today, first-
time buyers, looking to take advantage of a big new tax break and tempted by lower
prices than they’ve ever seen?
Property starts to sell. As Gary Keller likes to say, “You need to get your unfair
share.” Is becoming an agent who works exclusively with buyers your best plan of
action? What do you need to know about how distressed properties are listed and
sold?
As banks consolidate and are pressured for time by more and more foreclosed
inventory, it becomes harder, but not impossible, to find listing relationships and
easier to go for the buyer side opportunity.
As mentioned previously, all three guides that comprise the SHIFT Tactic 11:
Distressed Properties series present options for working in distressed property
markets. They look at both the listing side and the buyer side—what you need to
know, what you need to do, and how to do it.
A shifted market is your chance to make a decision about which way to go.
As you learn what you need to know and do to succeed, you will see that there are
just three paths to follow:
Listing Side: Focus on listing short sales or REOs—top listing agents tend
to specialize in one or the other.
Buyer Side: Focus on the buyer side—learn about the opportunities and
needs of buyers in this market; learn about short sales, REOs, and auctions—
and be able to sell all types of distressed properties.
Both Sides: Build a team that works both sides—by listing distressed
properties and working the buyer side with a focused buyer agent or agents.
Let’s look deeper into why the buyer side can be a great opportunity for you.
Any of these paths can lead to a very successful, profitable business. Each has its
own special rewards–and some risks. This guide takes the view that the buyer side is
the way to go because it is:
Faster – the quickest way to get involved and make money today
Cheaper – there is less financial risk than on the listing side
(especially less risk than listing REO properties)
Easier – while you need to know and follow the rules and guidelines that get
offers accepted and deals closed, the listing agents have way more to learn and
deal with.
And most importantly, buyers need you now more than ever to navigate this
potentially confusing, frustrating, and ultimately satisfying landscape!
What’s working in your favor if you choose to work the buyer side? Besides eager
buyers, what makes working in a shifted market the faster, cheaper, easier way to go?
Ample short sale and/or REO inventory to sell in most markets.
Motivated parties—on all sides of these transactions.
Economic stability could return as the government responds to the shift.
Working on the buyer side of distressed property sales can be the best part of
operating in a tough real estate environment. The reasons have to do with both
motivation and money!
Institutions and individuals list a lot of property for sale, and motivated buyers start
to gobble it up. In some markets, multiple offers on these properties can be
common. Although the flow of inventory may slow some—and there can still be
plenty of inventory if you look for it.
Distressed property is a term with largely negative connotations, and for good
reason. Keep in mind that what agents, in particular, need to focus on are the
positive motivational forces at work in these markets.
Motivated sellers needing short sales
(providing the lender agrees to the price).
Motivated institutional lenders holding REO properties.
Motivated investors seeking a great deal—one-off, or in volume purchases.
They may want to buy rental property for cash flow or investment property
they can fix and flip when values rise.
Motivated move-up buyers seeking to step up to that dream home that is
suddenly affordable!
Motivated first-time buyers are not unique to distressed markets, but very
low prices are especially appealing to these consumers.
Motivated real estate agents looking to build businesses damaged by market
shifts that cut their sales volume.
Buyers can also being motivated by emerging positive economic news in a shifted
market.
Recovery in real estate sales seems to track with other positive economic factors
including:
The U.S. government may implement stimulus programs that pump money
into state and local economies for improvement projects.
Stability could begin to return to the banking industry.
Steadying private and public employment may begin to occur (corporate profit
improvement in many sectors, government job growth).
You can succeed with these buyers, but you must build distressed property-specific
knowledge and skills. This includes knowing the clear benefits for buyers who want
distressed property—and the top keys for successfully buying it.
The difference now is you need to know some rules and phenomena that are
different than in more balanced markets. Getting that knowledge fast and
communicating it well turns you into what SHIFT calls “the local economist”—the
agent who helps people see the opportunity in these times.
This is what opportunity is made of for buyers, in headline form. You should
understand and be articulate about each of these stories in depth—as they relate to
your local market:
All pricing is local but short sale and REO prices do go below the rest of the current
market—anywhere from 10 percent to 40 percent less, according to top distressed
property agents.
Declining prices relative to income make move ups more affordable. Postponed
“dream home” purchases are suddenly possible for people who never expected the
affordability levels that a shifted market creates. Home affordability may rise
significantly.
Major national lenders may move very aggressively to avoid having foreclosed
properties on their books. This can create major opportunities for agents skilled at
working with buyers of distressed properties.
Financing is available, though it may be harder to get than it was before the market
shifted. Lower home prices do mean a given amount of cash down builds more
equity than before. Example: Your $20,000 down meant 10 percent equity in a
$200,000 property. The market has driven that home to $150,000. You buy it, and
now have one-third more equity than you would have had before.
REO and Short Sale listing agents—though they cannot make decisions about final
sale prices—are highly motivated to get property priced right by banks and asset
managers. They are also motivated to attract strong buyer agents who they will train
to know the REO or Short Sale selling business. Some listing agents work both short
sales and REOs. The majority tend to specialize in one or the other.
Distressed sellers want out from under their problems. They are not enjoying their
situation and want to make changes as fast as possible—especially changes that
relieve them of personal, financial, and emotional pressure. Many of them qualify for
a short sale of their property. But, even sellers with equity want to move quickly—
before the market or personal circumstances put them in a situation they don’t want.
Waiting means trying to time the market better, and if buyers do, they may miss the
bottom and end up buying on the way back up.
In either REO or short sale buying, you and your client are going to encounter the
bank-mandated “As Is” Addendum, or some similar disclaimer. This is standard
procedure in distressed property markets.
Banks are looking for a non-negotiated clean sale. One of the keys is working with
buyers who understand—and accept—that reality.
This can be a tough concept for buyers and agents raised in traditional markets.
Buyers must be preapproved in writing and must have documented proof of funds
for any cash involved in their offer for distressed property. The old “prequalified”
standard means nothing in this market.
Submitting poorly documented financing or cash and sloppily rendered contract
forms just won’t work. It’s bad practice anytime, but it’s an even worse error in the
unforgiving world of distressed property deals. Everyone is too busy. Listing agents
will turn back paperwork to the buyer agent—lenders have made it clear they won’t
look at it. Buyers and their agents who generate it must do it right the first time—or
they will have no deal.
In short sales particularly, where a lender has not cleared the title, there is a risk of
liens and claims interfering with clear title to a property.
In sales of bank-owned (REO) properties, this issue rarely crops up—the lender as
first lien holder will clear all claims in taking the property back from the defaulting
owner.
But, it’s always good practice to read and understand preliminary title reports in the
distressed property world. The risk of not doing so is way higher than in traditional
sales.
Most agents agree working with buyers is the easiest way to get involved in the
market of the moment. You can learn and earn more quickly than on the listing side—
and the commissions tend to be higher for the buyer side, in both REO and short
sales.
In interviews for this guide, it was said many times by top agents—in slightly
different ways: “If you think this (distressed property) is going to be like traditional
real estate, think again.” This is wisdom hard-won by top agents working this tough
market.
You’ve already seen this is not traditional real estate as you probably learned it. Be
prepared to learn new things—standards, rules, and transaction methods. Distressed
property markets are governed by some unique rules of the road. They’re definitely
different—and you need to learn them as quickly and thoroughly as possible.
Markets of the moment get their name because they come and go. They can return
again—as overall and local conditions change. Many of the agents who are most
successful in these markets get ahead because they recognize “the shift” before
others do; they learn what to change about their practice, and how to make offers
and closings happen.
But even those whose market—or their own awareness of it—develops late can get
in the game and dramatically improve their income. In distressed property, like any
market, opportunity presents itself—to learn and earn.
As taught in SHIFT, one of the strongest cards you can play in building any real
estate practice is to be a committed learner—with a special focus on the history and
current conditions of your local real estate market.
Gary Keller, in SHIFT, calls this commitment “becoming the local economist.”
Being a great buyer agent in a shifted market means being a student of the market as
you would at any time—but with a major in pricing and in distressed properties!
Learn the market—on your own, and from those who are already mastering it. Read
everything you can get your hands on in the news media. They may not have it right,
but they are writing what people are reading, hearing, and watching.
Before you can truly help buyers in these markets, you must know both the truth
about the market and what buyers’ impressions and beliefs about it are.
Becoming a distressed property expert means you must be a committed learner—the
same as you are in your traditional real estate practice. The distressed property
business is filled with specialized processes, programs, and tools you need to know to
be successful.
Opportunities to learn are everywhere. You can get a jump-start with experienced
distressed property listing agents—if you are serious and committed. As you will see,
no one wants distressed property buyer agents to learn better, or faster, than
distressed property listing agents.
Market shifts often mean agents with traditional real estate practices see their income
threatened. When the shift turns downward-moving markets into distressed markets,
there’s a new opportunity to earn—learn the new environment, accept it, and earn
within it.
The table on the following page was assembled with data provided by agent and
owner Debbie Zois of Las Vegas, and by a preferred vendor, First American Title
Insurance Company. Notice the dramatic bottom-line difference! Even if the listing
agent pays no referral, the buyer side is well ahead.
Listing Agent Buyer Agent
Occupancy Check 10 Gas 150
Rekey 100 Time to research properties
Property Setup Visit 15
Lockbox – Combo 15
Water On – Deposit 600
Electric On – Deposit 1000
Monthly Water (x4) 120
Monthly Electric (x4) 400
Trash Out/Clean 500
Biweekly Yard (x4) 240
Biweekly Inspection (x4) 100
Electronic Lockbox 75
Interior BPO 75
Collect/Convey Contractor Estimate 45
Submit Offers 35
Monthly Marketing Update (x4) 60
Interior BPO Update (60 day) 55
Gas On – Deposit 55
Gas Bill 25
REO Trans Fee 125
Reimbursable After 90 Days 3,040
Total Property Cost (550) (150)
Sales Price 200,000 Sales price 200,000
2% Commission 4,000 3% Commission 6,000
Outsourcer’s Referral Fee 1.25% (2,500)
Commission on HUD-1 1,500 6,000
90% Split 1,350 90% Split 5,400
E&O 37 E&O 37
Commission Before Expenses 1,313 Commission Before Expenses 5,363
Property Cost 550 Property Cost 150
NET COMMISSION 763 NET COMMISSION 5,213
REO and short sale listing agent teams are building their buyer agent and listing
agent resources.
Listing agents are consistently frustrated with the mindset and inexperience in
distressed property of agents bringing buyers to their listings. They have learned that
one of the best ways to meet the challenge of poorly educated buyer agents is to
recruit and train their own!
Learn who the bigger players are. Approach them about the skills, experience, and
mindset you offer—your ability to perform now, and your willingness to learn and
do.
Many top REO listing agents have realized the sales and income opportunity that the
buyer side of their business affords. Teams doing more buyer side conversions are
financially ahead of the curve with about the same number of deals. They are using
buyers to accelerate their financial results.
These top agents are looking for smart buyer agents to sell their listings. In many
cases, they may also be looking to hire capable buyer agents to be part of their sales
team.
Top distressed property agents understand that people who have not done this
business have a hard time understanding why listing agents are reluctant to give
relationship referrals, much less active roles in their teams, to more agents.
Agents who focus on distressed properties make a huge investment of time and
money in their relationships. Their customers, most of the time, are big institutions
with large networks. If one agent does something damaging that reflects on them,
they can lose more than a deal—they can lose scores or even hundreds of potential
listings.
A top agent shared the model below for mentoring an interested agent (with general
real estate experience) during a sort of probationary period. Here are the steps:
Shadowing – Shadow one of the experienced listing or buyer agents for thirty
days—watching offers handled, addenda completed, and sitting in on
negotiation conversations.
Co-listing – Assigning the person as co-listing agent on 3–5 listings—
handling everything to do with that listing—cleanouts, cash for keys,
maintenance and repair, security, showings, and more.
Recommending – Recommend that person to a lender or asset manager (one
you already have a relationship with) to get listings.
While the focusing on the buyer side of distressed property can be a lucrative way to
get into distressed property—without the upfront cost of maintaining REO listings,
and without some of the negotiation challenges of listing shorts sales—the buyer side
can lead to a listing business too.
Markets of the moment aren’t well understood by people who haven’t been in them.
Those who haven’t experienced them need to get up to speed to be successful.
For every agent who was in the business in the late 1980’s or early 1990s, depending
on location, and recognized the current opportunity early, there are many more for
whom distressed property is a new reality.
Change creates choices. It’s worth repeating that you have the following three
choices to make about how you will excel in this distressed property market. Now is
the time to decide and take advantage of this opportunity that may or may not be
around for a while. It’s your choice; are you ready to choose?
Listing Side: Focus on listing short sales or REOs—top listing agents tend to
specialize in one or the other.
Buyer Side: Focus on the buyer side—learn about the opportunities and
needs of buyers in this market, learn about short sales, REOs, and auctions—
and be able to sell all types of distressed properties.
Both Sides: Build a team that works both sides—by listing distressed
properties and working the buyer side with a focused buyer agent or agents.
Whichever way you choose to go, it’s imperative to understand the landscape of
distressed properties.
So how did we get in this market situation? And what are people’s perceptions of this
market? To be successful with your buyers, you must demonstrate your knowledge
and expertise in these two areas; the mindset and the market.
The mindsets of the players in these markets – Sellers, banks, asset
managers, buyers, and agents all have their own motivations and
viewpoints—and they really impact how the business is done.
The distressed market phenomenon – It was created by a “perfect storm”
of economic and other factors that came together early in the 2000s. You
need to know that story and how to relate it to your local market when
consulting with buyers.
One of the first things distressed property expert agents discover is the special
mindsets of all parties involved. They are different from traditional market
viewpoints. The following table shows a summary of some of the top points of
difference from a mindset perspective.
The right hand column of the table emphasizes the importance of studying the
distressed market to become the best advocate for your buyers, to bring sales to
closing, and to work cohesively with listing agents and lenders.
Things are different in ways that impact all the parties involved in a transaction—and
the transaction process itself.
Consumers in
General
Eager and positive about buying
or selling.
Stressed about whether to and how to
take action given the market on the
sale side—and feeling urgency to buy
at great prices on the buyer side.
Sellers
Seeking return on investment and
equity to power their next home
purchase.
Institutions and consumers seeking
either whatever they can get, or an
escape from crisis.
Buyers Seeking the right home at a
reasonable price.
Seeking the very best possible deal,
or a steal.
Lenders
Generally open to making loans and
into creating products and policies
to encourage borrowing.
Lending criteria is dramatically
tightened; loans hard to get. They
have also taken on role of sellers of
distressed property—either before
foreclosure (short sale) or after
(REO.).
Agents Eager to jump in; generally able to
master transaction basics.
Often poorly informed about
transaction basics; often not well
qualified to coach their clients—or
unaware of the need to.
Transaction
Processes
Taught widely, in real estate
schools and by brokers. Generally
consistent and use standard
board or MLS documents.
Timelines generally consistent.
Only recently being taught. More
complex, with varying timelines
and requirements. Lenders in
charge of transaction process.
Special documents required by lenders
and agents to protect themselves and
clients.
Distressed property business is different—mindsets of all the players have shifted
from traditional market views. Making the shift yourself requires some breakthrough
thinking.
One picture of personal transformation was first introduced by Gary Keller in his
“Six Personal Perspectives” It appears in a range of Keller Williams University
courses for both leadership and agents, including the course Quantum Leap.
Moving from “E” to “P” is shorthand for deliberately shifting from a business style
based on entrepreneurial mindset to a style based on a purposeful, or by design,
mindset. It applies very well to the transformation agents need to make to become
successful in the distressed property business.
Think of the “E” world as the world of traditional real estate transactions you
probably learned in licensing and broker classes—the world that is the comfort zone
of most agents. Think of “P” as the world of distressed property listings and sales,
where many things are new—markets, mindsets, and transaction processes.
The E to P model says there are five breakthrough ingredients that move you above
the ceiling. These ingredients define the “purposeful style” you will need to succeed:
Clarity of purpose
Knowing your options
Choosing your model to proceed
Putting systems in place
Creating accountability for your performance (with an accountability partner)
Think about activities in traditional markets that
represent the way things are normally done—
methods that might come “naturally” to people
wanting to sell real estate.
Write down what it is specifically about the shift
into distressed property sales that requires these
things:
Clarity of purpose
__________________________________________________________
__________________________________________________________
Knowing your options
__________________________________________________________
__________________________________________________________
Choosing your model to proceed
__________________________________________________________
__________________________________________________________
Putting systems in place
__________________________________________________________
_________________________________________________________
Creating accountability for your performance
__________________________________________________________
__________________________________________________________
Experts say the last distressed property wave that affected the United States was
driven by factors more complicated than supply and demand alone.
Gary Keller has been a teacher throughout his real estate career. In speeches and
interviews, he referred to America’s distressed property markets as driven by a
“perfect storm.” The elements include economics, government policies, consumer
choices, and financial engineering by investment companies and lenders.
U.S. government pushes for increased home ownership – 1990s U.S.
government policies pushed expanded home ownership dramatically.
Lender aggressiveness – Lenders chose to make more loans, encouraged by
that policy shift. The boom in lending, new home building, and home reselling
from about 2000 to 2007 included softened lending standards and a host of
new mortgage lending products never seen before. Variable rates, nothing
down, and little or no borrower documentation programs brought people to
home ownership under terms they either did not think through or did not fully
understand.
Securitizing mortgage loans for giant investors – As lending expanded,
financial institutions turned resold home loans into elaborate investment
products—sold to institutions worldwide to generate income for them and
make more money available for lending. Critics say the process included
strategies to hide the risk to investors that was inherent in the types of loans
being made to home buyers.
Low interest rates – Historically low interest rates throughout the late 1990s
and early 2000s generally spurred lending and borrowing.
Building boom – Lending policies and the low cost of money also triggered a
boom in residential construction led by national home building companies.
Lots of new inventory attracted as many investors as homeowners. Not all the
inventory sold.
Decreasing equity – To compound these problems, through a wave of
refinancing, many consumers reduced their equity in their home—at a time
when the inevitable market decline was about to reduce their home’s value.
When the resulting lower equity meets declining market values, homeowners’
equity shrinks fast—and then disappears.
Being a top-flight agent for buyers of distressed property starts with understanding
what is going on in foreclosure—what precedes it, and what follows it.
Distressed property markets fit in the context of normal market movement over
time. They are a phenomenon of a buyer’s market, and the special circumstances that
come into play when property values experience a sustained decline.
Generally, one of the underlying fundamentals of real estate and investment markets
is that things go up and things go down. Then they go up again.
Balanced markets—when supply and demand are well-matched—become sellers’
markets when too much demand for inventory available, and then often revert to
buyers’ markets when demand eases and supply exceeds the number of buyers
available.
Note: The end point data for 2009 in the chart is based on NAR’s projections for year- end 2009
inventory and units sold.
Nationally the rapid transition from a sellers’ to a buyers’ market began in early 2006.
The supply (inventory) and demand (sales) lines crossed somewhere in 2007 and we
entered the strongest buyers’ market since the late 1980s and early 1990s. In some
places, the shift happened sooner; in others, it happened later—this is always the case.
The buyers’ market began at different points in time depending on where you were.
Because all real estate is local, the answer to the question “how long will the buyer’s
market last” will vary.
Several market dynamics drive residential distressed property. To be positioned as an
expert, you must study the data and understand how these dynamics operate.
The first fundamental idea is pretty straightforward. The law of supply and demand is
always at work. Here’s what happened at the end of the booming sellers’ market
(1998–2006):
Property sales slow—inventory exceeds demand, and value turns down
Foreclosures increase as value turns down—a downward spiral happens
When prices have fallen far enough, buyer interest rises and sales begin to
increase
Distressed markets recover
When supply and demand are roughly in balance, markets tend to feel balanced in
terms of price and value. Prices in these markets tend to appreciate, but only in sync
with the rate of inflation. Gary Keller’s 2009 Family Reunion Vision Speech included
a graph that showed this twenty-year price pattern in U.S. residential markets:
The Home Prices graph tells several parts of the story. Here are the big messages:
After a relatively long stable period—from 2002–2007 when appreciation in
home prices tracked pretty well with the historic 4 percent average—prices got
out of whack in a hurry.
The market began correcting with inventories rising, sales declining, and prices
tumbling.
The perfect storm of market conditions, described in the opening of this course,
contributed to intensify the buyers’ market.
The big price correction markets have been experiencing is impacted by the volume
of foreclosed properties hitting the market. The chart below shows what happens
when foreclosure rates accelerate.
Decreasing prices eventually draw increased buyer interest. When prices have
decreased sufficiently, things begin to shift again.
There is a certain tipping point when sales increase, and it’s centered on affordability.
That is, when consumers can afford to buy a home, they will.
Top agent and owner Gene Rivers, Tallahassee, Florida, compiled data from top
metropolitan markets across his home state, and his analysis revealed a very
important trend in his market. He noticed that where prices had decreased by, in this
case, about 20 percent or more during the past year, sales were increasing again at
that point in time. Conversely, in markets where price declines had been small (not
shown), sales were continuing to go down at that time.
The study is a clue to how recovery happens.
Median Sales Price Real Estate Sales
Statewide &
Metropolitan Statistical
Areas (MSAs)
Year
End
2008
Year
End
2007
%
Chg
Year
End
2008
Year
End
2007
%
Chg
Statewide $187,800 $234,300 -20 124,215 129,855 -4
Fort Lauderdale $278,000 $363,100 -23 6,377 6,127 4
Fort Myers-Cape Coral $158,200 $254,700 -38 8,217 5,723 43
Fort Pierce-Port St.
Lucie $153,600 $226,100 -32 4,332 3,376 28
Orlando $201,500 $248,900 -19 16,659 17,143 -3
Punta Gorda $139,100 $186,900 -26 2,530 2,436 4
Sarasota-Bradenton $225,900 $286,300 -21 7,661 8,013 -4
Tampa-St. Petersburg-
Clearwater $169,500 $208,900 -19 23,615 24,310 -3
West Palm Beach-
Boca Raton $302,800 $369,400 -18 6,953 6,971 -
To round out this section on perspective, it’s important to note that because all real
estate is local, there may be areas in where a combination of factors is driving buyer
demand for traditional resales.
These may be areas where good paying jobs are plentiful and where younger
professionals who are first-time buyers are flooding the market looking for deals.
Sooner or later, property values decline in any market to the point where they
become attractive again to investors and resident buyers. The challenge is to know
when it will happen. It’s up to buyers to turn the market, and it’s up to you to help
them be confident and motivated to purchase in this market.
Historically low mortgage interest rates
Growing home affordability for buyers
Knowing the national trends sets the stage for the real payoff—The ability to
describe the local market picture to buyers.
1. State what’s going on in your local market today.
Take a moment to critically analyze what’s going on in
your local market today. Write down your thoughts on the
following questions, then discuss them with a partner and
then again as a class.
Affordability is based on sales price, interest rate,
and income, What is your median sales price? How has
it changed?
_________________________________________
_________________________________________
What is the current interest rate?
_________________________________________
_________________________________________
What is the state of your local economy? Median
income? Employment? Growth?
_________________________________________
_________________________________________
What is the current inventory of distressed property? Is
it increasing or decreasing?
_________________________________________
_________________________________________
Are both sellers and buyers motivated at this time?
Explain.
_________________________________________
_________________________________________
Are first-time home buyers taking advantage of the
incentive? Explain.
_________________________________________
_________________________________________
2. Rate your local economist skills.
What basic elements of the distressed market story
can you tell?
Do you know relevant national historic statistics
that describe how markets became distressed?
Do you know where your local market stands
today? What percentage of sales is distressed? Of
those, what percentage are REOs and what
percentage are short sales?
What component is traditional resale? Are there any
special local stats you can cite—like the Florida
example in the course—that show the relationship
between prices and sales volume?
Topic Talking Point
Important to:
Perspective?
Pricing?
Urgency?
Sources
Rate Your
Communication
Skill
Low 15 High
U.S. Market
Trends
Markets always shift
over time
Perspective SHIFT chart
Percent of Sales
Distressed and
Trend (State or
Local)
How dominant are
distressed sales
Pricing RealtyTrac;
Mortgage
Bankers Assn
Historic Average
Sales Price Trend
How markets have
been correcting
Pricing Gary Keller
Vision Speech
Local Area
Absorption Rate
Your chances of
selling
Urgency Your MLS
Exceptions:
“Thriving Pocket
Markets”
Some sellers may
have above average
opportunities in
otherwise down
times
Pricing Your own
homework;
input from
mentors
What steps do you take now to improve your skill in knowing and communicating
this vital information to your clients?
________________________________________________________________
________________________________________________________________
This chapter is included in all three guides in the SHIFT Tactic 11: Distressed
Properties series. Why? Because these guides are stand-alone, and whichever course
you pick up first, a good basic understanding of what happens to distressed
properties is essential—from the time a homeowner faces a missed payment until the
property is foreclosed and moved to a new owner in some way.
The fundamental process at work that creates distressed inventory is foreclosure.
Foreclosure is a legal process that happens on a timeline. Some things happen before
it begins; some happen after it ends. Foreclosure happens because homeowners—for
a wide variety of reasons—stop paying back their loans, and their lender declares
them in default. If they do not find another option, they lose their home.
Let’s examine all parties and all steps involved in the process, from beginning to end.
You’ll get an appreciation for how distressed properties come to exist—both the
legal side and the personal and emotional side of it. You’ll also see where buyer
interest arises.
What’s happening in distressed property markets today is, more than anything, about
circumstances and recent history—markets always are. Knowing this world from the
consumer’s perspective is a key ingredient in becoming an expert. Understanding the
human and economic root causes behind distressed property markets goes a long
way toward building your credibility.
As has become common in this market, a homeowner has an event in their lives that
causes a “personal shift.” In any of these events or situations, foreclosure is a deeply
personal experience. The primary causes of this personal shift, which lead to
distressed situations, are:
Negative Equity from Market Shifts
Unemployment
Personal Crisis
Consumer Overconfidence
Let’s explore the primary causes of personal shift one at a time.
A negative equity situation arises when a homeowner finds the market value of their
property is less than the amount they owe on their mortgage. When a homeowner
purchases with a very high percentage of debt, a relatively small downward shift in
market value can wipe out their equity.
A homeowner with significant equity can borrow against that equity. When
appreciating markets are increasing overall value (and equity), this seems to make
sense. But declining markets reverse the process. Unlike refinancing—a personal
financial decision—downward market movement leaves the homeowner with a sense
of helplessness. Eventually, this feeling can turn to fear if the declining value
situation becomes acute.
This bar chart illustrates how owner equity can disappear. In this illustration, the
down payment was 10 percent and the market shifted down 20 percent. In the
shifted market, the difference between value and debt has become negative equity.
Here’s what changed in the chart example:
Value Arbitrarily set at 100 Market declined 20%; value now 80
Debt
Set at 90—property was
purchased with 10%
cash down
Most mortgages pay interest first and
principal later; debt is virtually the same
in early years
Equity
Value was 100 minus 90
owed leaving 10 in
equity
Turned from positive 10 to negative 10
Clearly, significant value declines can create negative equity and negative equity
severely limits whether and how homeowners can sell. But why are borrowers
defaulting in record numbers? The Wall Street Journal (May 29, 2009) offered this
perspective:
Why do borrowers default? Many have assumed it’s because mortgage payments are
too high. But a new paper from the Federal Reserve Bank of Atlanta argues that
unaffordable loans—with high mortgage payments relative to income from the time
they’re originated—are “unlikely to be the main reason that borrowers decide to
default.” Instead, unemployment and future home price declines are likely to play a
bigger role. The paper looks at loans that are unaffordable from the time they’re
originated, and not at loans that may start with low “teaser” rates before jumping
higher. Here’s a summary of their findings.
By the way, the U.S. Department of Labor reports the length of people’s unemployed
stretches (measured in weeks) is getting longer. Here’s the picture from 1940 to 2010.
Unemployment 1 point increase
(i.e., 8% to 9%)
10%–20% more
delinquencies
Debt-to-
Income Ratio 10% increase
7%–11% more
delinquencies
Home Prices 10% decline in home prices 50% greater probability
of default
On top of all this financial and economic shifting, personal crises happen, as always.
Some are about health and family; some are triggered by the slowing economy.
Common homeowner crises include:
Unforeseen large medical expenses
Unplanned job transfers
Death in the family
Divorce
Job loss
All these events bring financial challenges that may force homeowners to become
potential foreclosures in a shifted market.
Much is being written and broadcast these days about what role confidence, or lack
of it, plays in distressed markets and foreclosures. Here are two views you may hear
in the marketplace.
Naive Confidence Can Help
Much is being written in these times about the role of consumer confidence in
down and distressed markets—and in market recovery. Experts seem to agree
that there is some level of consumer confidence, or exuberance, which is the
hallmark of recovering and rising markets. Writers in major news organizations
have taken to calling this mindset “naive confidence”—the willingness to
overlook risks in favor of rewards in markets.
Overconfidence Can Hurt
In a shifted market that has become distressed property-focused, opinions
abound about why any or all of the players made the choices they made that
contributed to the result.
One example of this opinion appeared in The San Diego Union-Tribune and has
been reprinted in other major daily newspapers. It appeared in the Austin American-
Statesman on May 4, 2009. The commentary is based on a 2006 book by a San Diego
State University professor, Jean Twenge, titled Generation Me. Quoting the book,
“People were very overconfident about what size mortgage they could afford and the
same thing affected the bankers who were giving the loans. Everybody was
overconfident and didn’t anticipate the downside, so when the downside came it was
worse than anyone imagined.”
Now that you have a better understanding from the homeowners’ viewpoint, let’s look at
the complete timeline of events.
Foreclosure is a process that happens over varying timelines, depending on local
laws. Local timeline differences can have a big impact on important distressed sale
details, so you must know your local foreclosure timeline and what governs it.
The process begins with the point where a homeowner first misses a payment—or
knows they are about to do so—and ends after foreclosure, with the sale of bank-
owned properties and the possible transfer of properties to the Federal Deposit
Insurance Corporation (FDIC) when banks fail.
This process is described on a timeline and with definitions that appear on the
following pages. It includes both pre-foreclosure and post-foreclosure events.
The timeline of the process can be different in some
states, so be sure to know your own state laws and
regulations, and seek answers if you need them.
The foreclosure legal process can be completed in as little
as 90–120 days. In others, it may extend to as long as
twelve months or more.
The foreclosure process and state and local laws governing
how it happens are a full-day class in their own right.
Check around. Chances are local title companies, your
local board, or real estate schools are offering a
foreclosure course.
If you decide to take a foreclosure course from a national
vendor, be alert to whether they have modified it to
include steps that are the right ones for your local market.
If they have not, you’ll need to get that information from a
highly reliable local source—your Team Leader, an expert
agent in your Market Center, or a title company are your
best bet.
The timeline chart summarizes the critical details you must learn to be a distressed
property expert. Though this course focuses on REOs, this chapter addresses all
steps in the timeline. Make note of how many steps’ terminology or internal timelines
vary, according to local law or regulation of some kind.
The description of the timeline establishes three categories for the items that appear:
Personal Shift (PS) – Things that involve or impact the homeowner directly.
For example, the homeowner or individual seller faces a challenge such as a job
loss, excessive medical bills, etc., that causes them to be unable to make their
loan payment.
Market Shift (MS) – Things relating to the status of the property itself of the
institution that holds the loan. For example, the market changes, home values
decline, lending regulations change, inventory increases, etc.
Buyer Interest (BI) – Points of time when buyers become interested in
making a purchase of distressed property. Arises at a number of different
points along the way, indicated by the groups of buyers. When a property first
shows up as a potential distressed property, you alert your buyers about its
availability and then buyer interest occurs.
The items in each category are numbered PS, MS, BI, so you can refer back and forth
to the diagram and the descriptions.
These are things that involve or impact the homeowner personally.
The diagram assumes the homeowner occupies the home as their primary residence.
The first sign of trouble comes when the homeowner misses a mortgage payment.
Homeowners miss payments for any number of reasons. Typically, it happens
because of:
Personal Crisis – job loss, unwanted and expensive job relocation, divorce,
death in the family, or illness resulting in high medical bills
Market Shift – market value declines to the point where the home is worth less
than the owner’s loan balance
Depending on the lender, and local foreclosure laws, the homeowner will receive a
Notice of Default within 60–90 days after one or more payments are missed. The
notice is a formal letter from the lender advising the homeowner that their loan and
ownership are in jeopardy. Default is what causes lenders to trigger the foreclosure
process—in order to recover their losses, or get the homeowner quickly back on track.
Deed in Lieu – This is very legal, but may also be very risky for the owner in
default. Why? A deed in lieu of foreclosure does not necessarily clear away all
other judgments against a property owner. The former owner may think they
have escaped further demands only to find other parties (not part of the deed
in lieu deal) coming after them for other money they owe.
Deed in lieu of foreclosure agreements usually only happen if the parties can
agree the property being signed over has value equal to the amount of the debt!
Loan Modification – In 2009, the U.S. government introduced the Home
Affordable Refinance Program (HARP). The program is designed to help
homeowners with little equity, who are current on their mortgage payments to
restructure their home loads. HARP works to keep more homeowners out of
foreclosure and in their homes.
The lender follows up with a written notice that they will foreclose by a certain date.
A representative of the lender posts a foreclosure notice on the outside of the
property, which states that the lender has taken possession and all inquiries until
further notice must be directed to them.
If no sale has been arranged, and if the homeowner has not walked away from the
property before foreclosure, they will be forcibly evicted on order of the lender. A
local sheriff or constable typically enforces the eviction.
In some states there are provisions for homeowners to escape foreclosure by making
repayment arrangements with the lender to “catch up” on the amount in arrears.
That’s redemption. In some states, there is also a reinstatement period that can
actually extend beyond the foreclosure date and even beyond a trustee or sheriff’s
sale, or auction, of the property. In these rare situations, if the homeowner completes
catch-up arrangements, a person who bought the home at auction may even have to
give it back to the owner. The auction winner gets their money back.
These are things relating to the status of the property itself or of the institution that
holds the loan.
A mortgage deed is a contract that states the amount due on a loan to buy the
property, the term of the loan, rate of interest charged, and how payments on the
balance are to be made. It usually also says what will happen if the payments are not
made! Conventional loans come in many different types and sizes—though not as
many as before the current distressed property crisis.
Homeowners can also get mortgage loans from the U.S. government’s Federal
Housing Administration (FHA) or Veterans Administration (VA). The loans often
have different (frequently tighter) requirements about down payments and property
condition than conventional loans.
Another difference: FHA and VA will not approve a short sale unless the
homeowner has actually defaulted. Some conventional lenders will approve a short
sale without a default.
A short sale is basically a negotiated settlement between the lender and homeowner
in which the lender agrees to accept a buyer’s offer for less than the homeowner’s
total loan balance.
The trustee sale, or sheriff’s sale, is a common vehicle for getting foreclosed
properties sold to buyers—frequently to investors who are regulars at these auctions.
The buyers typically must pay cash for their winning bid, either on the spot or very
shortly afterward. The sales are often referred to as “courthouse steps” sales.
This is another auction format—usually arranged by a lender that holds foreclosed
property. A professional auctioneer is hired and property to be auctioned is listed for
preview on the Internet. Sometimes the preview properties are held open briefly so
interested parties can go inside.
If there’s no short sale or auction sale of any kind, the property will remain bank
owned. The bank will typically turn the property over to either its own asset
management arm or a third-party asset manager. Their job is to manage and market
the property—you will sometimes hear the term “M and M Firm” used to describe
them. They may list property directly for sale, yet they typically turn to specialized
REO listing agents to list and sell lender-owned homes.
Listing bank-owned real estate (REO) can be a big business for distressed property
specialist agents, albeit with low profit margins. It is, along with auctions and short
sales, one of the three main ways distressed properties are marketed and sold.
This is where you come in as an agent for the buyer. REO properties are listed on
MLS and are sold, usually, with the same standard contract approved by your local
real estate board or MLS—with some very important exceptions and additions.
On relatively rare occasions, banks fail. If they are federally chartered, they are taken
over by the chartering authority, under the direction of the FDIC. The FDIC then
seeks real estate brokers to help sell the properties, or it may return to the prelist
auction step and try to sell properties before seeking the help of brokers and agents.
Buyers have multiple opportunities along the way to learn about and look at
distressed properties for sale. The timeline chart identifies six of these situations:
Buyers can search the Internet and local legal advertising and records to identify
properties that have started down the foreclosure road, but are not yet foreclosed.
Buyers will learn of short sales on the MLS in their area, or via national searches of
MLS data. Most MLSs and real estate boards have requirements about agents
identifying short sales as such when they are first listed.
This “courthouse steps” auction sale is open to the public. Investors, who seek to
buy property before it gets further in the process, often frequent it. These are cash
sales.
This is another buyer opportunity. Prelist auctions can be large scale and well-
attended if they are well-promoted by an experienced auction company.
Like short sales, these listings go on MLS and are typically noted as REO, real estate
owned, bank owned, institutional sales, or some similar designation.
Under its federal charter, the FDIC will assume control if a bank that owns real
estate fails. The FDIC will then either hire a real estate broker and other firms to
market or manage these properties, or it will go back to the prelist step first and try
to sell it that way before going the listing route.
Using the timeline chart as a tool, get with a partner, and
you as the agent explain the timeline clearly to your
partner (who is the buyer). Switch roles and repeat.
The chart is detailed. How would you simplify or
streamline it for a client? Which points would you
emphasize for an REO client and why?
Buyers are buyers, but distressed markets put the spotlight on some special buyer
traits and requirements. You must know who the buyers are and what’s motivating them—
specifically. Buyers in these markets fall into three main categories.
Move-up buyers
First-time buyers
Investors with different levels of experience
Once you know the type of buyer you’re working with, you must find the right property for
them. This chapter addresses both finding buyers and finding property for them and
concludes with a real-play of live lead calling and appointment setting—including some
recommended scripts to use with distressed property buyers in different categories.
Most people buy a home to be their primary residence—in most cases, it’s their only
residence.
Every day, more and more people of all means are waking up to the huge buyer
opportunity in today’s market—particularly in distressed property. This category
covers people looking to buy a home they’ll live in.
Many of today’s buyers see the market as a chance to move up—and you should be
running your marketing to speak to that desire. Any seller today has ample
opportunity to more than make up any loss they may have in selling by taking
advantage of a great buy!
A $8,000 tax credit for first-time home buyers helped in distressed markets. First-
time buyers became more active—to the point where they have become more than
50 percent of all U.S. home buyers!
First-time buyers are also attracted to the outstanding deals that can be had in
distressed property. The smartest buyer agents market aggressively for first-time
buyers. Top agents in just about every market acknowledge that first-time buyers are
an important part of their audience.
Keller Williams agents have some important advantages and tools to use in attracting
all-important first-time buyers.
While buyers who want a primary residence still dominate, there are plenty of other
buyers who seek residential investment property. They see this market as a chance to
try owning rental property for cash flow and possible long-term appreciation.
Their range of experience in investing is wide—from property owners looking to get into
their first rental property for cash flow and long-term return, to more experienced
investors looking to add to their existing stable of income producing properties. In
some situations, these experienced investors may be looking to fix and flip
properties.
You’ll want to make yourself stand out to buyers of all types. Model what other top agents do. Use specific techniques (below) to lead generate for buyers of distressed properties.
Use Best Buy Marketing
In a buyers’ market, people want deals. No one is in a better position to
point the great deals out than you. Follow this SHIFT teaching point.
Create and distribute continuously updated “best buy lists”—on your
website(s) and in print. Let buyers know you know the market—and
where the best opportunities are to buy now.
Be the Local Economist
Market history—Charts and graphs.
Law of supply and demand—Demonstrate the transition from seller
to buyer markets visually.
Absorption rates—Chart them; show where sellers stand with their
chances of selling. This is very important information for buyers.
In and out of the market charts and the chasing the market chart—
Be sure buyers understand that you know what sellers and their agents
are thinking!
Market timing illustrations—Like the “where is the bottom?” exercise,
or “the pendulum” from SHIFT.
Buying in the safe zone—This is another SHIFT concept. It illustrates
how smart investors buy on the trend—without waiting for the turn they
can never hope to hit, except with dumb luck.
Sharing your
agent-branded
KW App?
1. Get the Keller
Williams Real
Estate app
from Apple
App Store or
Google Play
Store.
2. In the app, use
“Agent
Search” to find
and select your
name.
3. Toggle “Make
this my agent”
button to
“Yes”
4. Use “Share
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with your
contacts!
Find More on
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Offer Classes with Distressed Property Emphasis
Linda McKissack of Denton, Texas, is a 7th Level Keller Williams agent and
owner of Market Centers in the Southwest and Midwest United States. She is
also a residential property investor. Linda never misses a chance to encourage
agents to put their real estate knowledge to use by hosting local seminar
sessions for buyers.
Topics Linda suggests you learn to teach include:
The Millionaire Real Estate Investor—Hold an investment talk based on
Gary Keller’s The Millionaire Real Estate Investor (a great resource). Know its
message and encourage small investors to get into buying real estate for cash
flow and long-term or short-term profit.
SHIFT—Use the excellent teaching outline of SHIFT to educate consumers
on what’s happening to their market, and their home’s value—and how they
can best benefit financially.
Your First Home—Help first-time home buyers get closer to their dream of
home ownership.
Start an Investment Book Club—Use other great real estate investment
books including Building Wealth One House at a Time, by John Schaub, to teach
investor principles.
And, Linda always urges her audience to be aggressive and confident. Even with
years of experience, she still says she crams at the last minute to make every
presentation as strong as it can be, and to bolster her confidence.
Get in the Path of Buyers—Open House Opportunities
Top listing agents, especially on the REO side, can’t believe how many agents
are passing up the chance to use distressed properties to market themselves to
buyers who want REO and short sale values.
Study the market, know the story nationally and how it applies locally, and get
out there in front of buyers. If you don’t, it’s a major missed opportunity.
Get into relationships with your local top REO listing agents and offer to
hold their listings open. Consider offering a buyer tour of distressed listings.
And here’s another open house idea from 7th Level agent Bruce Hardie: set
up your office temporarily in an open house in a distressed area. Post a sign
“Distressed Property Information Center,” or “Get Foreclosure Sale
Information Here.”
Use Custom Email Campaigns from the MyKW.com Intranet
The Keller Williams Intranet site MyKW.Com, under the Marketing tab,
provides prewritten email campaigns for both first-time and move-up buyers.
Shifted markets can be challenging times for lenders. Buyers want to buy, but loans
are may not be as easy to find as they used to be. You’ll need to roll up your sleeves
and work for your buyer to find loans.
While lenders have been watching their balance sheets much more carefully—and
tightening lending standards in the process—more and more buyers are turning to
government-backed FHA and VA loans for mortgage money.
According to the Mortgage Bankers Association, “a primary reason government-
insured loans have retained a high share of the purchase market is that these loans
typically require lower down payments than conventional loans. In addition, lending
standards tend to be tighter for conventional loans, especially for loans that require
private mortgage insurance.”
Major lenders with a lot of REO inventory have realized selling this property is a
huge opportunity to make loans, and they are pushing this with listing agents. Many
top REO listing agents shared stories of how lenders are getting aggressive and
strategic about generating loans with REO buyers. Some lenders now require that
REO buyers—even though they are working with another lender—get qualified
through their lending criteria and system.
If your buyer appears qualified to buy what they want to offer on—at that
price—but have only a preapproval letter from a lender when they come to you,
how will you counsel them?
Advice on financing:
______________________________________________________________
______________________________________________________________
What if the listing agent insists on having them qualified by one of their own
lenders, even though your buyer has already been qualified to your satisfaction?
How will you respond, and how will you counsel your buyer?
Reply to listing agent:
______________________________________________________________
______________________________________________________________
Advice to your buyer:
______________________________________________________________
______________________________________________________________
Investors look to you to be their eyes and ears in the marketplace—someone they can
count on to steer them to the best opportunities available that fit their investment
goals.
Investment property is not all on MLS! Here are some things you should be doing to
position yourself as the best buyer agent for investors:
Network – Network intensively and continuously with the real estate
community and property owners.
Advertise – Run ads to attract distressed sellers.
Search ads – Look for ads by distressed property owners, FSBOs, or
properties offering owner financing.
Get lists – Get out-of-town owner lists from your local appraisal district or
other local government source.
Monitor online – Monitor foreclosure lists online.
Go to local government auctions – Learn the local process for property
auctions “on the courthouse steps.”
Preview vendor auctions – Screen vendor “prelist auctions” online and
attend their preview open houses, and the auctions themselves. Learn the
process and introduce aspiring investors to it.
Astute agents who work with investors are able to find opportunity in foreclosures. If
you work with your investor customers to sharply define what their criteria is for a
property, you can pass foreclosed properties through that criteria filter to separate the
potentially good deals from the flat-out risky ones.
In The Millionaire Real Estate Investor, seven categories are listed to help investors and
the agents who work with them refine their criteria. These categories are:
Location – Location could be as specific as the side of a particular street.
Type – What type of property does the investor desire? Single-family home,
multifamily property, ranch, land, or other?
Economics – Specify the investor’s price range, necessary discount,
expected cash flow, and desired appreciation.
Condition – What condition should the property be in? Some investors are
only interested in properties that need no repairs. Others are comfortable
with demolition.
Construction – What should the type or state of the roof be? How about
the walls, foundation, etc.?
Features – What should the basics look like? For example, how many
bedrooms and baths should the property have?
Amenities – What extras like a security system, fireplace, pool, energy-
efficient features, etc., are priorities for the investor?
A foreclosed property that was financed with an FHA loan does not go back to the
lending bank. It goes instead to the U.S. Department of Housing and Urban
Development (HUD). HUD typically hires a management and market vendor, a so-
called “M&M Contractor,” to get the property sold.
HUD homes can be tremendous opportunities for buyers. But like bank-owned
(REO) and short sale properties, there are some special circumstances,
documentation, and requirements involved with HUD properties.
HUD homes are available in every market, but knowing the HUD properties in your
market—and HUD’s selling process—requires investigation and study. Bringing a
buyer to HUD homes is a specialty you can develop. But, like bringing buyers to
REOs and short sales, the effort you make to understanding them will determine
how successful you are.
Like short sales, the unique character of HUD’s processes and paperwork creates a
servicing business opportunity for agents who learn to specialize in buying HUD
properties.
If you want to become a HUD properties expert in your area, a good starting point is
to find out who is the area marketing and management vendor for HUD. Contact
them to learn their key contact people and the HUD processes, requirements, and
paperwork.
The Federal Deposit Insurance Corporation (FDIC) is a U.S. government agency
that insures depositor funds up to $250,000. It is also one of the federal agencies that
examines and supervises more than 5,000 banks nationwide. The agency’s
responsibilities include ordering federal or state chartering agencies to close banks
that become insolvent— protecting consumers’ deposits and their future interests.
Sometimes, banks that the FDIC shuts down own properties that have been
foreclosed. These REOs become FDIC properties, and the FDIC normally finds real
estate companies to list and sell them, or takes the properties to auction.
FDIC properties are not nearly as numerous as auctioned and REO properties—
they are another opportunity for an expert distressed property buyer agent.
The foreclosure wave that has swept across the country has triggered a parallel boom
in property auctions. Typically they happen in one of two ways:
Local governments (usually counties, sometimes municipalities) conduct
smaller scale auctions monthly, usually at the county office building or
courthouse. It’s normally called a “trustee’s sale” or “sheriff’s sale.” Here,
sales are all for cash—paid by cashier’s check, usually on the spot or shortly
thereafter.
Large auction vendors negotiate with mortgage holders for access to
properties to auction. Because these auctions happen after foreclosure but
before lenders take the option to list with brokers and agents, they are called
“prelist auctions.” The properties are usually from a specific geographic
region—a large metropolitan area for example. The auctioneers charge a fee,
often 5 percent, that’s built into the auction price. Sales can be secured for a
substantial earnest money cashier’s check and mortgage lenders are in
attendance to help with the rest.
Whichever type of auction a consumer attends, the watchwords from every expert are
to use caution and be well prepared—do your homework on foreclosing properties.
In almost every jurisdiction, the immediate result of foreclosure is that the property is
put up for public auction, normally administered by county government. The
expression “on the courthouse steps” refers to the typical local government-run
scenario:
Periodic, usually monthly, auction sales are advertised as required by law—in
newspapers and on the Internet.
Investors gather at the appointed date and time to make bids on the available
properties that day.
Typically, auction purchases are for cash only. Buyers come to these events
with cashier’s checks ready, hoping to make a winning bid on a property they
know they want.
A select number of the properties to be auctioned are often available for open house
viewing ahead of time in the larger auctions run by vendors. Seeing the property first
hand is a great advantage. In the smaller, local auctions, this advantage is not in play.
One Keller Williams agent and owner who regularly does business on the courthouse
steps of her community is Linda McKissack. Linda and her husband Jim have been
buying auctioned properties for years. They know the process and how to bid
successfully.
“We buy regularly at courthouse steps auctions in our community,” Linda says. “It
took us awhile to get used to the process. We realized early that we had to do our
homework and we had to bid aggressively, but smartly. At auction, you don’t get a
second chance and someone else ends up with what you want.”
Linda and her husband Jim have more than one strategy for the homes they acquire
at auction. Some they repair and resell relatively quickly. Others, they find, are better
suited for rental property—used to generate cash flow.
Properties not sold to individuals or investors at auction normally are retained by the
holder of the mortgage loan that failed—the lender. Lenders often then assign the
property to an asset management third-party vendor, or an internal asset
management group.
Linda McKissack offers a terrific list of tips and guidelines that she follows herself, as a
residential property investor with her husband Jim. While Linda’s audience has been real
estate agents, and her point to them is “why not participate in this market yourself,” her
tips work for any investor. Here are a few of them. They’re good advice for any investor,
but especially for less experienced ones—people who’ve decided to get involved because
they have some cash, and they find the price opportunities irresistible.
Save – Save money to invest—live below your means.
Go reasonably low – Try to buy at 10 percent or less below market value.
Put cash in – Equity is key. Finance with 20 percent down—no zero-down
deals, even if they’re offered. Your goal is to build equity and cash flow—not
anticipate a killing on appreciation!
Use other people’s money – Establish a line of credit to help you buy—local
lenders are a great resource for this.
Know property management – Know property management principles and
laws in your area—hire the best property manager you can find, or do it
yourself.
Stick with good stuff – Don’t get involved with marginal properties.
Require positive cash flow – Do get involved when you can get positive cash
flow of at least $200 a month.
Multifamily challenge – Avoid multifamily properties unless there is excellent
cash flow. They tend to be expensive to operate and don’t appreciate well.
Your local title company probably has an expert or experts in running the so-called
1031 Tax-Deferred Exchange process. The name comes from the federal law that
governs these transactions.
The principle involved is that the IRS—given that the proper procedures and
paperwork are used—may allow buyers to defer the tax they would otherwise pay
when they sell a property in one location and buy up to three others (within a given
range of value, compared to the first property.
The 1031 exchange has become a popular way to help investors leverage themselves
to own larger numbers of investment properties.
Be conversant with the process and know the top title and escrow experts in your
area who can handle a deal like this for your investor buyers.
Both Fannie Mae and Freddie Mac now permit investors to own up to ten properties
with loans—up from a limit of four.
Gary Keller says, “The government understands that a stable housing market—in
sales volume and price—is good for everyone and they will continue to try anything
they can to make that happen.”
Commercial investors should be on your radar screen too. These days, larger
investors and investor groups of all different sizes—who normally buy commercial
property—are coming together to do things like:
Buy foreclosed residential properties in bulk from banks at additional
discounts. Banks are increasingly eager and bigger investors want to take
advantage of that. And investor groups are often better able than banks to help
homeowners remake their loans and stay in their property—turning the
nonperforming asset the investor bought into a performing one again.
Buy packages of improved residential lots from builders in financial distress—
as investments to hold for resale when markets start returning to balance.
Some metropolitan areas where high foreclosure volumes are combined with weak
economic conditions become hotbeds of what is being called “extremely distressed”
REO activity.
These urban areas include dense collections of property owned by lenders who can’t
sell them fast enough. Situations like these are creating new incentives for lenders to
sell—and for local government to buy.
Turning leads into appointments is vital to your success in any real estate practice—
distressed property buyer business is no different. This is an exercise that will help
you become more confident in your calling. It will also help increase your
appointment setting conversion rate.
This section includes sample scripts tailored to the distressed property market.
Here are ground rules to help make this exercise efficient for you:
Have your phone ready.
Use a Call Sheet to track your calling and outcomes/success rate.
Use a Lead Sheet to help guide you through the conversations you have.
Have a calendar ready for appointment setting.
Here are some additional suggestions to help energize the process for you:
Clear your mind.
Say an affirmation out loud, or think about the value of the call you’re about to
make.
Speak with a positive, upbeat voice.
Ask plenty of questions. Drill down to get the answers you need to have.
Here are some sample scripts for lead calling, in these categories:
What scripts can you add to this list?
Market Expert, Move Up, or Investor
“Our market has really shifted dramatically. Right now, XX percent of all
sales around here are distressed properties. The good news is, you can
jump on some great prices and get the home you want for investment (or a
move up). But there are more and more buyers out there now. So we’ll
have to have a good game plan and your qualifications will have to be
airtight. Let’s meet and get ready.”
“I know you’ve been thinking about investing (or moving up). Prices have
gotten so low in the distressed market here that any of the better deals are
getting multiple offers. So, we’ll need to be very clear about what we want,
be well qualified, and be ready with our “highest and best” offer when we
do act. Does that sound doable to you?”
I (my team) have sold XX properties in the last month. The distressed
property market is heating up all over the country. Here, sales are up XX
percent over last month (last quarter). I think it’s time for us to meet and
set a buying (investing) game plan for you. Let’s meet and set criteria and a
buying strategy that fits you exactly.”
First-time Buyers
“I know you’ve been thinking about that first home. Well, prices for the
kind of property we’ve talked about have never been lower. The best deals
are on distressed properties—bank-owned or short sales. If you have your
financing totally preapproved, it’s a great time to look. One note, a short sale
will take longer to close than a bank-owned property. So let’s get together
and be sure we understand your situation and your urgency to move.”
Have Empathy But Lay Down the Law
“I know you are eager to grab a great deal in this market. Please
understand I’ll do everything I can to make that happen for you. But I
can’t succeed without your help. You need to be totally qualified
financially, and be able to prove it. And you need to be willing to offer
close to the asking price and not lowball. If we lowball, the listing agent
and lender will recognize it and the lender will just reject us. They don’t
have to negotiate with anyone. There are very few exceptions. Let’s meet
and see if you are ready to act.”
Process Expectations for Buyers
“I think you know what you want and I’m sure you will make an offer, but
if we do, you’re going to need to be patient. Different lenders take very
different amounts of time to respond to offers. I will check out the listing
agent on any property we’re serious about, and be sure they know what
they’re doing. But they don’t control the lender. Too many buyers lose
great deals on short sales because they get impatient and walk away. Let’s
not be one of those. Let’s meet and do a readiness check before we get
started.”
“If you think waiting weeks to get an answer to your offer is going to be a
real problem for you, you probably should not be looking to buy a short
sale. There are definite price advantages for you at the end, but it takes
patience to win that advantage. I can coach you on the process to make
sure an offer we make has the best chance of acceptance and closing. Let’s
meet and I’ll tell you more about how that works.”
Confident Buyers: Have Financing in Order
“Lenders are very serious about getting property sold, especially bank-
owned property. No matter how strong our price and terms look to them,
unless we also submit an absolute written approval from your lender, and
proof of funds for any cash you’ll be putting in, our offer will be turned
away. We have to get all our ducks in a perfect row. Let’s get together and
I’ll share the details and answer your questions.”
“Distressed property purchases have special requirements when it comes
to closing. I’ll advise you every step of the way. For instance, your lender
will need to be ready to move quickly if we’re purchasing a short sale.
Short sales are the opposite of “hurry up and wait”—first you wait longer
than you want to, then we’ll need to be able to close fast. Let’s get together
and talk this over—and other key strategies you’ll need to buy
successfully.”
Make as many calls as you can in the allotted time. Be sure to record the names and
numbers called, make note of scripts you used, and tally the all-important results of
the calls.
The instructor will let you know how results will be reported. Here’s a call sheet you
can use to track your progress:
1.
2.
3.
4.
5.
6.
7.
8.
Track your results and evaluate how you did. What went right? What could have
been done better? What will you do to improve the next time you’re calling for
appointments?
The KWU core course Win with Buyers introduces the Buyer Service Cycle. The
course manual you are studying now, SHIFT Tactic 11: Distressed Properties: Working
with Buyers, has already contributed ideas and suggestions to many of the steps in the
cycle, for example:
Where to find leads
How to capture and convert leads
How to consult with buyers using your market knowledge
How to find property for buyers using a criteria filter and other tools
This chapter focuses on Steps 5 and 6 of the Buyer Service Cycle—Offers and
Negotiation and Contract to Close. As in traditional real estate, this is attention to
detail territory—and some of the details are a bit different.
In distressed markets there is value in good prices—even great prices—but you need
to be able to maintain the buyers’ energy and interest while coaching them into the
mindset required to get through these transactions.
Here’s a quick breakdown of major issues you must know—about both REO and
short sale distressed property purchases.
Think of these lists—gathered from REO and short sale listing agents—as tools to get
offers accepted and deals done. Know and coach your buyer about the following:
How to get REO deals done
How to get short sale deals done
How to handle multiple offers in either situation
Be familiar with details of the processes and timelines, so you can coach your buyer about what to expect—every step of the way. Here are the main things you need to embrace, and coach your REO buyer about:
“As is” means as is – Your buyer, as in a short sale, will have to sign one or more documents from the bank clarifying the property is being sold “as is” and what that means (no inspect and negotiate process; inspections are for the buyer’s information only).
Be very patient – The buyer may have to be patient after submitting their offer. It could take the lender 7–10 days to approve your offer. The listing agent is not in charge of the process.
Buyers: Be absolutely qualified – Buyers must be well-qualified (preapproved) with proof of funds provided for the cash involved in any purchase.
Instructions to buyer agents about buyer financial qualification are:
Must have the buyer’s earnest money check in hand—as a cashier’s
check—before I will submit their offer.
Must have an approval letter from their lender, with no reservations.
Must have documentation of any cash funds involved.
Financing terms may change subject to appraisal only.
Offers with clean terms win – Lenders are looking for the cleanest and easiest
deal. The fewer contingencies on the offer, the better as far as they’re
concerned. Contracts with no contingencies are strongly preferred.
Timelines to decisions are improving – Turnaround times in REO are
getting better—the best circumstances might be a few days. The outside would
be 2–3 weeks—that’s based on a consensus of REO listing agents in research
interviews.
The seller in unemotional—it’s all business – Lenders don’t consider
emotional letters that accompany an offer. “They’re looking at the bottom line
and how quickly you can settle,” explains a top REO agent.
Multiple offers happen – They are happening more and more in the most
active distressed property markets. Don’t be surprised, and be ready with your
“highest and best” offer. See the section below on multiple offers.
Added paperwork is a given – There will be some additional unfamiliar
paperwork with the contract. Certain forms will have to be filled out according
to the listing agent’s instructions.
Clear title should be assured – Buyers will get a clean title and will be able to
purchase title insurance.
As is means as is – Your buyer, as in REO, will have to sign one or more
documents from the bank clarifying the property is being sold “as is” and that
means—no inspect and negotiate process. Inspections can be done by your
buyer, but only on a need-to-know basis.
Hold onto your buyer: Timelines will be frustratingly long – Although
lenders’ track records seem to be improving, your buyer should still expect to
wait from several weeks to several months before they know their offer is
accepted and will close. Lenders run offers received through a financial
analysis that is bureaucratic and takes time. Buyers and their agents may hate it,
but they should know it will happen, and why.
Attention to detail and accuracy are required – Paperwork (as in REO)
often must be completed in very specific ways—for specific lenders. Do not
blame the listing agent. Follow their instructions. The lender is running the
process. Complaining will do your customer no good.
Multiple offers are to be avoided – Understand that multiple offers are
generally a bad fit for short sale situations. Lenders need to be kept focused. If
you are the listing agent, you’re wise to submit one at a time. If you are the
buyer agent, you should insist on this “one offer only” standard from the
listing agent. See the section on the following pages that focuses on multiple offers.
Be absolutely qualified and ready to close - As with REOs, buyers are well
advised to have their financial ducks in a row. Why wait for the property you
want, only to find your financing is not in order and the deal falls apart?
Besides, unless another offer has broken ground on what the selling bank’s price is, a solid
and bulletproof offer from your buyer will hit the target and open the door to short sale
approval in the first place.
Be prepared to go slow, then fast - After a longer wait than anyone wants
for the approval from the bank, the closing may have a short fuse. It may also
not happen on the date that is set. These issues come with the territory—with
institutions struggling to handle their distressed property workload.
Short sale streamlining ideas – Watch the marketplace and industry news
for new policies and trends emerging. More and more the message is getting
through about the time consuming nature of many short sales. Government
agencies and lenders are announcing policy changes, looking for solutions that
will speed things up.
Protect your buyer and you—interview the listing agent – Learning to
cooperate with the selling process in distressed property is essential to good
business practice and a high close rate.
Questions top agents usually ask:
Current number of short sale listings?
Number of recent closings?
Is the negotiator the listing agent, or a third party?
What is the agent’s close rate on their listings—what percentage have failed and gone to foreclosure?
Common sense tells you what to look for. You want to see that the listing agent has
some experience. You need confidence that your buyer’s offer will have a good
chance to be reviewed and accepted.
You will quickly learn who the top listing agents are in your area—for both short
sales and REOs. Most of the goods ones have probably already posted contract
writing and contract-to-close tips and specific instructions on their websites. Some
are holding buyer agent classes.
Booming foreclosure markets are bringing buyers out in numbers—seeking great buys.
Multiple offers are happening in many of the top distressed property markets. Look at
what’s similar and different with respect to multiple offers in short sales and REOs:
Chance of
Multiple Offers Not likely but possible
Very likely in active REO
markets
What Will Get
Submitted
Listing agent will want to
submit only one—probably
the lowest offer first.
Higher offers will be
submitted later if the low
offer fails or the buyer
walks away. Not all short
sale listing agents use this
strategy.
Listing agent will treat
this part like a traditional
sale—submitting all,
encouraging highest and
best, and letting the
lender decide.
Process Once submitted, lender is
in charge
Once submitted, lender is
in charge
Decision Lender only Lender only—sometimes
with listing agent input
Responses from banks on multiple offers has improved—turnaround time has gone
down. But remember that the listing agent is not doing anything to impact
turnaround on answers. The lender is completely in charge.
Remember too that it’s possible the highest offer may not be the best offer. The
REO asset manager may ask the listing agent for input about the offers.
Eager buyers and their agents may want to try making a case for their offer in a
multiple-offer situation. Banks may listen to alternate appraisals hired by the buyer
side, but it may not be an effective strategy. Trying to get these done and submitted
in a timely manner is tough.
Listing agents post detailed buyer guides and instructions for submitting offers on
their websites. You should do the same for two good reasons:
It’s part of your marketing to position yourself as a knowledgeable resource
to help buyers find and secure what they want.
Any time buyers come to you with an idea of what they need to know to buy
wisely, you are ahead of the game and your chances of success go up.
If your buyer makes an offer on a bank-owned (REO) property, you submit it
to the listing agent, and the listing agent comes back saying, “I have to tell you
we have three other offers on this property,” what will you say to the listing
agent? How will you counsel your client? Write your answers here:
To listing agent:
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
To my buyer:
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
How should these same communications happen differently in a short sale
multiple-offer situation?
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
The following is part of a notice to buyer agents and buyers interested in making an
offer—in this case, on a short sale.
The details in this example relate to short sale offers and are state specific. This
information is provided as an example only of what smart listing agents are doing
to be sure they attract offers that close. Notice the attention to specific line-by-line
contract details in this second section of the sample Web posting, called “How to
Submit a Good Clean Offer.”
In the first part of the display, “Terms the Buyer Must Agree To” notice some
interesting requirements, like:
The posted requirements are nonnegotiable.
A modest nonrefundable earnest check to keep the buyer in the deal.
Listing agent will commit to only one buyer at a time.
Home warranty purchase by buyer is strongly recommended.
Buyer and buyer’s lender must be ready for a twenty-one day close, following
seller’s lender’s approval of the contract.
Seller’s lender will pay all HOA liens and transfer fees.
The Buyer on a short sale listing must agree to the following terms (see our
customized Short Sale Addendum below for actual terms and contract language):
Buyer must deposit $500 earnest money with the title company of our
choosing and this earnest money is nonrefundable for seventy days (the
average amount of time it takes us to get a short sale approved).
a. Our Seller only commits to one buyer and we expect the same
commitment level from the buyer.
Buyer must pay for a home warranty should they want one – the Seller and
the Seller’s bank will not pay for this cost.
Buyer shall close escrow twenty-one days from issue of the Agreement
Notice (notice from Seller and Seller’s representative that the Short Sale has
been approved by Seller’s bank).
a. We understand that many mortgage brokers cannot close a loan in the
current mortgage market in twenty-one days. Please notify us up front if
this is an issue for your Buyer as we have several recommendations we
can make to meet this deadline.
Seller’s bank shall pay for all Homeowners Association fees
(transfer fees, liens, etc.).
Include our customized version of the AAR Short Sale Addendum.
Include an As-Is Addendum with your offer.
Page 1 of the contract …
a. Line 16: Handwrite “See Short Sale Addendum” where it asks for a
COE date.
b. Lines 25–27: Make sure you check the appropriate boxes for
addendums (specifically HOA if applicable) and write-in other
addendums (specifically As-Is Addendum and Short Sale Addendum).
Page 2 of the contract …
a. Line 40: Do not ask for a refrigerator, washer, or dryer to be
included in the sale if it is not disclosed in MLS that it is being sold
with the property.
b. Lines 72–81: Please mark all closing costs as being paid for by Buyer
(we’ll address how to ask for those appropriately on page 7 if the
Buyer is asking for closing cost assistance).
Page 3 of the contract…
a. Line 91: Name “Acme Title” as the Title/Escrow Company. Phone
(555) 555-1234. Fax (555) 555-1235.
Page 5 of the contract …
a. Line 180: Please write “none”
Page 6 of the contract …
a. Line 262: Do not mark as seller paid.
Page 7 of the contract …
a. Lines 304 – 315: If requesting closing cost assistance please do so on
these lines in this format …
b. “Seller’s lender shall credit Buyer “x” dollar amount or “x” percentage
of sales price towards Buyer’s closing costs including, but not limited
to, those costs in lines 72–81 of the contract.”
c. Please do not request more than 3% of sales price closing cost
assistance.
Page 8 of the contract … please always allow 72 hours for response time.
Closings have their own unique aspects in distressed property deals. The best way to
learn them is to learn from the experts: the people who run the closing.
Like many other things in the distressed property world, REO closings have
unfamiliar qualities for agents without a lot of distressed property experience.
These are examples:
Seller elsewhere – The seller is an institution, not an individual, and they are
probably located somewhere else.
Lender scrutinizes title – Title commitment or preliminary title reports will
be scrutinized carefully by the lender for signs of possible trouble—liens,
encumbrances, and even incorrect designated owner.
Time to deal with HOA – HOA demands for payment must be dealt with by
the bank and can lead to delays.
Last-minute HUD-1 delay The seller and their asset manager require up to
seventy-two hours for review and process of the final HUD-1—no last-minute
changes are allowed.
Four things jump out as alerts about short sale closings:
Study the prelim – Because the property has not been reclaimed by the
lender (as it is in REO), the title deserves special scrutiny because the sellers
have probably been experiencing major financial stress. The title company will
provide the usual preliminary report of title. As in any transaction, you must
read the title prelim carefully—or have a trusted expert in the title business do
it for you and your buyer.
HUD-1 accuracy – Stay on top of all the HUD-1 details for your buyer. For
instance, short sales HUD-1s often contain special line items inserted by the
listing agent to cover particular costs. Normally these issues are negotiated
between the listing agent and lender but you should be aware of them.
HOA dues – In short sales, unpaid HOA dues are often an issue. Be sure
these have been cleared.
Quick closing – Short sale closings can take buyers and their agents by
surprise. Often, it’s been a long wait for approval. Often, in short sales, the
lender then wants to close as fast as possible. Short sale specialist agents
advise teaching buyers to expect no more than 2 – 3 weeks to close a short
sale. Your buyer’s lender must be prepared to deal with this timing. Advise
your buyers up front.
The following page contains a summary of some key points of difference between
traditional, REO, short sale, and HUD properties. There are variations, but these are
the differences you can expect most of the time:
Defaulting or defaulted loan
Conventional, FHA, or VA
Conventional, FHA, or VA
Conventional FHA
Pricing Listing agent CMA and seller
BPO or appraisal contracted by bank; listing agent CMA
Bank sets value, based on listing agent BPO or an appraisal. BPOs are updated
HUD
Marketing Listing agent Listing agent Bank direct marketing and/or listing agent. Marketing reports are updated
HUD or a HUD management and marketing (M&M) vendor
Contracting MLS contract MLS contract, with bank addendum
MLS contract with bank addendum, or bank contract only
HUD contract
Offers By MLS contract
By MLS contract; sometimes by bank contract
By MLS contract; sometimes by bank contract
By online closed bidding
Financing docs required
24 48 hours before closing
24 48 hours before closing
24 48 hours before closing
7 10 days before closing
Acceptance Seller Seller and Bank Bank HUD
Closing Date certain. Title/escrow company choice negotiated between parties
Date may be postponed. Listing agent’s or Bank’s title company
Date usually certain. Bank’s title company
Date certain. HUD’s title company
Offering tips is essential. Offering classes takes your expertise to the next level.
Classes are a lead generation tactic, but they are a practical buyer teaching tool too.
Do what smart listing agents are doing. Teach how to make an offer and what it will
take to get that offer accepted. Approach your local or community newspaper about
writing an article as well. Get interviewed by the news media.
Use the same tactics to portray your expertise—and meet prospects—that you would
use in a traditional market. You are the expert. Act like one.
Reinforce all this good learning and training with a signed disclaimer for your buyers
to sign. By signing it a buyer acknowledges that you have given them fair warning
about the process and situations they will likely encounter.
This document can only help protect you and the—and it can reinforce the right
expectations as the deal goes forward.
Lenders protect themselves with written advisories and caveats to buyers. You
should do the same. Getting a buyer’s signature on a document advising them what
to expect in a distressed property purchase conveys your seriousness, your depth, and
your eagerness to help and protect their interests as well as your own.
The disclaimer can include:
Brief transaction explanation, including who makes the rules and approves contracts
What to expect during closing
Commissions
“As is”
How closing costs will be handled
Financing approval requirements
How multiple offers will be handled
Signature lines for both you and the buyer’s agent
If you don’t provide this document, a good listing agent will probably produce one of
their own for you and your client to sign! Distressed deals are different—responsible
agents want to be sure everyone knows what is going on.
The purpose of this final chapter is to help you decide whether to focus on the buyer
side of distressed properties in your business. The challenges listed will help you
evaluate your opportunities—and your readiness—and take action.
Your choice: Is the buyer path right for you, or are you better off focusing on the
listing side of REOs and/or short sales? There is no winning score in this evaluation.
It’s intended to help you think through what you have learned, and to decide what
path best suits you.
Here’s what to do:
Review the key “challenges” listed below and frankly assess your current
ability to meet each challenge on a scale of 1–5.
1 = I have no experience with this.
2 = I am not very good at this.
3 = I am pretty good at this.
4 = I am confident with this.
5 = I am an expert at this.
Then, detail what specific action is required to make you a 4 or 5 on every
item. How ready are you? How fast can you get where you need to be? How
exactly will you do that, for each challenge that requires action? When will you do
it?
Evaluate your results and decide! Is specializing in the buyer side of
distressed properties the best course for you in your market? If so, what are
you waiting for? Act on your plan and win with the buyer side!
1. I have prequalified myself and am able, ready, and willing to master the market of the moment.
2. I know and can consult on the state of my local economy and the distressed property component of my market.
3. I know the phases of foreclosure and the timelines in my state and can consult about them.
4. I have a USP and Value Proposition that highlight my professionalism for distressed property buyers.
5. I know where to find potential short sale and REO buyers.
6. I know how to work with an investor to develop a criteria filter for them.
7. I understand the special opportunities for first-time home buyers and can consult with the Your First Home book and presentation.
8. I understand and can consult about the opportunities for move-up buyers in the distressed market.
9. I understand the potential benefits and risks of buying a property at a public auction.
10. I understand how to recommend and refer buyers to sources of mortgage money.
11. I know the major contract-to-close coaching
points to use with short sale and REO buyers.
12. I have a disclosure that I ask the buyer and the
seller to sign—one for short sale buyers, one
for REO buyers.
13. I know how a short sale is negotiated with a
lender by the listing agent or a third-party
negotiator—and can consult with my buyer
about it.
14. I understand how offers on REO properties are
handled by listing agents and lenders or asset
managers—and can consult with my buyer
about it.
15. I’ve got a plan to “touch” and obtain referrals
from all my short sale and REO buyers.
16. I get into relationships with REO and short sale
listing agents and demonstrate that my business
priorities align with theirs.
17. I actively consider the benefits and financial
impact of joining a high-performing distressed
property specialist team as a buyer agent.
18. I have set goals for next year for number of
listings, transactions, etc. in the CGI Calculator
with my MC leaders.
What are your Aha’s?
What behaviors do you intend to change?
What tools will you use?
What does accountability for this look like?
What will you achieve?
INSTRUCTOR:
Have participants fill in their aha’s individually, or brainstorm as a group
INSTRUCTOR:
Ask: How will you translate your aha’s into concrete changes in your
behaviors? Example: Aha—Door knocking is cheap! Behavior Change—time
blocking for consistent door knocking in geographical farm.
Action:
INSTRUCTOR:
Tell: List out the tools you will use to achieve real behavior change.
Example: Door knocking scripts, flyers and business cards to distribute.
INSTRUCTOR:
Tell: Evaluate what kind of accountability will sustain your behavior change.
Is this a MAPS coach? Productivity Coach? Mentor? MyTracker? Be realistic.
The best accountability system is the ONE you will use.
INSTRUCTOR:
Tell: Think of the BOLD Law, “Be-Do-Have” in relationship to what you want
to achieve. Who have you become? What are you doing? What do you have?
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