Short Sales: The Secret to Surviving the Current Market

Posted by HREU

April 6, 2008

Every time you pick up a newspaper, turn on the television or go online, you’ll see a new story about the abysmal state of the current real estate market. A person simply can’t avoid the bleak predictions the media makes on the future of real estate prices. Everyone is talking about rising interest rates on aging ARM’s and record numbers of foreclosures. For real estate agents, this market news may sound scary. In reality, the current amount of foreclosures in the market today should signal tremendous opportunities for a realtor that is savvy when it comes to short sales.

A short sale is the process of selling a home prior to full foreclosure proceedings at a deep discount; commonly the outstanding balance on the mortgage. Statistics show that lenders loose an average of $50k per foreclosure in fees and administrative costs and that does not include any loss they incur on the mortgage itself.

Short sales are the key to survival for realtors in a market like the one we’re in today; an estimated 50% of the homes on the market today are valued less than the outstanding mortgages on them. When homeowners are no longer able to make their mortgage payments and their lenders are ready to foreclose, banks will often forgive a sizeable portion of a loan rather than take a bigger loss through a foreclosure. A skilled realtor will assist the homeowner and lender alike in getting out from under this adverse situation. Not only will you be a hero for those involved, you will also make a profit.

A realtor that steps in and turns what would otherwise be a lengthy foreclosure process for the bank and a financial nightmare for the homeowner is providing a service to everyone involved. It must not be viewed as taking advantage of someone’s misfortune; you did not put them there. Your services will help them come out the other side more intact than they would through a full foreclosure, though, and that was where they were headed when you came on the scene.

Short sales are better across the board, especially for the homeowner. A foreclosure would mar their credit rating for at least ten years. If you can get them into a short sale, you’ll make a profit and salvage some of their credit potential. The banks fare better because they avoid much of the costs of recovery. Lenders up to their ears in foreclosures are usually very anxious to get a pre-foreclosure property off their hands. The IRS may treat the money as taxable income for the homeowner, but it is still the best alternative. So, when a person can’t pay on a mortgage, a short sale is a very helpful option when homeowners wish to avoid bankruptcy and foreclosure.

Banks typically evaluate an application for a short sale based on holding costs, comparable home prices, costs of repairs and commissions. If the lender agrees to a short sale procedure, you may have to accept a smaller commission to make up for the fact that they are taking a loss. But if you can work a number of these deals - and in this market there is certainly no shortage - you could conceivably earn quite a comfortable living off of short sales alone.

Many pre-foreclosure investors are seeing this potential and jumping on board. In fact, if you know the proper process for handling a pre-foreclosure property, you may be able to negotiate for over half of the amount remaining on the loan to be forgiven.

If you know how to creatively handle the huge influx of imminent foreclosures in today’s real estate market, you will turn a dire scenario for homeowners and lenders into an opportunity for you. Short sales really are the secret to survival in this market. Learn the proper techniques and laws governing the process in your state and get started helping homeowners avoid foreclosures and earn yourself a handsome paycheck along the way.

Tim Harris is a co-founder and head coach of Harris Real Estate University. He has a long and successful career of selling homes and real estate.
http://www.harrisrealestateuniversity.com/
http://timandjulieharris.com/ (blog)

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