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Short Sales 101…or the rant of a short sale listing agent

December 19, 2011

Okay – I have to voice this or I might just explode! I would love to get a few basic messages across to the various parties in a short sale in hopes of making this process easier and faster for the next person who utilizes just one of these tips. Even if just one person takes a point from this – my day will be complete!

After working on several very difficult short sales in the past month I have found myself at a point of exasperation a few times while staring up at the ceiling of my office, or the soft top of the Jeep and talking to myself. This is distributing to both myself and any passerby’s. I know that short sales are difficult and they are especially hard on the home owners who are facing of variety of challenges in their lives BUT with these few simple tips…we can make them easier.

So…here you are…by party involved…my advice in simple terms:

BUYERS

We do realize you are helping the sellers by offering to purchase their property and they hope that you will enjoy it and love it as much as they have. They have raised families, enjoyed moments and poured money and physical effort into their homes to watch it sell at a loss. This is difficult for them and your appreciation of that goes a long way. So please – don’t treat the house as if it’s already a foreclosure and walk around it at will. Make an appointment, have your Realtor with you and respect their personal belongings.

We also realize how hard it is to wait for an answer while the short sale is being processed through the bank. If there is more than one lender involved – this is an even longer process. It’s improved A LOT over the past year and we are now seeing very short processing times but we know that anything longer than a day is hard. I have been a home buyer and I know how anxious you are – how excited you are – and how much you want to buy THAT house! But please – don’t insist that your buyer’s agent call the listing agent daily to find out what’s going on. Chances are – they don’t have an update and will let your Realtor know when they do.

You are enjoying almost instant equity in your purchase because short sales have a lower market value of identical properties that are traditional sales. This is because of the risk associated with your patience and waiting. Please don’t insist your agent submit insanely lowball offers – the bank will not accept them because they know what market value is, your agent will be embarrassed to do so and the seller will be insulted. It wastes everyone’s time including yours and results in both sides of the transaction feeling slighted and unwilling to negotiate. A well thought out offer with a reasonable price in comparison to market will get all the parties talking and result in a very good deal for you.

Use a lawyer who is experienced with short sales. Your Realtor will more than likely have a few to recommend and consider their recommendations. A short sale transaction is not a typical sale and the attorney in your corner needs to be able to navigate it.

BUYER’S AGENTS

EDUCATE your buyers! We deal with short sales every day but they don’t and might not ever again. Please set a reasonable expectation prior to even showing your buyers a short sale listing so that they know what they are getting into. Be sure they understand there is a process to it and that the closing time frame might not be what they expect.

Interview the listing agent ahead of time. Have they done a short sale before? How many? With what lenders? Who does the negotiating? If the listing agent is experienced, holds a CDPE or other distressed property certification then you can proceed with some confidence that it will be handled well. If not, then be prepared to take on more responsibility for the deal.

If you haven’t offered on a short sale property before –that’s OKAY! But let the listing agent know so that they can be more educational for you during the process. If they don’t have time, get an agent from your office to mentor you through the process and then you’ll be good for the next one. Don’t have anyone nearby that is willing to do it but your buyers really really REALLY want that listing? Refer it out – your clients will appreciate the maturity and experience that you demonstrate by knowing when you should seek help.

Please also treat the house with respect – it’s not a foreclosure and it’s not always vacant. Don’t assume that an 8pm showing on Wednesday night is okay when you call at 6pm. Short sales are an option so that the home owners can move on with their lives with a sense of dignity and responsibility – let’s help them do that.

LISTING AGENTS

Please please please treat the house with respect! (This is a reoccurring theme). It’s still a listing and although some short sales are lacking some basic maintenance due to the home owner’s financial situation – they are still privately owned. Take full pictures, disclose its short comings and present it in its best light. A short sale listing should not look like it was an embarrassment to take.

Please list to market price and do so aggressively. Your sellers need an offer quickly and pricing it way above market will only prolong their misery.

Please respond to showing requests in a timely manner and please let your seller know that there is a showing. As much as the buyers have to demonstrate some restraint the sellers have to show some willingness and you are the first point of contact. Set the tone and all the parties will appreciate it.

Please PLEASE do not take a short sale listing if you are not properly educated. The risk involved for your clients is grave and a foreclosure is not quickly forgotten. If you have not listed a short sale before then refer to a mentoring agent in your office. If you are unable to, then refer the listing all together. Your client’s financial future is at stake and this is not something that you can “try” and “see how it goes”. Get educated and get someone to assist you through the process that has the experience and education. Your clients will appreciate and value your expert assessment of your skills and the care and consideration you gave them.

Please recommend a lawyer to your sellers who are experienced with short sales. It makes a huge difference during the process and not all real estate lawyers have done short sales.

SELLERS

Clean your house! I know it’s hard to continue to put effort into your house when it has a foreclosure notice or an auction date. Maybe you have already moved out or in the process of finding a new place. When there are so many memories and it’s hard to be in the house at all, it’s even harder to clean. BUT – it needs to be done. You need the highest market offer possible and having a clean house is a great way towards that.

Be open to what your listing agent is telling you. A market price adjustment is not an attack on how you kept your house or what you did to it. Look at the information he/she has and realize that they are working in your best interest.

Make sure you provide your listing agent with all the documentation items that they have requested. They are not asking you to provide the information because they want you to have yet another unpleasant task – the banks require that information as part of the short sale and not providing it will only create delays. They are bound by Massachusetts Privacy Laws to protect your information and take great care with it.

Understand that the buyers are excited about their new adventure just as you were at one point and will be again soon with a successful short sale. This is a new chapter in their lives and they might be overly excited. Give them a minute, they will realize the situation.

Understand that they buyers have been fed so many different pieces of information from the media that their low ball offer is not based on an educated opinion. Give them a chance to come around and realize that a “short sale” is not an “Ocean State Job Lot House Day Sale”.

Please don’t yell at your listing agent when you want to yell at the bank. We’re a tough bunch and we can take a lot but we really do care about you and your situation. And if you have to yell at us…please remember to apologize.

What a relief to get all of that out! This blog is not meant to be an instruction to Short Sales nor is it in reference to any listing currently on the market, expired, sold or foreclosed. This blog was meant to make just one short sale transaction easier at a time and add to the recovery of our housing market! Remember – the housing market is seen as setting the stage for almost every other sector of our economy – let’s get it back on its feet! For more information on short sales visit www.dontforeclosenow.com.

The Value of Home Maintenance

January 2, 2011

Regular home maintenance is key to preserving the value of your house and property. Looking forward to the spring market in 2011 – this play an important role if you thinking about listing your home. In general, it’s important to maintaining your investment and your quality of life.

“It’s the little things that tend to trip up people,” says Frank Lesh, former president of the American Society of Home Inspectors and owner of Home Sweet Home Inspection Co. in Chicago. “Some cracked caulk around the windows, or maybe a furnace filter that hasn’t been changed in awhile. It may not seem like much, but behind that caulk, water could get into your sheathing, causing mold and rot. Before you know it, you’re looking at a $5,000 repair that could have been prevented by a $4 tube of caulk and a half hour of your time.”

Maintenance affects property value

Outright damage to your house is just one of the consequences of neglected maintenance. Without regular upkeep, overall property values are affected.

“If a house is in worn condition and shows a lack of preventative maintenance, the property could easily lose 10% of its appraised value,” says Mack Strickland, a professional appraiser and real estate agent in Chester, Va. “That could translate into a $15,000 or $20,000 adjustment.”

In addition, a house with chipped, fading paint, sagging gutters, and worn carpeting faces an uphill battle when it comes time to sell. Not only is it at a disadvantage in comparison with other similar homes that might be for sale in the neighborhood, but a shaggy appearance is bound to turn off prospective buyers and depress the selling price.

“It’s simple marketing principles,” says Strickland. “First impressions mean a lot to price support.”

Prolonging economic age

To a professional appraiser, diligent maintenance doesn’t translate into higher property valuations the way that improvements, upgrades, and appreciation all increase a home’s worth. But good maintenance does affect an appraiser’s estimate of a property’s economic age—the number of years that a house is expected to survive.

Economic age is a key factor in helping appraisers determine depreciation—the rate at which a house is losing value. A well-maintained house with a long, healthy economic age depreciates at a much slower rate than a poorly maintained house, helping to preserve value.

Estimating the value of maintenance

Although professional appraisers don’t assign a positive value to home maintenance, there are indications that maintenance is not just about preventing little problems from becoming larger. A study by researchers at the University of Connecticut and Syracuse University suggests that maintenance actually increases the value of a house by about 1% each year, meaning that getting off the couch and heading outside with a caulking gun is more than simply a chore—it actually makes money.

“It’s like going to the gym,” says Dr. John P. Harding, Professor of Finance & Real Estate at UConn’s School of Business and an author of the study. “You have to put in the effort to see the results. In that respect, people and houses are somewhat similar—the older (they are), the more work is needed.”

Harding notes that the 1% gain in valuation usually is offset by the ongoing cost of maintenance. “Simply put,” he says, “maintenance costs money, so it’s probably best to say that the net effect of regular maintenance is to slow the rate of depreciation.”

How much does maintenance cost?

How much money is required for annual maintenance varies. Some years, routine tasks, such as cleaning gutters and changing furnace filters, are all that’s needed, and your total expenditures may be a few hundred dollars. Other years may include major replacements, such as a new roof, at a cost of $10,000 or more.

Over time, annual maintenance costs average more than $3,300, according to data from the U.S. Census. Various lending institutions, such as Directors Credit Union and LendingTree.com, agree, placing maintenance costs at 1% to 3% of initial house price. That means owners of a $200,000 house should plan to budget $2,000 to $6,000 per year for ongoing upkeep and replacements.

Proactive maintenance strategies

Knowing these average costs can help homeowners be prepared, says Melanie McLane, a professional appraiser and real estate agent in Williamsport, Pa. “It’s called reserve for replacements,” says McLane. “Commercial real estate investors use it to make sure they have enough cash on hand for replacing systems and materials.”

McLane suggests a similar strategy for homeowners, setting aside a cash reserve that’s used strictly for home repair and maintenance. That way, routine upkeep is a snap and any significant replacements won’t blindside the family budget. McLane’s other strategies include:

Play offense, not defense. Proactive maintenance is key to preventing small problems from becoming big issues. Take the initiative with regular inspections. Create and faithfully follow a maintenance schedule. If you’re unsure of what needs to be done, a $200 to $300 visit from a professional inspector can be invaluable in pointing out quick fixes and potential problems.

Plan a room-per-year redo. “Pick a different room every year and go through it, fixing and improving as you go,” says McLane. “That helps keep maintenance fun and interesting.”

Keep track. “Having a notebook of all your maintenance and upgrades, along with receipts, is a powerful tool when it comes to sell your home,” advises McLane. “It gets rid of any doubts for the buyer, and it says you are a meticulous, caring homeowner.” A maintenance record also proves repairs and replacements for systems, such as wiring and plumbing, which might not be readily apparent.

You can also track your projects at houselogic.com. Houselogic.com is a free site sponsored by the National Association of Realtors and is easy to use and fun. Directly corresponds with your Facebook and provides step-by-step instructions for your home projects including shopping lists and diagrams.

If you want a check-in on what your home is currently worth today, just let me know. I would be happy to provide you with a free market analysis and help you get started on increasing the value of your home.

How the Foreclosure Crisis Costs You Money

November 27, 2010

Foreclosure may seem like someone else’s problem, but when it happens in your neighborhood, it’s going to cost you money, too.

Each foreclosure within 660 feet (1/8th mile) of your house can drop your home’s value by a factor of almost 0.75%, according to the Center for Responsible Lending, a consumer watchdog group.

The closer a foreclosure is to your house, the bigger the impact. A university of Connecticut study suggests one foreclosure within 300 feet of your home will lower your property value by 1%.

If you live in a neighborhood with few vacant homes and a foreclosure occurs within 250 feet, a University of California, Berkeley study suggests you could lose 2.2% of your home value.

Do troubled owners deserve help?

Some people think the homeowners facing foreclosure got themselves into trouble because they bought more house than they could afford with toxic mortgages for which they never should have been approved. At least one study of the 2007 and 2008 foreclosure crisis suggests that was indeed the case.

Foreclosures become comparable sales

Even if you don’t feel compassion for those facing foreclosure, you might feel sorry for yourself. Homebuyers and mortgage lenders use foreclosures as comparable properties to value your home when you sell or refinance. And the discount at which foreclosures sell is a hefty 27% on average.

Although most appraisers adjust the value of your home upward compared with a foreclosure, a homebuyer may consider the foreclosure equally valuable to your home and base his offer on that instead of your property’s real worth. If that happens, your real estate agent can argue that non-distress sale comparables and better condition make your property worth more.

Foreclosures lower tax revenues

Drops in property values brought on by foreclosures don’t just hurt your property value; they also cut away at the whole property tax base, the source of revenue for local government. Elected officials then have to either charge you higher taxes or cut services to make up for the shortfall.

What you can do about foreclosures

To limit foreclosure damage in your community, ask local officials to pass laws forcing lenders to maintain the properties they now own and to pay the taxes and homeowners association dues on them.

If the town isn’t forcing lenders to maintain a foreclosure in your neighborhood, organize a volunteer effort to cut and trim the shrubs at vacant houses on a round-robin basis, and report vandals or squatters to the police. A well-kept foreclosed home will attract more buyers than one with a weed-filled yard. Take trespassing laws into account as you organize your effort.

If you’re selling or refinancing and the appraiser uses foreclosures as comparable sales to determine the value of your property, ask your real estate agent to make sure the appraiser accounts for the distressed nature of those sales and the condition of the properties as they compare to yours. Ask your agent to seek out other comparable sales the appraiser might have missed, which show your home in a much better light.

By: Lew Sichelman
Syndicated housing columnist Lew Sichelman lives in a ranch house on the western shore of the Chesapeake Bay and has been writing about housing for more than 40 years.

Adding a Fireplace: Return on Investment

October 29, 2010

While intangible benefits such as comfort and ambience may make a fireplace addition worth the cost for you, consumer attitudes toward fireplaces are changing.

Here are the facts:

Fireplaces no longer are preferred features

In 2007, the National Association of REALTORS® survey of homebuyers’ preferences listed fireplaces as the most preferred home feature. Almost 46% of homebuyers said they would pay extra (a median of $1,220) for a house with at least one fireplace, the most popular “desired feature” in the survey. However, more recent surveys from the National Association of Homebuilders show that support is slipping, and REALTOR® Magazine recently put fireplaces No. 1 on the list of “Home Fads That Are Falling Out of Style.” That means chances of receiving price support for your fireplace addition when you sell your home are diminishing.

According to the U.S. Census Bureau, 53% of new homes built in 2008 included at least one fireplace. That’s down from a peak of 66% in 1990, although the numbers may also reflect builders’ attempts to save costs for development houses.

A fireplace isn’t calculated separately in a professional home appraisal, making it difficult to assign increased value from your investment.

Match your fireplace budget to your house

When you estimate how much a fireplace might add to the value of your house, consider your home’s overall value. A $10,000 fireplace holds its value in a $1 million house because buyers expect this feature in an upscale home. But a $10,000 fireplace might not be such a crucial component of a $100,000 house, especially if features that potential buyers consider more important are lacking.

Get value from your fireplace investment

Put a new fireplace in a room other than the kitchen–usually the family room or great room.

Locate a fireplace in a smaller, easy-to-heat room such as an office, guest bedroom, or master bedroom.

Equip your fireplace with energy-efficient glass doors and an exterior venting system that prevents heated air from being pulled out of rooms.

Rich Binsacca is the author of 12 books on various home-related topics and is currently a contributing editor for Builder and EcoHome magazines. He has written articles for Remodeling, Home, and Architectural Record, among several others. He intermittently uses the wood-burning fireplace and the gas-fueled freestanding stove that came with his current home.