Powerhouse Press

When handling short sale listing, an agent can face consequences for not properly counseling the client. An uninformed client can lead to potential ligation when the short sale effects their credit or their taxes unfavorably. Often the Seller is unaware the cancellation of the mortgage debt may be considered ordinary income by the IRS and taxed.

In this scenario, the seller now owes taxes to the IRS. The IRS can now file a lien against the seller which will touch any property that the seller owns. A tax lien swill show on the sellers credit report and they will be in worse shape credit wise than if they had gone the foreclosure route.

Many experts may argue that a Short Sale is a better route to take. As an Agent, you should direct your clients, in writing, to speak to their attorney and accountant. These professionals can help your client determine what a short sale will mean for their individual circumstances.

There are two ways to go about securing short sale listings. The first and most reliable is to obtain the listing directly from the seller. To find which properties are potential short sale listings.

A Notice of Trustees and a Notice of Default can be obtained through a Title Company (The Notice of Default you may have to purchase.) The difference between the two is important. The Notice of Default is for properties that are one payment (31 days) late. The Notice of Trustees are for properties that are 3 months late on payments. Contact a local Title Company to obtain these lists.

Create a letter on how you, as a real estate professional, can help the property owner through a short sale. Once you have your list of potential short sale properties, distribute your letter using the the Notice of Default list. Most sellers at this stage do the worst thing possible and put their head in the sand. Your goal as a Real Estate Agent it to inform them of how you can help them. We can provide value to the transaction by: informing them of all their options, contacting lender for short sale approval, assisting in compiling the short sale package, and following up with the lender for status. We can show them the light at the end of the tunnel.

Why should a property owner consider a short sale instead of a foreclosure? A short sale does not harm a credit rating as much. However, there are some concerns that the seller has with a short sale. The chief among them is phantom income. This is income that the seller never receives but the seller pays income tax on. In addition, this has the potential to raise a sellers income tax bracket.

The second is to get the contact information for listings directly from the bank. This is more difficult and time consuming because it requires developing a relationship with the bank by doing BPO’s (Broker Price Opinion.) BPO’s are both time consuming and do not pay very well if at all. The benefit is that if you develop a long term relationship with the bank it can certainly pay off financially in the long run.

When I am teaching Real Estate classes the most commonly asked question is “How can I improve my Career?” My answer is always “niche marketing.” Niche Marketing is a technique to get the best return for your marketing dollar. All Real Estate licensees in the state of Arizona can sell any real property in the state. If you were to market to every property owner or potential property owner, this would be a Blitz Krieg approach. Just because you can market to all groups does not mean that you should

The best use of the marketing dollar is to specialize and market to a target demographic. This can be first time buyers, investors, luxury properties etc. When choosing your demographic, you must look at how the current market conditions affect that niche. For example, in 2005 foreclosures would not have been a very successful demographic. Property values were rising rapidly and any owner who could not maintain their payments could easily sell and avoid foreclosure. The potential for an agent to be successful by specializing in foreclosures became more favorable as the market shifted and property values began to drop. So, as we look at the market now what will be the newest niche?

Due to the loss of equity property owners are facing today, many are turned over. That is their property is worth less than what it is mortgaged for. As the banks are shifting away from foreclosures, a growing niche is specializing in short sales. An agent that is going to specialize in short sales, will need to take a few things into consideration: The length of the transaction, getting the property priced by the bank, helping the seller through a difficult transition and commission, and the amount of working hours needed to handle a short sale listing.

Short Sales transactions take longer because they have to be approved by: the seller, the bank, the banks investor and insurance company. All that red tape can lead to 2-6 months to get an offer approved increasing the chance that the buyers will rescind their offer and move on. (note: Because of this length of time the short sale must be disclosed in the MLS since this will be material to the buyer.) What does all this mean to the agent? It takes more hours than a traditional listing so you can manage fewer listings and it takes a longer time to get paid your commission. How can you increase your success rate as a specialist in the short sale niche?

Over the next few years, successful short sale agents will start listing properties as bank priced and not as short sales. Meaning the seller is getting price approval from the bank prior to listing it. Then the property can be marketed as a bank priced property. Thereby, taking the long approval process out of it for the buyer. This will also increasing the probability that the bank will accept the buyer’s offer provided the offer is within a few percentage points of the approved price.