Hi, folks. I hope someone can help me with a question about wholesaling short sales through Realtors. There are some gurus who are promoting the use of Realtors to get short sale leads for investors who then work the short sales (since most Realtors don’t want to or don’t know how) and, if the lenders will discount the mortgage loans but not quite enough for the investors to buy the properties themselves, the Realtors are supposed to have buyers lined up for the investors to flip the properties to using transactional (24-hour) funding.
I had a long lunch with my Realtor last Friday to work out the details and make sure everything is legal. The only sticking point we had is how to ensure that Realtors have buyers lined up to buy from us within 24 hours after we buy from them if the lenders didn’t discount the loans quite enough for us to buy without the 24-hour transactional funds. Typically, I can’t buy a property with my own lenders unless the loan is discounted enough to meet the typical MAO (Maximum Allowable Offer), i.e., 70% of ARV $ - repair $. But most transactional lenders don’t seem to care what the LTV is as long as we can prove we have a buyer waiting to buy from us 24 hours later.
Is there a longer window of time to find these buyers, or some other way to find them, that I’m not thinking about to make this business model work or are the gurus who sell courses on this model just full of crap and trying to sell us on something that doesn’t work? TIA.
More detail is needed, but it seems to me one of the biggest things that you’re (and your REALTOR(R) ) is leaving out is their duty to the seller of the property (assuming that they are listing the property).
If they can find a buyer willing to pay more than you, as an investor, then they have an obligation to that seller to inform them of that BEFORE going under contract with you.
“If they can find a buyer willing to pay more than you, as an investor, then they have an obligation to that seller to inform them of that BEFORE going under contract with you.”
Thanks for the reply, Raj. There is no buyer before I get it under contract since the property is overleveraged (which is why I must try a short sale). This is how I envision the business model being sold by these gurus:
When I get these leads, the sellers have little or no equity so there is no buyer except for me who is willing to try a short sale, so I put it under contract then start working the short sale.
Lenders will not consider any short sale offer from a Realtor unless there is a buyer. In this case, that buyer becomes me, so my Realtor can now submit it with me as buyer. But while we are waiting for the BPO, lenders reply, etc., there may be other possible buyers for the house on the waiting list behind me but the loan balance is still too high until I get a response from the lender on my short sale offer.
Now let’s say I negotiate the debt down but not enough for me to buy it at my MAO (Maximum Allowable Offer) of 70% ARV - repair $. I can still use transactional (24-hour) funding since these lenders don’t care about LTV as long as I prove there is a buyer lined up to buy from me. Herein lies our sticking point. Is there something these course-selling gurus aren’t telling me unless I buy their course on how to do this? Once I get the price discounted slightly but not at my MAO, how do I and my Realtor, through her network and MLS, etc., get my buyer lined in time to be able to use transactional funding to flip it to my buyer before the lender kills the deal with their discounted counteroffer?
There is no buyer before I get it under contract since the property is overleveraged (which is why I must try a short sale)
Good guru speak, but it doesn’t work that way in the real world, Robert. Again, more info would be required, but I’m assuming that the agent whom you are referring is the listing agent (ie, the property is listed on the MLS). If that is the case, and assuming that you have a fairly competent agent (needed), then a) it would be listed at a “normal” price, noting that it is subject to a shortsale or something similar and b) if buyers were interested, they would be interested when their interested, not wait in some magical chamber until you work a shortsale, then come popping out yelling “I want it.”
Finally, I see no way that you can buy the property then resell it to an endbuyer a short time later, especially in the current economic situation. I know of precious few lenders that have no title seasoning requirements and most loans these days are going through FHA (or following FHA guidelines) which would definitely require title seasoning.
Hi again, Raj, and thanks for sharing your experience. The “guru” selling this stuff has a $997 price on his course for it at www.shortsalemagnet.com (I have no vested interest in it but give the website to let you know who is trying to sell it).
It looks like someone is trying to implement the idea at website address:
(Again, I have no vested interest in this at all. Don’t ask me why it has a pet food website URL!)
Apparently there are a network of gurus selling and reselling each others’ stuff. This was a new one I’d never heard of so I wanted to see if it was even feasibility. I was listening to the teleconference when they were selling it and it sounds like a lot of people did buy it (not me, though). I’ve been trying to work my deals to get Realtors more involved and thought this idea might have some merit. Please post more thoughts if you have time.
If this idea does somehow work, it would benefit both Realtors and investors greatly. It involves investors giving MS Powerpoint presentations (included in the product package) at their brokerages as well as other marketing to get agents to work with these investors. I’m still wondering if it is worth buying this program or if it’s bogus.
As a side note, I see from your website you have quite a bit of knowledge and experience in real estate and I value your input highly.
It actually does work and have done a few myself. The problem arises because it seems that a “guru” (and I do use the term lightly, here) has tried to rework it to squeeze some more profit out of the deal.
Here’s the basic way that I and a few investors have been working it (again, no guru courses, just something we put together).
Investor gets call from seller on shortsale property. If it appears to be a deal, he starts shortsale work, etc. If it appears that it won’t be enough of deal for him, he refers me to the sellers in order to list the home on the MLS. Since the shortsale has basically been worked out to a certain point, we pretty much know where we can price it. If we get it under contract, then the investor can (legally and without any issues) charge a fee for doing the shortsale work (anywhere from $500 up to about $2500, at least for here). He gets something for his time, I get a commission.
On the flip side, if I get a call that is a deal (shortsale or otherwise), he gets the first call on it. If it’s a shortsale, basically the same process.
Here’s some interesting facts on shortsales:
A property listed with a REALTOR(R) is much more likely to have the shortsale approved because it is “on the market.”
An agent provides a “neutral” third party to the deal, greatly increasing the chance of success, both from the lender’s view as well as the seller’s.
A property that is listed on the MLS also has a greater chance of getting a pending foreclosure delayed in order to get the deal done.
Lenders figure in a 4% commission on shortsales by default. However, you, as the investor, don’t get that 4% off by NOT using an agent.
Thanks for sharing your knowledge and experience, Raj. I kind of figured that the gurus who sell this model might be exaggerating a bit on how simple it is supposed to be.
The problem I’ve run into is if the bank loss mitigator counteroffers with a discounted price but not at a price where I can buy it for myself, the counteroffer has a time limit, say 2 weeks, so if I don’t find a buyer to flip the deal to within this time or close on it myself, the counteroffer is no longer valid. This is what I was hoping to find an answer to, i.e., how to ensure a buyer is waiting for me to flip the property to once I get the price discounted but just not low enough for me to buy for myself.
Well, if you go with my example, you don’t have a buyer to flip it. That’s the whole point, in fact. The gurus are trying to “sell” you on a way to get in the middle of something to try to squeeze out a profit that a) you don’t need to and b) will likely just screw up the whole process, making sure that nobody gets any money.
Yes, a counter offer usually does have a time limit. But, in the example above, it doesn’t matter. What is accomplished is what the bank will likely consider WHEN the agent gets another offer in (not to mention, learning what to price the property at in the first place). Once an offer has been made (that is the offer after you’ve declined), we already have a starting point. You (the investor) can help the agent work the new shortsale (hopefully, a shorter process since most has already been done) to get the deal done. On the HUD, there will be a charge for a consulting fee/processing/etc for your fee (again, here it’s $500-2500). There is usually no problem with this fee, but sometimes all or a portion must come out of the agent’s commission, which shouldn’t be a problem since usually the agent must split a commission anyway.
Is it possible the guy or gal hawking their product is talking about wholesaling? They only way I would think it’s possible to unload properties that fast is as a wholesaler, and even then it’s not a sure thing.
If you want a strong and/or deep buyer’s list you need to put in the time and resources to develop one, unless you find a realtor who is focused on finding investors who are actively seeking the type of properties you’re selling.
If you’re bent on buying properties and insist you have to have an end buyer ASAP, you need to be building your list and talking with a ton of realtors. There isn’t one “right way” or magic bullet - just alot of time and effort.
“Is it possible the guy or gal hawking their product is talking about wholesaling? They only way I would think it’s possible to unload properties that fast is as a wholesaler, and even then it’s not a sure thing.” - FLNEWBIE
Well, the guru selling this particular course claims that Realtors also bring your buyers to flip to. This guru claims it is a way to spend $0 on marketing for buyers and sellers and all you have to do is establish a relationship with Realtors to bring you both sellers (short sale candidates) and buyers you can wholesale them to. It does sound a bit far-fetched. This is why I’m thinking that there is some exaggeration by the guru as to how easy this is supposed to be.