"Prevention is better than cure" - Desiderius Erasmus
Picture this: You are scheduled to fly out of your local airport and you are told at the ticket counter that there are two flights you can take to your destination. One option is less expensive but is expected to be a choppy ride while they anticipate the second flight to be calm. Which would you choose? Although a bumpy, turbulent-filled flight may take you the same destination as a smooth flight, most of us would gladly pay the price for the less stressful travel scenario.
Similarly, as a real estate professional, you may be a savvy negotiator and problem solver but let's face it, if you can minimize and curtail challenges, you will. In real estate sales, preparation is the imperative price to pay when your buyer clients are interested in going the foreclosed home route.
Here are 18 best practices to follow before showing your client any foreclosed listings that will help the home buying process be less bumpy.
1. Identify your clients' main goals.
Have a meeting of the minds before going on the hunt for properties. Your clients may say, “Find me a deal!” But they may really mean “Find me the best priced home in this school district, with this floor plan, within this commute time to my office.” You can probably keep adding to this list. In essence, their definition of a deal can be very different depending upon the foreclosed housing inventory in your area (which may be limited and stagnant) and their personal needs.
Thus, it is important to have your clients identify and prioritize what is most important to them. Have your clients rank those goals (with their reasonings for doing so) and share them with you for accountability. This should probably only include their top 3 - 5 goals. For example, if having a home that faces a certain direction is essential but having a jack-and-jill suite is not a deal breaker, then the jack-and-suite should not be included in this list.
2. Know your clients’ dreams.
The foreclosed home buying process does not have to stifle the dreamer in your client. Have your clients share their wish-list. It is already amazing to help others realize their dreams of affordable homeownership but it is a spectacular treat when clients get homes in neighborhoods that they thought would be out of reach.
3. Be an informant on various housing benefits, grants and the like.
You may live in an area that offers special incentives, downpayment assistance or grants to various homebuyers. Help your clients take advantage of the goodies that are available by reviewing with them all of the different assistance programs before surveying the foreclosed inventory.
4. Show us the money.
Have clients prepare and send you a current (no older than 30 days) pre-approval letter if financing. Or, the client should send current proof of funds if purchasing with cash. Proof of funds include an official bank statement or a signed letter on bank letterhead by a bank official.
5. Scout’s honor.
Have clients scout out subdivisions or complexes to watch based on their interests and preferences. Your clients can minimize buyer's remorse by becoming familiar with the potential communities that meet their primary goals.
6. Create synergy.
Expand their search based on your knowledge of similar or better complexes or subdivisions in their desired area with their must-haves in mind. Take a physical or virtual field trip (using Google Earth) to enlighten them with new possibilities.
7. Set up a watch.
Put a virtual watch on those communities by sending automatic alerts from your MLS (if offered). Then make sure these alerts are frequent - make them instant not daily, weekly, or longer. Since foreclosed home listings can be here today and gone tomorrow, it is vital that your clients are given the best opportunity possible to consider the home. This starts with them being a first-responder to the home, which starts with you notifying them as soon as something is available. Since such automation is a standard part of many (not all) MLS systems, there is no excuse for most of our clients not being made aware of new foreclosed listings instantly.
Foreclosed listings move fast and the “early bird” has a better chance of getting the “worm”.
8. Pass the baton.
Train your clients to check these emails as quickly as possible. Help them to understand that there may be steep competition and checking their email only once a week, may mean several missed housing opportunities.
9. Time is of the essence.
In line with the last point, help your client understand the true meaning of “time is of the essence” in the foreclosure arena. Share with them that throughout the entire process they will have deadlines that must be adhered to in order to avoid penalties, from losing earnest money to losing the home purchase itself.
10. Offer expectations.
Explain to your client the ideal offer to a foreclosed seller/bank:
Cash is usually king.
The meaning of an owner occupant period.
How repair requests outside of an appraisal/loan requirement may be ignored or cause for disqualification.
30-day closings and less are often given preference.
The benefit of increasing earnest money to counter potentially unfavourable stipulations or scenarios (i.e. delays due to down payment assistance) and so forth.
Help them understand that foreclosed listing sellers are atypical in that they may not engage in the expected ping-pong offer-match like some traditional, owner occupant sellers are sometimes inclined to do. Unexplained, this can be a mental hurdle for buyers that have experience in home buying but who have never bought a foreclosed listing. But by doing your prep work, your buyers can have a proper perspective of the process.
11. Explain the likelihood of delays.
From asking a question to submitting an offer, it can be nerve-wracking to go days and sometimes weeks before a response is given. This is not the case with every foreclosed home being resold but in case you just happen to stumble across such a one, make sure this is not an unanticipated jolt to your clients. The odd thing is that by preparing your clients for this, they understand it is simply a part of the process. But without the groundwork being laid, your clients may incorrectly just see you as incompetent. Get in front of these potential curve-balls.
12. Insert inspection stipulations.
Some foreclosed listing sellers provide the contract forms for the purchase and sale agreement. At times, these forms do not include a provision for a due diligence or inspection period, which is not in the best interest of your home buyer clients. To protect your client, make sure there is a clause that allows the client to terminate the agreement without penalty (loss of earnest money, etc.) in the event your buyer is concerned by the results of a troublesome inspection. Typically, foreclosured listing sellers will allow just a few days for this feat so remind your clients that time is of the essence. Encourage them to connect with the contractors (who should already be on stand-by) as soon as there is word that the offer has been accepted.
13. Is the home beyond repair?
Did the last point about your clients having contractors on stand-by throw you? Encourage your clients to investigate trusted contractors/inspectors before finding a home worthy of an offer. The goal is to get them on board to help in a pinch, particularly in instances where there are short deadlines. Clients should be willing to pay service fees for a “drop what you are doing to help me”, thorough inspection, which can be important if a home is in severe disrepair in order to not waste too much time and miss better housing candidates.
14. Value may trump cold feet.
Having cold feet is a part of the home buying process for many. But unfortunately, with foreclosure listings, there is not much time to reflect once the process is rolling without jeopardizing one's earnest money. This is why it is important to have identified first what was essential vs. deal breakers. Help your clients remember those things in order to understand the true value of the prospective home. Also, be sure to review recent solds, historic values, neighborhood trends and coming developments. All these things taken together may point to a good deal or may point to the nearest exit to prevent buyer’s remorse down the line.
15. Get the law on their side.
Have an attorney or title company in your arsenal that can examine and explain issues with the foreclosed home, including liens, crazy easements and the like. This is a valuable tool that works wonders in a time crunch, especially if your clients do not elect to have their own legal representation, separate from the seller.
16. Loan issues.
Help your clients understand the challenges of different loans when specifically buying a foreclosed listing. For example, VA loans may require repairs beyond what the bank is willing to consider at that point in time. Crazily, the seller may actually do the repairs for someone else later on once the home has been stagnant inventory for too long, which is very frustrating to your clients. It can be very disappointing to win a contract on a very competitive foreclosed listing to then not close because of something else.
17. HOA tie-ups.
Keeping with the last point, HOAs (Home Owners Association) can play a factor in closings being deferred or terminated. Prior to making an offer in a community governed by a HOA, help your clients to understand that HOA's may have a list of violations that must be fixed or liens that must be paid. Even if the seller is prompt to address the HOA grievances, the process may still be slow-going so your buyers should be prepared.
In the event that your client’s offer is not selected as the winner in a multiple offer situation, be sure to “buddy up” with the listing agent by explaining that your client wants to be considered as a back-up buyer. Take time to express (either by phone or email) why your buyer should be the next candidate for this home. This may warrant a written offer of additional earnest money or some other concession if your client really wants to be in the running again. Or, the seller may disdain additional documents for an official backup offer but you should still seize the opportunity to have heartfelt communication with the listing agent.
Many deals are won on the second round, perhaps because the initial cash buyer was not serious and backed out, financing was denied, or a whole host of other reasons. Regardless, the opportunity may rise again and you can help your clients be top of mind.
Connect with Lee Davenport at http://www.agentsaroundatlanta.com/