Short Sale 2.0

Services for Real Estate Pros

A major shift is taking place in the way the massive log jam of distressed properties is being dealt with. Over the last couple of years, defaulting homeowners have become a protected class. I say this without intent to sound heartless, but I still believe in the basic tenet that you can't keep stuff you didn't pay for. Houses included.


Partly because we have a government today that seems to distrust successful businesses, and partly because the banks brought it on themselves, the government has been abusing the mortgage lending industry for years. Law suit after lawsuit, a public relations smear campaign and iron fisted regulations have been unleashed on our mortgage lenders. As a result, it is common for defaulting borrowers to squat in homes for years without paying their mortgage or taxes. The result is skyrocketing costs for banks who attempt to foreclose. It really is out of control.


The result of this is Short Sale 2.0 - the next phase. In Short Sale 1.0, lenders were schizophrenic. They would take months to make decisions on short sale offers, and be totally inconsistent. One day they would approve a case, the next they would decline an identical case. They could not figure out what they wanted to do, but now they finally have. They are soliciting high risk borrowers to do short sales.  We should anticipate that the REO inventory will dry up and the short sale inventory will flow.


There are two noteworthy differences between an REO and short sale that I have not seen get much attention, so I want to do that here. First, the house is going to be in good condition. Borrowers need to be on their best behavior to have their negative equity forgiven by the bank. They are not going to trash the place.


Second, every short sale adds one home to the inventory, and one tenant into the marketplace. These tenants are gold. People who struggled to make a $4,000/month mortgage payment can make a $2,500/month rent payment with ease. Their objective is to create the least disruption to their family as possible, which means renting a house in the same school district.


Do you have enough single family houses for rent to give your short sale sellers a soft place to land? Most likely you don't, but the solution is built in. If you have two short sales in the same town, you need to find an investor to buy them both, and create rental options for those two sellers. These folks desperately need us to get in front of this.


The habit we need to get into is merchandising each listing in two ways - as a home and as an investment property. I promise you, good investors will respond to any marketing you put out there, since no one does any marketing targeted to them. The message is simple. We have a steady flow of listing AND quality tenants to need to rent houses. All we need now is some smart investors who want to capitalize in this opportunity.


This approach will maximize your revenue potential, and provide a service to your community. Just imagine for a moment what it would be like to lose your house and not be able to find a place to move nearby. Your kids have to change schools. You may need to put your dog up for adoption because you are stuck renting an apartment. All because you bought too much house at the wrong time.


Let's solve this problem. It's a housing crisis and we are the housing industry, if not us, then who?


Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. David A. Weaver 08/13/2012 05:19 PM
  2. Christine Farkas 08/19/2012 10:40 AM
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short sales

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Martha Givens
Century 21 Brandt Wright Realty, Inc - Montgomery, AL
Stress Free Real Estate!!!

Two years ago I added property management to my bag of tricks.  My inventory included 20 homes with only 15 rented.  Today I have over 80 homes with only 7 vacancies.  The shift has been toward higher end homes.  The concept of investors picking up on these short sales is interesting. Numerous owners have contacted me to put their home on the rental market because they were upside down in the home and they could not afford to bring money to the closing table.   I have had great success with short sales for some of these clients.  You are correct in saying the mortgage companies are getting the short sale process moving forward. However, the pool of investors which I have still are hesitant to drop big bucks on a rental property.  They are all looking for 12 tp 15% on their investment and the high end homes are not at that point.  Short sales are good buys at this time but I will have to work hard to convince an investor to risk that much on investment.  Every area is different and the sales in our area are very good at this time.  The owner occupancy of distressed sales is high and many times investors don't get the opportunity to purchase them.  It is an interesting concept and I will discuss it more with my rental investors.  Thanks for the thoughts.

Aug 12, 2012 10:43 PM #12
Warren Schutt
Warren Schutt Real Estate - Danbury, CT
Helping People with Their Moves for over 36 Years

My average sale went from $500,000 to $200,000 in the last 6 years and most of them are hair pullers. I put out the sign this year - "I CAN HELP YOU FIND A RENTAL." Lots of little commission checks now, but they add up. Never thought I would become a rental agent after 31 years in the business. But with 6 rental closings last month - most of them relatively easy - I now have a new niche.

Aug 12, 2012 11:41 PM #13
Rosemary Brooks
BMC Real Estate - 209-910-3706 - Stockton, CA
The Mother & Daughter Realty Team

Nice post with some great thought out points.  Thank you for sharing.  I am bookmarking it to reveiw it again - great points for next business plan.

Aug 12, 2012 11:53 PM #14
Amada Slade
Island Realty of the Lowcountry - Beaufort, SC

Wonderful post. It makes me wish I had enough money to invest in these short sales and then capitalize on the generated income.  Thank you for sharing.

Aug 13, 2012 12:13 AM #15
Jason Killam


Thanks for writing about the short sale and REOs.  Yes, marketing to both the investor and renter is equally important not to mention that we as Realtors can gain from a sale and referral from rental company. :)

Aug 13, 2012 12:55 AM #16
Jason Killam
Real Home International - Myrtle Beach, SC
Make Every Moment Count!


Thanks for writing about the short sale and REOs.  Yes, marketing to both the investor and renter is equally important not to mention that we as Realtors can gain from a sale and referral from rental company. :)

Aug 13, 2012 12:56 AM #17
Fernando Herboso - Broker for Maxus Realty Group
Maxus Realty Group - Broker 301-246-0001 - Gaithersburg, MD
301-246-0001 Serving Maryland, DC and Northern VA

I'm glad you make the distinction between two short sales that are completely separated from each other. .

Aug 13, 2012 01:38 AM #18
Laura Murray
Weichert - Silver Spring, MD
Search Montgomery Co., MD for homes

Good post, as  a landlord for over 25+ yeas this is the best rental market I have ever experienced.  It makes up for those times when I would turn someone down to rent a townhouse and they would then go buy a $500K house.

Aug 13, 2012 02:43 AM #19
Chris and Dick Dovorany
Homes for Sale in Naples, Bonita Springs and Estero, Florida - Naples, FL
Broker/Associate at Premiere Plus Realty

I absolutely agree with you ad you are not heartless.  To help fix the problem, not immediately, but fix the problem i hope you will vote Romney/Ryan.

Aug 13, 2012 05:47 AM #20
Katerina Gasset
Get It Done For Me Virtual Services - Wellington, FL
Get It Done For Me Virtual Services

Working with investors is a niche in itself. It is not for every agent that is for sure. In all the short sales we have listed and sold, and there have been a lot of them, the sellers do not become local renters. In 2008 80% of our short sale listings were vacant properties from homeowners who moved to North Carolina, Tennessee and Georgia. Now many of them are coming back but to buy homes not rent. We rarely get a short sale seller who is going to rent. Most of them go buy another house first and then short sale the house they lived in. Many buy right across the street for less than half of what they owe on their house, same model, same schools, etc. And the rest are still living in their homes that they have not made a mortgage payment on in over 3 years now. It is an average of 683 days to get through the foreclosure process. Most landlords don't want to rent to people who do that because they are not used to making any rental or mortgage payment and are afraid they will stop paying rent. 

Aug 13, 2012 06:05 AM #21
Jacob Thomas, Weston, Davie, Coopercity, Southwest Ranches, Miramar Realtor
South Florida Estate Homes Inc - Weston, FL
South Florida Estate Homes Inc.

Great article.. Yes rental market is very hot... Hope this short sale mess is resolved at the earliest!!!

Aug 18, 2012 09:01 PM #22
Florida Tolbert Team Keller Williams Advantage
Keller Williams Advantage III Realty in Lake Nona - Orlando, FL
Million $ Guild Cert Luxury Home KW Land Division

You said it best in your opening paragraph...

I have a client that at 42 months of no payments came to me to talk short sale since he just got served foreclosure papers.

And after 42 months of living FREE, his only question is how much can I get from the lender as I don't have any money to move with?

Aug 19, 2012 04:37 AM #23
Cameron Novak
The Homefinding Center - Corona, CA
Featured Corona Real Estate Agent Team

As always, there's a buyer an seller for every home in the US... and rental homes available for anyone who needs one.
Corona Real Estate Company

Aug 19, 2012 07:13 AM #24
Knolly Williams
Success With Listings - Austin, TX
Good info Greg, and I agree. I love creative ideas! I've been working short sales since 2003 (closed more than 700), and have seen tons of change in the industry. What is still lacking is creative ideas to proactively solve this crisis. Good stuff!
Aug 19, 2012 08:13 AM #25
Andrew Mendez
Century 21 Americana - Covina, CA - Covina, CA
Century 21 Americana

Interesting concept. I have not seen this too much in my market, but what I have seen a good deal is purchasing houses that are not in terrible shape, but probably wouldn't qualify for FHA financing. 

These investors double end the deal and make their 6% by selling it as a short sale for well under market value. They then throw 10-15k into fixing the house, then they throw it on the market in 6-8 weeks. With this being a hot market, they usually double end the deal as they put a "Coming Soon" sign with contact information well before they ever put it on the MLS. 

It's def a quick way to make money, but how long will it last? I am about consistancy, and try and go for Standard sales much more then distressed sales. 



Aug 19, 2012 10:19 AM #26
Stieg Strand
RE/MAX Results - Eden Prairie, MN
Always showing up and working hard for you


You are truly a prophet of great profit!


Stieg Strand

Eden Prairie, MN #1Real Estate Blogger on AR

Aug 19, 2012 12:01 PM #27
Brian Schulman
Coldwell Banker Residential Brokerage, Lancaster PA - Lancaster, PA
Lancaster County PA RealEstate Expert 717-951-5552

Good analysis - although I don't think there is any shortage of investors looking for short sale bargains.  I agree about the many highly qualified future renters.  (Don't know if it was just my computer, but text formatting ran very wide...)

Aug 26, 2012 11:37 PM #28
Bryan Dasilva - Miami, FL

Hey Greg, Wonderful distinction. Yeah, this is going to be a mark to introduce a new way of thinking for me. Thanks a lot.



Aug 27, 2012 02:32 AM #29
Darius Ramsey
Berkshire Hathaway HomeServices - Homesale Realty - Camp Hill, PA
REO/Short Sale Specialist

Well thought out post. I can say that we try to reach out to those investors looking for buy and hold properties. You definitely got my mind running with ideas

Aug 27, 2012 09:49 AM #30
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Greg - This is definitely food for thought and makes a lot of sense for many different people.

Aug 27, 2012 03:40 PM #31
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