***Real Estate 101: Why Banks Short Sell Pre-Foreclosure

Last month I was coaching about a hundred or so seasoned real estate agents on how to buy and sell pre-foreclosures. It occurred to me that for most, it was a mystery that the best deals are found before the bank forecloses rather than after. The reason this happens is that not only in today’s market but in any market, the bank generally doesn’t want to own the real estate secured by their loans. They will often take less than what is owed and this is called a short-sale. Most real estate professionals are unclear as to how a short-sale works which means that even more homeowners are unclear how as well or even that it is possible. I truly believe that our record setting foreclosure numbers would be greatly reduced if consumers just knew that they could offer their homes for sale at a loss to them if it meant a foreclosure could be avoided. One agent asked “how much of a discount will they take?” The answer can vary but I can safely convey that it costs the bank nearly 18% on average to go thru the entire process from legal fees, court costs, inspections, appraisals, repairs and maintenance, sales expenses and hold time interest. This should explain why they are willing to work with any viable offer as long as it’s within that range. I preach constantly about investors needing to find these distressed properties and educate the homeowner about his/her options. Real estate investing is not dead! These short sale options are amazing potential deals. In many cases, the homeowner and lender are willing to sell the home short, then homeowner agrees to lease it back for a year or so. This can give investor cash flow while holding on for the housing market to bounce back. I am happy to answer your questions. Post a response to my blog and I will answer back as promptly as possible.