v 3 2 2009 Keller Williams Realty

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Chapter 1 Working with Buyers What You Will Learn • SHIFT Tactic 11: Distressed Properties—KWU’s three-part series on listing and selling distressed property • Replaces An Agent’s Guide to Short Sales, Foreclosures, and REO • The Guides: – Listing Short Sales – Listing REOs – Working with Buyers SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 2

Chapter 1 Working with Buyers What You Will Learn • SHIFT: Mastering Distressed Properties – Series objectives • • Skills you will need Mindset challenges, and how to approach them Resource demands Self-evaluation and action steps to move forward SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 3

Chapter 1 Working with Buyers What You Will Learn • Working with Buyers course objectives • • • See the opportunity Know buyer motivation Understand market background and foreclosure process Know what changes to expect Know how to be the local economist Know sources of buyer business Understand investor needs Be a better partner with listing agents Know how to improve acceptance and close rates Choose the right business direction for you SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 4

Chapter 1 Working with Buyers What You Will Learn • What We’ll Cover – – – – Ch. 1: What You Will Learn Ch. 2: Agents Needed to Work with Buyers Ch. 3: Mindsets and Markets Ch. 4: Distressed Property Timeline Ch. 5: Understand Buyers and Meet Their Needs Ch. 6: Buyer Service Ch. 7: Buyer Side Evaluation and Action Plan SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 5

Chapter 1 Working with Buyers What You Will Learn • Graduate Study: Where to Look Next – MAPS Coaching • Short Sale Coaching • Working with Buyers – Keller Williams Approved Vendors (see My. KW. com) • KW agent to agent programs • Third party vendor programs – KW Distressed Property Community – This Month in Real Estate (KWConnect) SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 6

Chapter 2 Working with Buyers Agents Needed to Work with Buyers! • Buyer Boom: Over 55% of home buyers are actively considering buying a foreclosure (Trulia and Realty. Trac survey) • Buyers Are Jumping In: Get Your Unfair Share • Which Way Should You Go? – Listing side – Buyer side – Both sides SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 8

Chapter 2 Working with Buyers Agents Needed to Work with Buyers! • Why the Buyer Side? – Faster – Make more $$ sooner – Cheaper – Less financial risk – Easier – Guidelines and rules to learn; but listing agents must learn and do much more SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 9

Chapter 2 Working with Buyers Agents Needed to Work with Buyers! • Why the Buyer Side 1. Inventory to sell in most places 2. Motivated parties on all sides 3. Returning economic stability SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 10

Chapter 2 Working with Buyers Agents Needed to Work with Buyers! 1. Plenty of inventory to sell • More volume lies ahead – Monthly Mortgage Rate Resets chart (20072015) – Locally things can be more complicated – Securitized trust sales undercutting bank REOs SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 11

Chapter 2 Working with Buyers Agents Needed to Work with Buyers! 2. Motivated parties on all sides • • Motivated sellers (individuals needing short sales) Motivated institutions (lenders holding REOs) Motivated investors seeking great deals Motivated move-up buyers seeing opportunity of a lifetime • Motivated first-time buyers—rates and incentives • Motivated agents—rebuilding business hurt by market shift SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 13

Chapter 2 Working with Buyers Agents Needed to Work with Buyers! 3. Returning Economic Stability • Generally low prices • Job stability returning in many markets • Steadying private and public employment SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 14

Chapter 2 Working with Buyers Agents Needed to Work with Buyers! • Seven Benefits for Buyers 1. Generally low prices 2. Affordability increasing 3. Motivated lenders increasing lending 4. Low down payment (lower values mean more equity with the same money) 5. Motivated listing agents 6. Motivated individual sellers 7. First time buyers SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 15

Chapter 2 Working with Buyers Agents Needed to Work with Buyers! • Five Buyer Realities: Keys to Success 1. Don’t wait 2. Don’t haggle about condition (“As Is” rules!) 3. Have ironclad financing, or cash 4. Follow instructions on contract paperwork 5. Read title reports carefully (pre-foreclosures and short sales) SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 16

Chapter 2 Working with Buyers Agents Needed to Work with Buyers! • Great Opportunity to Learn and Earn – Learn: Win big with REO listing agents • • Be self-educated—learn new rules and ways Be a student of the market Listing agents are saying, “Use our inventory to sell” Join a distressed property specialist team • Top listing agents want to build their buyer business • Buyer agents are being mentored and recruited • Your buyer business can lead to listings SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 17

Chapter 2 Working with Buyers Agents Needed to Work with Buyers! • Great Opportunity to Learn and Earn, cont. – Earn: Total commissions tend to be stronger on the buyer side • Sample commissions breakdown table (REO deal) • Buyer agent out-earns REO listing agent by 50 -60%; sometimes much more! • Because of REO costs • Because of REO listing referral fees • See commission and expense table in your guide SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 18

Chapter 3 Working with Buyers Mindsets and Markets • Overview of Distressed Property Markets – Both mindset and market are different – Mindsets you must know (see Mindset Map) • • Sellers Buyers Lender Agents SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 19

Chapter 3 Working with Buyers Mindsets and Markets • Your Mindset Must Shift: E to P Analogy – Entrepreneurial • Drive, enthusiasm, spontaneity, intuition, “natural” – Purposeful • Focus, strategic, models, systems, accountability, may be “uncomfortable” SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 21

Chapter 3 Working with Buyers Mindsets and Markets • Exercise: Apply E to P to Your Traditional- to-Distressed Transition – Clarity of purpose – Knowing your options – Choosing your model – Putting systems in place – Creating accountability SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 22

Chapter 3 Working with Buyers Mindsets and Markets • The Market: It’s Everywhere, And Everywhere It’s Different! – See U. S. foreclosures by state map in your guide SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 23

Chapter 3 Working with Buyers Mindsets and Markets • Gary and “The Perfect Storm” – Six ingredients 1. 2. 3. 4. 5. 6. Government push for more home ownership Lender aggressiveness Securitizing mortgages for giant investors Low interest rates Building boom Homeowners’ decreasing equity SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 25

Chapter 3 Working with Buyers Mindsets and Markets • How Markets Become Distressed – Seller to buyer market swings, and back (National Shifts chart) – Value turns down in buyer market shift (Vision Speech price chart) – Foreclosures increase, prices decrease (Downward Spiral chart) – Prices decrease, sales increase (Florida chart) – Local markets vary: some still flourish SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 26

Chapter 3 Working with Buyers Mindsets and Markets – Value turns down in buyer market shift (GK Vision Speech price chart) SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 28

Chapter 3 Working with Buyers Mindsets and Markets • Distressed Markets Do Recover – What can a turnaround look like? • • Reread SHIFT Tactic 4: Create Urgency Historically low rates Rapidly improving affordability Multiple offers SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 31

Chapter 3 Working with Buyers Mindsets and Markets • Take a Critical Look at Your Local Market – TMOReport. com Las Vegas example in guide • Look for seller market inside a buyer market ($75 K to $200 K range) – Other sources of this kind of data • Your MLS (do your own analysis) • Market reports in Top Producer • Do you know more sources? SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 32

Chapter 3 Working with Buyers Mindsets and Markets • Exercise: Local Economist Talking Points and Information Sources on These Points: – – – Median sales price Current interest rate Local economic factors Distressed inventory Motivations • Exercise: Rate Your Local Economist Skills SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 33

Chapter 4 Working with Buyers Distressed Property Timeline • The Distressed Properties Timeline— Know It and Consult Expertly with Buyers – Personal shifts happen – Market/property shift events occur – Buyer interest happens SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 34

Chapter 4 Working with Buyers Distressed Property Timeline • Personal Shift: Four Primary Causes 1. 2. 3. 4. Negative equity from market value shift Unemployment triggers delinquencies Other personal crises Consumer confidence can help or hurt SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 35

Chapter 4 Working with Buyers Distressed Property Timeline • Personal Shift: Four Primary Causes 1. Negative Equity • Chart example – Going “underwater” or “upside down” SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 36

Chapter 4 Working with Buyers Distressed Property Timeline • Personal Shift: Four Primary Causes 2. Role of Unemployment • • Timing of unemployment surge exaggerated the distressed property situation Federal Reserve report: Mortgage delinquency is tied to (see table in guide) – Unemployment – Debt ratio – Home prices SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 37

Chapter 4 Working with Buyers Distressed Property Timeline • Personal Shift: Four Primary Causes 3. Personal Crises • • • Unforeseen medical expenses Unplanned job transfers Death in the family Divorce Job loss SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 39

Chapter 4 Working with Buyers Distressed Property Timeline • Personal Shift: Four Primary Causes 4. Consumer Confidence • Naïve confidence can help • Overconfidence can hurt SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 40

Chapter 4 Working with Buyers Distressed Property Timeline • Chart Shows Key Features of Distressed Property Process – Pre-foreclosure, foreclosure and postforeclosure – Know your local state laws and regulations! • The Distressed Property Timeline Chart with Definitions SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 41

Chapter 4 Working with Buyers Distressed Property Timeline • How to Read the Timeline – Personal shift—events that impact homeowners – Market shift events—things that relate to the status of the property itself – Buyer interest—when buyers can learn about properties SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 43

Chapter 4 Working with Buyers Distressed Property Timeline • Personal Shift – PS-1: Missed mortgage payment – PS-2: Notice of Default – PS-3: Deed in Lieu or Loan Modification – PS-4: Intent to Foreclose – PS-5: Foreclosure – PS-6: Eviction (if needed) – PS-7 Redemption or Reinstatement SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 44

Chapter 4 Working with Buyers Distressed Property Timeline • Market/property Shift Events – – – – – MS-1: Conventional loan MS-2: FHA or VA loan MS-3: Short sale MS-4: Trustee or Sheriff’s Sale MS-5: Prelist Auction MS-6: Assignment to Asset Manager MS-7: REO Listing with Agent MS-8: REO Purchase MS-9: Bank Fails; FDIC Takes Possession SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 45

Chapter 4 Working with Buyers Distressed Property Timeline • Buyer Interest – BI-1: Preforeclosure Sales – BI-2: Short Sales – BI-3: Trustee or Sheriff’s Sale – BI-4: Prelist Auction – BI-5: REO Listed with an Agent – BI-6: FDIC Sales SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 46

Chapter 4 Working with Buyers Distressed Property Timeline • Exercise: Can You Consult about the Distressed Property Timeline? – Step or point selected – Why you selected this step – Your headline message for the buyer SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 47

Chapter 5 Working with Buyers Understand Buyers and Meet Their Needs • Three Primary Buyer Types – Move-Up: The home they thought was out of reach – First Time: Motivated by low prices, low rates, and tax Incentives • Use the Your First Home book and marketing kit – Investors: Beginning and Experienced SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 48

Chapter 5 Working with Buyers Understand Buyers and Meet Their Needs • How to Find and Attract Buyers— 5 Ways to Lead Generate 1. 2. 3. 4. 5. Best buy marketing Be the local economist Offer classes Get in their path with open houses Use custom email campaigns from My. KW. com SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 49

Chapter 5 Working with Buyers Understand Buyers and Meet Their Needs • Vital Assistance: Help Them Find a Loan – FHA and VA gaining popularity – REO-owning lenders getting more aggressive • Exercise: Be Financing Smart SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 50

Chapter 5 Working with Buyers Understand Buyers and Meet Their Needs • How to Find Properties – Network – Advertise – Search ads – Get lists – Monitor online – Go to auctions (government and private) SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 51

Chapter 5 Working with Buyers Understand Buyers and Meet Their Needs • Use a Criteria Filter (from MREI) – – – – Location Type Economics Condition Construction Features Amenities SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 52

Chapter 5 Working with Buyers Understand Buyers and Meet Their Needs • HUD Homes • FDIC Homes • Auction Opportunities: Be Prepared – Local government (trustee, sheriff) – Auction vendor’s events (prelist property previews) SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 53

Chapter 5 Working with Buyers Understand Buyers and Meet Their Needs • Special Needs of Investors – Offer Tips • • Save Go reasonably low Put cash in Use other people’s money Know property management Stick with good stuff Require positive cash flow Multi-family is a challenge SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 54

Chapter 5 Working with Buyers Understand Buyers and Meet Their Needs • Special Needs of Investors – – Spot cash flow opportunities Tax deferred exchanges Use specialists in title, escrow Government working for investors, and you • Now 10 property limit with loans, up from 4 – Recognize commercial investors’ needs – Know there’s competition for investment property SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 55

Chapter 5 Working with Buyers Understand Buyers and Meet Their Needs • Exercise: Match Buyer Types with Their Property Needs – Move Up – First Home – Investor Goal: Cash Flow – Investor Goal: Appreciation SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 56

Chapter 5 Working with Buyers Understand Buyers and Meet Their Needs • Lead Conversion Real Play – Real-play’s success track record – Ground rules and suggestions – Scripts (see your guide) – Appointment setting calling – Your success rate and how to improve it SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 57

Chapter 6 Working with Buyers Buyer Service • Distressed Property Differences Focus on Steps 5 and 6 of the Buyer Mastery Buyer Service Cycle: 5. Offers and Negotiation 6. Contract to Close • Many of the most unique features of distressed sales happen here SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 58

Chapter 6 Working with Buyers Buyer Service • Make Offers That Close: Know the Issues – How deals get done: REO • • • “As Is” means as is Be very patient Buyers: Be absolutely qualified Offers with clean terms win Decision times are improving Seller is unemotional Multiple offers happen Added paperwork a given Clear title should be assured by lender SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 59

Chapter 6 Working with Buyers Buyer Service • Make Offers That Close: Know the Issues, cont. – How deals get done: Short sales • • “As Is” means as is Hold on to your buyer Attention to detail and accuracy required Avoid multiple offers Be absolutely qualified and ready to close Be prepared to go slow, then fast Watch for Short sale streamlining ideas Protect your buyer and you: interview listing agents SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 60

Chapter 6 Working with Buyers Buyer Service • Handle Multiple Offers – Short Sale vs. REO differences chart • • Multiple less likely in SS; likely in REO One submitted in SS; all submitted in REO Lender is in charge in both SS and REO Lender decides in SS; lender may ask REO agent’s input SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 61

Chapter 6 Working with Buyers Buyer Service • Exercise: One of Many Offers? Handle It! – In REO, how to counsel listing agent – In REO, how to counsel your buyer – What would you say differently to both the listing agent and your buyer in a short sale multiple offer situation? SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 62

Chapter 6 Working with Buyers Buyer Service • Educate Everyone About Contract to Close – Post a buyer’s guide on your website (see sample web posting in your guide) • Be directive • Be specific and detailed SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 63

Chapter 6 Working with Buyers Buyer Service • Closing – Title and escrow perspective: REO • • Seller is likely elsewhere Lender scrutinizes and clears title Time to deal with HOA Last-minute HUD-1 delays happen – See title company sample handout SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 64

Chapter 6 Working with Buyers Buyer Service • Closing – Title and escrow perspective: Short Sales • Study the prelim carefully for liens, encumbrances, etc. • HUD-1 accuracy is crucial • HOA liens or past dues must be watched • Quick closings can happen SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 65

Chapter 6 Working with Buyers Buyer Service • Some Final Service Suggestions – Get out there; teach, write, be a spokesperson – Protect everyone with a signed disclaimer • • Transaction explanation Closing expectations Commissions As is Who pays what costs Financing Multiple offers SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 67

Chapter 7 Working with Buyers Buyer Side Evaluation and Action Plan • • Goal: Choose Your Path Review the Challenges Rate Yourself Write Out Actions Needed and Time Block to Get It Done – Focus on your ratings of 3 or less SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 68

Chapter 7 Working with Buyers Buyer Side Evaluation and Action Plan • Take SHIFT: Tactic 11 Distressed Properties’ other two courses – Listing Short Sales – Listing REO • Decide on your best path, based on good information and honest self-evaluation • Survive and Thrive! SHIFT Tactic 11: Distressed Properties V 3. 2 © 2008 Keller Williams Realty, Inc. 69