Buying Houses with Hurricane Matthew’s Damage

hurricanedamageThe State of Florida and many other states were affected by Hurricane Matthew, leaving many Sellers with problem houses.  I am located in Oviedo, Florida, and being a transplant from Michigan, I have never been in a Florida Hurricane.  All of my houses were blessed with minor damage such as big trees down in the back yard, shingles flying off the roof, branches and trash everywhere. I am very grateful to God for these blessings.  Other Sellers were not so fortunate and my heart goes out to them.  They now have to deal with making a huge decision of fixing the house or selling the house.  Some Sellers may not even have insurance on their house.  However, if they do have insurance, let me explain the process.

An insurance claim can be long and dragged out with many Sellers becoming very frustrated with the insurance company’s findings.  These are Sellers that may need your help with you buying their house.  First, let me explain the process on Insurance Claims.  Sellers will notify the insurance company of damage to the property along with providing them a list of items damaged.  If the Insurance Company and the Sellers can come to an agreement, then a check is sent to them in their name and the names of all mortgage companies that may have a lien on the property.  Pursuant to the terms of the mortgage that was signed by the Sellers, all insurance proceeds are to be used to re-build the property to make sure that the mortgage companies have an asset that is worth the amount of their loan.   When there are large claims of loss to the insurance company, they normally dispute the amount of the claim and the Seller will have to hire an independent insurance adjuster to assist them in disputing the claim.

I am going to tell you about a home that I purchased from a Seller that had fire damage.  First off, the Seller had already contacted the insurance company and the claim was approved.  However, the funds were to be sent to the Seller’s contractor in drafts.  My company is a Limited Liability Company, so we were the company that would be the contractor for the Seller.  We had to perform a specific amount of work and then they would send out someone to inspect the work and issue a check to our company.   So … we knew how much money the Insurance Company was going to pay for the repairs to the home.  We knew how much money it was going to cost for the repairs which, by the way, was lower than the amount that the Seller was given on the insurance claim.

How did I figure out the purchase price of the home?  First, I needed to know the value of the home after all the repairs; this is the After Repaired Value.  I then needed to know my cost for the repairs of the home and the cost for the repairs that the insurance company was willing to pay.  I used a simple formula…I took the ARV x 65% – My Repair Cost = Maximum Allowable Offer.  I also deducted the amount of insurance claim from the amount of my repairs to see how much more I could give the Seller.  Let me give you an example:

ARV ($100,000) x 65% = $65,000 – My Repairs ($25,000) = Maximum Allowable Offer $40,000

Insurance Claim $45,000 – My Repairs $25,000 = $20,000 difference

Maximum Allowable Offer $40,000 + $20,000 = New Maximum Allowable Offer of $60,000

This was a win-win situation for my Seller.  I prepared a contract that clearly stated all the terms and conditions of the agreement and a Deed was held in escrow until the insurance claim was completed and I could purchase the property.  If I would have purchased the property immediately then the insurance claim could be invalid as the Seller no longer owns the home and I didn’t want to take the chance with having any problems.  Should you purchase a property from a Seller who has an insurance claim and you are thinking of acting as their contractor, you will need to read all the paperwork.  A Licensed Contractor may be necessary, as it was in my deal, along with having an Attorney assist you with all the paperwork.

I hope this thought will help you assist many Sellers that may have to sell, have insurance and need our help.  Be fair with your offer and make a win-win situation and don’t take advantage of the situation.  We all need to work together to help people during these times of need.  Whatever you do as an Investor, it affects all of us, so make it a win-win situation or walk away!

Please keep sending me your questions and topics that you would like to hear about, so I can be sure to keep feeding you with the information that you need in order to move confidently through 2016 and bring your Real Estate Dreams to Life!

 

Kimberlee Frank

www.ForeclosuresGoneWild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

www.SellFastRealty.com

Like me on www.facebook.com/foreclosuresgonewild

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Fighting Value on Short Sales

number1The number one thing you need to understand about a short sale is that the short sale lender must realize the true market value of a property.  Recently we got a house in Sanford that needs everything and I mean everything redone inside and out.  The house has multiple types of siding, the tile inside the house has been pieced together, various sizes and colors, and is pushing up from the ground due to water damage, the rotted wall from the 3rd bedroom was removed which makes the house a 2 bedroom, the air conditioner is not working, doors, lights, fixtures are all missing, and the kitchen cabinets have mold all over them.  SPS is the servicer for the Short Sale Lender and they are really easy to work with.  In fact, they normally process a short sale within 30 days, so you need to be ready when you submit the short sale package to the bank and ask them to provide you with a Broker Price Opinion (BPO) or an Appraisal.

We submitted everything into the bank and were very excited to immediately hear from a BPO Agent (Real Estate Agent) stating that she has been instructed by the Bank to go out and get value.  We scheduled an appointment to meet her out there.  We had everything ready in a BPO/Appraisal Package to provide to her.  We had the following items:  Purchase Agreement, Estimate for Repairs from a Contractor, Comparables and liens from the City for major code violations.  We were at the house 30 minutes in advance so that we could be ready to meet, as some BPO Agents/Appraisers will come to the property earlier than what they stated and we did not want to miss meeting her there.  However, to our surprise, she sent a guy to take pictures of the property which we call “a picture taker.”  Now you would think that pictures are worth a thousand words, however, this picture taker did not provide the Real Estate Agent with any information about the repairs, comparables or liens on the property.  However, we did forward it to the Agent, but since they only make $50 to $75 on a BPO, she was pretty much done with the value on the property.  As you would guess, the value came back “HIGH.”

This was very disappointing knowing that SPS works quickly now we have to fight the value of the property.  First off, we instructed SPS that the Real Estate Agent did not even come to the house and sent a picture taker doing a MAJOR disservice to the Bank.  What that means is that she as a Real Estate Agent is giving her opinion of value on a home that she didn’t even look at.  Of course we pointed out all the problems with the house to the picture taker but the physical smell and condition alone would have had this Real Estate Agent rethinking her value by far, had she actually shown up.  This house can only be sold to a cash buyer due to the condition of everything!!  A conventional buyer would not be able to even get financing due to every single room in the house has major damage including the roof!  The house is not habitable as it stands.

When you fight value of the property depending on the type of loan, the purpose to dispute the value is to get another BPO Agent that will come out to the house and report all of the repairs needed.  Obviously, if you have been doing short sales for sometime you understand that any cosmetic repairs such as paint, carpet and updating is not considered.  However, non-functional use of the property such as it has missing doors, tile pushed up from the ground, mold, entire walls removed, air conditioner not working, roof leaking these items are not cosmetic and need to be considered in the value.

So now the fight is on!!  We have to send in all the pictures, repair costs with pictures of the condition and the repairs needed and comparables to justify that their price is too high.  I wish we could send them the smell or the feel of the property when you walk in, as you can’t even catch your breath!  Then we need to wait for the investor to review the pictures, repair estimates and comparables to see if they are willing to order another BPO.  If they do not, then we need to wait out the BPO value for 90 days, as that is how long the value will be effective with the Bank.  During this time, the house will just deteriorate even more which is disappointing.  All it took was for a Real Estate Agent to come out and do her job instead of just looking at pictures.  Our goal is for the Bank to see the injustice that the BPO Agent did and re-order another BPO so that this property can be sold asap.

 

The lesson learned on this situation is if the Real Estate Agent states that she is coming out and sends a picture taker instead, refuse to allow access to them and call the bank and request another BPO Agent as they are suppose to spend a minimum of 15 minutes in a home, per another BPO Agent.  If you know anything about BPO Agents, they race through the home in 5 minutes or less and they don’t tell the true story to the Bank which causes lots of delays in short sales.  Always meet the BPO Agent, have a list of repairs from a contractor and comparables.  Remember though, they do not have to take this information from you, but the Bank will always want to see them, so you need to be prepared!!!

 

Please keep sending me your questions and topics that you would like to hear about, so I can be sure to keep feeding you with the information that you need in order to move confidently through 2016 and bring your Real Estate Dreams to Life!

 

Kimberlee Frank

www.ForeclosuresGoneWild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

www.SellFastRealty.com

Like me on www.facebook.com/foreclosuresgonewild

Like me on www.facebook.com/sellfastrealty

 

 

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You Can’t Buy & Flip Houses in Sloooow Motion

buyiyflipitAs a Mentor, one of the biggest things I stress to my Students/Partners is that you can’t buy and flip houses in sloooow motion. As soon as a Seller calls you, you should fill out a Seller Information Sheet and schedule for the following day (within 24 Hours) an appointment to see the house. Most of the information that is needed on the Seller Information Sheet you can get directly from the Seller. I have been asked “How long do you talk to a Seller about their home?” Since this is your first communication with a Seller and you NEED to build rapport, you should be on the telephone for a long time. What does that mean to you?

I would suggest at least 30 minutes on the phone to talk to the Seller about their home, their life, where are they going…anything and everything you can think that you might have in common with the Seller. Sellers like to do business with people they like. So, if you are only on the telephone for 5 minutes, then did you build rapport or even completely ask all the questions that are on my Seller Information Sheet? Probably not. Call the Seller right back and ask ALL the questions on the Seller Information Sheet so that you will know what he/she wants for the house, why they are moving, where they are moving and when they want to leave.

What if the Seller doesn’t give you all the information? Then you need to look it up on the public records. You also need to immediately drive by the exterior of the home and if it is vacant, look in the windows and/or secure the home for some people. Sellers assume you have already driven by the house and you are to give them an Offer right over the phone without even knowing anything about the house. You want to know everything you can about the Seller, as the only thing that makes a great investment deal is a motivated Seller. If you don’t have one, then you won’t get the price you need to make it a great investment deal for either a flip or hold.

Recently, I dealt with one of the most difficult Sellers. A Partner and I wanted to go to his personal house in Orange City to get him to sign the Purchase Agreement WITHOUT seeing the inside of the 2nd house he owned. He insisted for us to wait. We overnighted the Purchase Agreement to him, based on the facts that we drove by the vacant home, looked in the windows and knew the values in the neighborhood. We called him to see if he would sign the Purchase Agreement and return it and he informed us that we could now get inside the house to see it. We went inside the house and immediately called him back. Again, we wanted to get him to sign the Purchase Agreement. He had an excuse that his daughter also had to sign and we even offered to drive it to her. In the end, he sold the house to the neighbor at the same $50,000 price that WE had negotiated, for a house worth $140k with minor repairs. He didn’t even allow us to counter our price. What is the lesson on this deal? Drive out to his house and just stop by and see if you can get him to sign it. What if he said no, can’t come in and/or no he won’t sign it right now? Well, we lost the deal anyway so what do you have to lose? See if you can get both Sellers in one location for signing.

Another Student contacted me about a great short sale that had loads of equity in the home. She went by the house, took pictures and even secured the house with new locks since the house was unlocked. I sent the Seller the Offer overnight with a return envelope, at the asking price that she wanted. The Student went on vacation and I called the Seller several times. The Seller had built the rapport with the Student, not me, so I did not have the relationship that the Student had. I finally got a hold of the Seller and she informed me that she received another offer which was $6,500 higher than ours. I told her that we could match it, as the Student did get in to see the house after our last call. She refused to sign with us and said she was going with the other person. The Seller lived out of town, so how do you think you could have made this deal work? I believe constant contact with the Seller with long discussions to build better rapport. Obviously, the other investor offered higher, offered to pay for an attorney and could close in 10 days or less. Which doesn’t always happen due to inspection, title work and closing package; however, they locked the deal. Next time, I would suggest that listening longer as to what the concerns are with the Seller will get us the deal.

Another Student spoke with an elderly woman who owned a vacant home. The student gave her the amount that she wanted, prepared a purchase agreement and even went to her location where she lives. She then said that she had things in the house that she wanted and needed to wait 2 weeks prior signing the purchase agreement. The student did offer to help her move her belongings and extend the time of closing on our Purchase Agreement, however, she still wouldn’t sign. As to the status of this deal, I don’t know yet. The Student definitely needs to go again to the vacant house and see if there is any activity there and go to the Seller’s house and get the deal signed. However, obviously we did not really find out her main concern why she won’t since the contract, so it will take another 30 minutes at her house, face to face, to get this deal done.

My hope is that this article will deeply impress upon you the importance of a 24 hour contact with the Seller, going to the house, whether or not you can get in, filling out the Seller Information Sheet with all the information on the home, knowing your comparables and having the Purchase Agreement ready to be signed the day you go to the house. Let me ask you as a Buyer: Do you have to buy the house, if after the inspection you found out that your repairs are too much or you won’t make any profit on the house? No, you don’t have too; however, you have locked the house up for at least 15 days for inspection and no one else can buy the house. Also, if the price is not a good deal for you, you can always counter the Seller at that time, after inspection, to see if you can make it a win-win situation. If not, then you didn’t lose anything. You did receive the knowledge and the experience of dealing with a Seller, identifying repairs on the house and how to make the next deal better!

Please keep sending me your questions and topics that you would like to hear about, so I can be sure to keep feeding you with the information that you need in order to move confidently through 2016 and bring your Real Estate Dreams to Life!

 

Kimberlee Frank

www.ForeclosuresGoneWild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

www.SellFastRealty.com

Like me on www.facebook.com/foreclosuresgonewild

Like me on www.facebook.com/sellfastrealty

 

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