Door to Door Marketing for Expired Listing Sellers

Many people do not like door to door.  I love it.

I get a list of expired listings and knock on the seller's door.

Why did the listing not sell?  I love this article by Realtor Bill Gassett

1. http://www.sellmyhomeinmetrowestma.com/My_Home_Exp...

Usually not priced correctly for that time in the real estate sales market.

Which is good for me, the TERMS INVESTOR.

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What is a "terms" investor?

Well it is not a CASH investor.

A terms investor as a real estate investor that looks for problems and offers unique solutions to home sellers.

An expired listing that is not price correctly generally means they don't have a lot equity.

Here is an example:

$100,000 house and they owe $98,000
so most people think you $2000 in equity.

There are "costs to sell" involved, and they include

• commissions with an agent,
• closing costs,
• sellers concessions,
• spruce up costs like painting the walls to light landscaping, and
• vacancy costs while the house is being sold from the signing of the listing to actually getting paid when the house sells.

All this together "tends to be" between 10 to 15% of the value of the house. There are exceptions, especially in expensive homes.

So the seller, if they price a house right at $100,000 and it costs 10% the 15% to sell, then the seller is going to net between $85,000 and $90,000.

But if they owe $98,000, Sellers have to pay money at closing to sell the house. 

Many people do not have $13,000 dollars to sell their house.

If the sales price were more expensive, like $200,000 or $300,000 or even $500,000, the costs to sell might be a little bit less by percnetage but generally it's 7-10-12%, so the cost to sell can easily be a lot of money: 30,40 50,000 to get rid of their house.

How can a house have negative equity, or no equity?
At the height of the market in 2005, 2006, an 2007, houses were sold for more than they were worth, and people were getting 100% mortgages. That seems like a long time ago but with the mortgage interest that's being charged, and with very little principle is been paid down on the mortgage balance, it is easy to see the "no or little equity" on some of these houses.

So I look for "market for" pretty houses with very little equity.
Why? I can make 3% and help the seller sell at top sales price, without an agent, without closing costs even.
How how can I do that? Lease to own.

Lease to own is a concept where somebody rents for a while, gets his-her neighborhood in a great school district today, gets a pretty house in good condition, has a landlord pay all the maintenance, and they have time usually 12 the 24 months to work on their credit rating, debt to earnings ratio and a FICO score.

When credit was easy, 2005 - 2007, anybody who could fog up a mirror could get a mortgage.
New laws such as the Dodd Frank Law and the Safe Act Law require tougher rules on mortgage underwriting, thus creating more turn downs for the middle class getting mortgages.

The "ability to repay rule" is an issue for many borrowers. This "ability to repay rule" has a debt to income ratio of 43% generally. If you have more than 43% debt to income ratio it's very hard to get a mortgage, even if you have a big down payment and a good FICO score.

So how you set the situation up where you can make 3%?

Well let's keep it simple and use that example from the beginning, $100K house with owing 98K, $2k in equity, cost to sell 10% to 15% with the agent's commission, closing costs, sellers concessions, spruce up costs, and vacancy costs 3-4 months from listing to actual close of sale

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The Listing Presentation

I have heard it all from agents and their listing presentation about "meeting the market" or "the market will tell you what your house is worth"

Although seller financing doesn't increase the value of the property, you can get the number of buyers through your house a lot higher than the average house. 

In your listing presentation, you should know what the mortgage payoff amount is ibefore you give the presentation.

If you are a listing agent you should care very much about what your sellers will net or keep. 

So many sellers are ignorant as far as their net proceeds. 

 If you have very little equity these net proceeds are very important. 

If you have 50% or 75% equity it's a lot less important.

So using the example above, I would say the following:

Mr. & Mrs. seller, I'm show you today all your choices not just some of them. 

 You can basically do four things to move your house if you must leave.

One you can sell traditionally with an agent likely and do a listing arrangement and that will net you about 85% to 90% of the value of your house.  I'll go into the numbers in a moment.

Two you can rent out the house and wait for some kind of appreciation which will offset the negative equity or the little equity you have.

Three you can do some kind of a lease to own , that means someone rents from you and wants to buy it at the same time, it sometimes called a lease purchase or lease with option.

Fourth you can do some kind of seller financing or wraparound mortgage where you keep that loan in place and you sell the house, there's a new mortgage that's wrapped around your existing mortgage.

I want to go through each one of these four choices with you and that way you know all your choices as far as fixing your house issue.

Let's try to get a realistic number if you sold it for cash and how much that would be. The comps here say that the average is approximately $100,000, which means the sold prices in this area for house like yours is about $100,000. To get the $100,000 I recommend you listed for 97,000 to get a lot of different offers and then try to get the price higher with competing buyers.

I know you owe $98,000 so that's difficult and you would probably have to pay to get rid of the house if you did that. 

But the cardinal sin when you list the house is to "misprice" it, then nobody sees the house and sits vacant and you pay the PITI payment evey month. 

 Worse, the listing get stale and the buyers agents won't bring anyone to see the house, if you overprice it.

Let's look at number two now: 

just renting it might be a solution for you and waiting for some appreciation. 

 If you hire a property management company to collect rents and keep an eye on the property's maintenance, the price for that will be 7 to 10% of collected rent. There can be no guarantees that the rent will be collected, and no guarantee there will be no damage. 

Most property managers are overworked, and they put out fires all day with evictions and non paying tenants. You might find damage in your property months after it happened. If you rent it out there might be an eviction in case the rents not being paid, also a cleanup costs and a new marketing cost for new tenants.

Thirdly looking at lease to own, the tenant tends to be a much better person that wants to own the property, that might even improve the property at their own expense.

They do need counseling on getting their ability to get approved for a good mortgage loan, and homeownership will be a top priority.  They tend to take care your property very well, and treat you the landlord very  well, communicating problems with the home if repairs are needed, and paying their rent on time because it affects their ability to get the mortgage.

I myself work with the tenants and make sure that they're working on getting a FICO score up and paying down debt so they can get approved for mortgage as soon as possible.

Lets look at the last solution: wraparound mortgage or seller financing. 

It's also called an all-inclusive deed of trust in other states. 

What's nice about the fourth option is the house is sold, you have no expenses as a landlord, the buyer on a wraparound mortgage has a title ownership. 

They pay the property taxes and insurance and the maintenance. 

 So you have much less costs if you sell it on a wraparound mortgage.

Let's talk a little bit about cash buyers versus terms buyers. 

There is a finite group of buyers that are cash qualified, in only half of all the applications are approved right now with the tightened up credit. 

The cash buyers today are very picky... if they dont  like your kitchen or your bathroom they will ask you change it. If they don't like the paint throughout the house they will ask you change it.  If HVAC needs a little updating, they will ask you to change it. So the bottom line is cash buyers are picky.

Let's talk now about terms buyers. 

 If a buyer on a lease to own or a buyer on a wraparound mortgage wants a house in the right neighborhood and the right school district for their kids, they will overlook paint color, size of bedrooms, lack of closet space, lack of land in the back, location on a corner, too busy of the street, etc. the bottom line is terms buyers are a lot less picky than cash buyers.

When you list your home with me,  Mr. Mrs. seller, we can market for terms buyers and get them into the house quickly. 

Cash buyer may take four months five months six months, the terms buyer can be done in 45-60 days.

The closing costs for terms transaction is a lot less than a cash transaction. There's no sellers concessions or vacancy costs waiting for a vacant house to sell. You don't even need to move out. Just tell us the day that your them about, we'll order a good cleaning for $100 - $200, and they will move in the next day.

So again your choices are 

if you have a cash sale you probably have to pay $10,000 to $13,000 to sell because of the little equity you have.

2. You can rent it out and take your chances with an unproven tenant that may or may not pay the rent on time,

3. Or you can consider lease to own transaction where they will make a payment to you four 1224 months and then get a mortgage and pay off your 98,000 that you owe.

4. And lastly you can consider wraparound mortgage transaction where the house is sold and the new buyer will pay all costs, including maintenance and taxes and insurance.

If you sign my listing agreement, I can get going marketing for cash buyers and terms buyers at the same time.