(TheNicheReport) -- According to CoreLogic, with approximately 23% of homes with negative equity, there are over 11 million homes that agents drive by helplessly wishing there was something they could do to get some of that business. Well, in Southern California, for 10 years a husband-and-wife team has serviced the short-sale and distressed housing market at a time when it was a niche segment of the real estate industry; little did they know that this ‘niche’ would become the market itself. There names are Aram Afshar & Claudia Afshar of Afshar Properties.
In a distressed housing situation, confidentiality and dealing with someone who is competent is what separates a homeowner from solving a serious economic problem and, in many cases, fraud. What is striking about Afshar Properties in Los Angeles is their consistent emphasis on confidentiality and their long history in the business. Their focused line of questions is aimed at identifying opportunities for the borrower to get out from underneath what, to many, is a crushing financial situation. In a sea of companies who have jumped into the market to meet this market demand, Afshar has been at the forefront of this since the downturn. Lining themselves up with Coldwell Agents, they’ve closed a little over 400 short sales to date.
This group caters to high-end homes, of which many are in default in the Los Angeles. The affluent areas – many of them $2-$3M+ properties – that are in default are some of the most pristine properties in the most affluent communities in the world. For the higher-end clients, any property $2M or over, it is often their business managers who are working with specific families. At present, Afshar has about 35 listings. On the buying side, there is a phenomenon in the higher-end markets reflecting a substantial opportunity for investors and cash buyers.
The biggest obstacle in getting these deals done - the seller needs to understand that this is the best existing strategy, and to learn to rely upon experts like Afshar to identify a solution in the transaction. The lenders are willing to work with professionals to help sell the property. These housing negotiations are complicated, and the deal needs to be structured to determine which lender and creditor gets which amount. These transactions revolve around the reduced purchase price of the home, negotiating with multiple lenders, negotiating tax liens, county liens and credit card liens. Their history and expertise provides a comfort level for their clients, and for good reason – their success rate is 90%. It takes approximately 90-120 days to finish a transaction and, in the end, their clients are significantly better off as a result.
I was able to ask them a few questions to get ideas for Agents across the country as to how to successfully penetrate this market segment. That is why they are our Top Agents for April and here is what they had to say:
In what new markets are you starting to see short sales?
While short sales are not a very sexy segment of the real estate market, they have become quite prevalent and now include many luxury properties. Recent figures show that 25% of all sales in the fourth quarter of 2011 were either short sales or foreclosures. These numbers are predicted to grow in 2012.
How did you get into this segment of the market?
After graduating from USC's Marshall School of Business 10 years ago, I helped run a very successful mortgage company. When the market collapsed in 2007, I believed that the risky loans lenders were offering would eventually begin defaulting. At that time, I formed Housing Assist of America with my brother Ari to focus on that segment of the market. We created technological systems and a high level of expertise to help the homeowners that were struggling with their mortgages. In 2011 we joined Coldwell Banker Beverly Hills North. Since I started, I have closed over 300 short sales while assisting thousands of homeowners in distress.
What's one of the most significant changes that you've noticed?
The typical short seller has changed greatly over the past few years. It used to be mostly lower-income earners in severely distressed regions. Now, we are seeing the higher earners in more affluent areas needing to short sell. For example, there are over 160 properties with Notices of Default filed in Beverly Hills and Bel Air. This was unimaginable a few years ago.
Describe a short-selling scenario.
Short selling can be a great way for someone to start fresh and rid themselves of overburdening mortgages. In many cases, when a person owes more than the value of their property, they are in a position of negative net worth. It may be years before the market recovers enough for them to have any equity in their property. Businesses often will cut their losses or stop putting "good money after bad."
Consider a common example of the homeowner with $100,000 of negative equity and the decision to either accept a loan modification from their lender or short sell. If they go the modification route, they will have lower payments but it will take them approximately eight years for their property to appreciate enough to have any equity in it at all. On the other hand, if they were to short sell today and purchase a property in two years, they would set themselves up to have almost $100,000 of equity in their new property. It is clear that the short seller is financially better off over the long run.
There are definitely reasons to consider short selling sooner than later...there are laws in effect until the end of 2012 that protect short sellers from the lenders pursuing them for the deficiency as well as their tax liability on the lender's loss. After 2012, all bets are off.
What's the process like?
There are a couple of pre-qualifications for a short sale. You need to have a property worth less than the loans and liens on it. A common term for this is being "underwater" or "upside down." The other qualification is hardship. Common hardships include reduction of income, increase in expenses, medical issues, and divorce. From my experience, most lenders generally prefer any resolution over foreclosure. I have received lender approvals for many clients of mine who stayed current on their mortgages.
Short sales can be very complex, so having an expert on your team can be critical to getting the job done. I have been told by my clients that the manner in which we treat them and the level of clarity they receive during the process was the opposite of the nightmare stories they have heard elsewhere. My team really does make the process as easy and painless as possible for our clients.
What is the take-away factor for short sales that you would like people to know about?
I think at the end of the day, I would like people to know there need not be a stigma with short selling their property. It is a responsible action that puts the control in their hands. They are agreeing to the exact terms on which they will be leaving the property.
I can speak to this, since I short-sold one of my own properties. Like many, I purchased at the height of the market. As the market continued to deteriorate, I realized that I was able to rent a better place for almost half of what my mortgage payments were. At the eleventh hour, my lender offered me a modification that would reduce my payments slightly. However, they would not do anything about the principal loan balance which was now twice the amount of my property value.
I decided to take advantage of the laws that protected me financially and I successfully short-sold. After I sold, the negative emotions that I experienced disappeared and I have been able to put myself on a positive financial path which includes responsible home ownership. I hope to show people in the same position that they can do the same.
Rick Roque, Managing Editor, TNR for Real Estate Agents & Brokers. [email protected]
