How to Do a Sales Pitch in Commercial Real Estate

In commercial real estate, you will undertake a variety of presentations, in a variety of circumstances. Most of them are business-like in nature, focusing on the needs of the tenant, the property buyer, or the property seller.

Get to the core issues

Each of these groups has unique property requirements and points of focus. It is their needs which must be identified and clearly addressed in the sales pitch or presentation. Many successful commercial real estate agents will have a preliminary meeting with the client or customer so that they can identify key issues and concerns. This allows the commercial agent to return to the client or customer in a few days with a well structured proposal that addresses the needs of the customer or client.

It’s all about THEM, not YOU!

When you design an investment or commercial property proposal for presentation, the document should be 90% regards the property and the client. Frequently you see this rule disregarded or broken with the proposal document being largely regards the agency and the personnel.

Rarely is the property transaction a simple matter of the property rental, the property price, or the physical elements of the property. In most situations, it is the combination of these things which must satisfy a fundamental equation of need that the customer or client has. In getting them to this fundamental need, you will identify an element of pain that the customer or client is experiencing. This is what you focus on.

They are Experienced

It is interesting to note that many clients and customers in commercial real estate are reasonably comfortable in circumstances of business negotiation. This means they may not tell you the total big picture or all the elements of a transaction until they are ready. Conversation and connection in the presentation process should be biased towards the client or customer using well selected questions which allow the agent to interpret the body language coming from the client’s response.

When you believe you have identified the element of clients pain related to the property transaction, you start to magnify the problem in terms of today’s market, then offering stable and logical solutions that your real estate agency business can provide to the client or customer. Invariably, the commercial real estate transaction in today’s market centres on financial matters such as:

  • High vacancy factors
  • Other property choices and chances are available
  • Underperforming leases
  • Unstable cash flow
  • Unstable tenancy mix
  • Tenanted conflict
  • Escalating building operating costs
  • A shift in demographics which exposes the property to a unstable future
  • Mortgage payment pressures
  • Age of the asset
  • Needs for refurbishment or extension
  • Competition properties attracting tenants away from the subject property

This type of information and interpretation requires your intimate knowledge of the local region. This is by both property type and by location. This is the higher value that you bring to the customer or client. Being able to distinctly define local market awareness is a major advantage in any commercial real estate presentation or sales pitch. You must be seen as the best knowledgeable solution to the problem.

From Experience

After many years working exclusively in the commercial real estate industry, I found that my unique skill was in market knowledge and the display of that in any formal presentation to the client. Being able to talk about market trends and financial performance in a solid and sound way will help the client understand that they need your services. Coupling that with your extensive and relevant database of enquiry clearly shows the client that they need you.

A fantastic commercial real estate presentation is a function and balance of lots of things. Things like:

  1. A well established pre-planning process is a strategic advantage for every commercial real estate presentation. Strategy is everything in commercial real estate. Every property presentation requires planning.
  2. Making sure you are asking the right questions of the client or prospect. Plan your questions relative to the subject property so that you help the client think about opportunity and changes that are possible.
  3. Using your market knowledge and giving good answers. Have a variety of market facts and trends available to call on. Feed them into your presentation; facts are always useful. They can also be used as a channel to direct the discussion when the client is forcing you to justify your approach or your experience. Confidence and control must be the basic rule of your property presentation. When the client takes control of the presentation you have lost.
  4. Using your experience in the marketplace so that you are telling relevant stories of success in similar properties. Stories of other properties will always interest of the client.
  5. Making sure your personal presentation is optimised for the connection in the presentation. It can be that you are using a combination of the proposal document, the marketing document, and computer slide presentation, samples of your database, photographs of the subject property projected on to slides, and photographs of comparable properties projected on to slides.
  6. Choosing the placement of people at the table or strategically positioning them in the room is always important. Much has been written about where you should sit relative to the client. The basic rule is adjacent to the client rather than across an area of barrier such as a table. Being within arm’s reach allows you to pass documentation to the client at the appropriate time. Documentation should not be provided to the client until you are ready for them to review it; otherwise it is a distraction of their attention.
  7. Make sure that your proposal is simple and yet well directed with a clearly defined outcomes of sale or lease. Many proposal documents in commercial real estate are much too wordy so the main messages are lost and not clearly defined. The best proposals are less wordy and more illustrative. The best balance of a commercial real estate proposal is a mixture of 25% words, 25% pictures, 25% graphs, and 25% white space. This becomes a document which is clearly read and understood.
  8. Combine good illustrations and photographs of the subject property into the proposal or presentation so that any lengthy descriptions or paragraphs are broken up. This will keep interest of the client in your documentation.
  9. Make sure that your marketing package is value for money, and yet reaching the target market that the property serves or needs to attract. All too often, we see examples of generic marketing by the commercial real estate agent to the broader and less specific marketplace. Showing the client that you clearly know and will attract best the target market will always help your conversion to a potential listing. Be very specific about the target market and how you will reach it.
  10. Ensure that your commission costs are fair and reasonable for the location. In most circumstances, discounting your commission should not be an option as it will make you poor and remove or detract from your enthusiasm for the sale or lease. ‘Cheap’ means ‘cheap and without focus’ and the client needs to know this. The property deserves better. You are not cheap because you are the best and you do a great job. A fair commission is always paid for a positive property outcome.
  11. Always provide testimonials that are relevant to the property transaction. When you combine relevant history and details of happy customers into your presentation you will make the client feel more comfortable.
  12. Always display clear and sound market knowledge that impresses the client relative to their property. This will include extensive awareness of comparable properties that compete with the subject property. You should be able to talk solidly about property prices, comparable rents, rental growth, returns on investment, changes to the future demographics of the area, and properties in the immediate precinct of relevance. In many cases, it pays to walk around the local area just prior to any property presentation so that you bring immediate and clear pictures of the precinct to the discussion. Many times this has been of significant advantage in my presentation processes. Talking about neighbouring properties localises the client and their thought processes.
  13. Come up with a variety of ways to serve the client. Innovation and relevance will always impress. In today’s market, this is relatively easy considering the marketing opportunities and tools provided by the internet & technology. Be proactive in your property promotion processes so that the listing for sale or lease stands uniquely different in its marketing campaign from the others in the area. This does not have to be expensive to the client or to your office, given that the internet and electronic technology is historically cost effective. In today’s market, the traditional methods of publicising the property in the property pages of the local paper, is becoming much less important in the marketing campaign. Most commercial property buyers and tenants research the market from the Internet first and foremost.
  14. Almost every property agency will say that they have excellent communication and connection skills to support the property promotion process. From experience, this is largely incorrect and typically the average commercial salesperson or leasing person will exercise ordinary communication channels with the client. Put yourself in the shoes of the client. They expect and deserve frequent updates on the promotion of the property even when nothing is happening or when the adverts are producing little response. When a property campaign is not producing the results, it is important that you act or adjust with alternative recommendations and strategic changes to the promotional campaign for the client to consider. Rarely would you get to the property campaign correct in the first week. It is in this time that you must consider fine tuning the promotion process so that the target market is being reached in a timely and effective way. This means that every property enquiry generated from your promotions must be tabulated so that you understand what channels of marketing work most effectively with the property in question.
  15. When addressing the client or the client group in a formal property presentation, the answers and information you give must be delivered well and provide relevant solid property knowledge, in a practiced and professional delivery. Any sales or presentation tools relative to the property must be relevant and you should know how to use them with exceptional skill. Fumbling and faking information is not tolerated by the client.

So there you have it. These are some of the key skills to use in a commercial real estate presentation. Whilst many real estate agents think that they are the best alternative in the market to promote sell and rent commercial property, the reality is they do not get the message across when it matters most in front of the client.

To be the best commercial real estate agent in your area, you must show that you are just so, and you do this in the first 10 minutes of the time that your presentation takes. The client will have formed an opinion by then.

Be prepared to walk away from any demands for discounting that the client or customer demands. In this market they need a great commercial real estate agent providing a great job; discounting is not an option. Show pride in your services and walk away when the client demands discount in marketing or lower commissions.

If Technology Is Effective in the Classroom – Why Do Some Students Dislike It So Much?

The effectiveness of technology use in the classroom has become a controversial issue. While many teachers and students feel that it’s best to use technology because it enhances teaching many others feel that it causes too many challenges and that it is a waste of time. If technology is as effective in the classroom as many teachers believe it to be; why do some students dislike it so much?

In order to objectively respond to this question, 3 articles were examined. 2 out of the 3 relate how the use of technology in the classroom frustrates students while the last one translates the thoughts of students who feel that technology in the classroom has responded to their need. So the issue is not that technology is not effective but rather that some teachers need to be mindful about technology use in the classroom and others need to be trained in order to properly use technology to teach so that students do not view technology as obstruction learning but as an enhancing tool.

After summarizing the 3 articles that have been reviewed we will be able to prove that there are 2 groups of students who claim to dislike technology in the classroom: Those who are improperly exposed to it by their teacher and those who did not give themselves enough time to familiarize themselves with it. We will then be able to get to the logical conclusion that those same students would appreciate the value of technology in the classroom if their teachers used it properly. Let us first summarize the articles that we are referring to.

The article “When good technology means bad teaching related that many students feel that teachers and professor use technology as a way to show off. Students complain of technology making their teachers “less effective than they would be if they stuck to a lecture at the chalkboard” (Young) other problems related by students include teachers wasting class time to teach about a web tool or to flab with a projector or software. When teachers are unfamiliar with the technological tools, they are likely to waist more time trying to use them the technological software that is used the most according to students is PowerPoint. Students complain that teachers use it instead of their lesson plan. Many students explain that it makes understanding more difficult “I call it PowerPoint abuse” (Young). Professors also post their PowerPoint Presentation to the school board before and after class and this encourages students to miss more classes.

Another problem reported in the article with the use of technology in the classrooms is that many schools spend time to train their staff about how to use a particular technology but it does not train them on “strategies to use them well” (Young). The writer believed that schools should also give small monetary incentives to teachers and professors to attend workshops.

In an interview made with 13 students, “some gave their teacher a failing when it came to using Power Point, Course Management systems and other classroom technology” (Young ) some of the complains were again about the misuse of PowerPoint’s and the fact that instructors use it to recite what’s on the scale. Another complaint was that teachers who are unfamiliar with technology often waste class time as they spend more time troubleshooting than teaching. The last complain mentioned is that some teachers require students to comment on online chat rooms weekly but that they do not monitor the outcome or never make reference to the discussion in class.

Similarly, the article “I’m not a computer person” (Lohnes 2013) speaks to the fact that students expectations as far as technology is concerned is very different. In a study done with 34 undergraduate university students, they advise that technology is an integral part of a university students life because they have to do must everything online from applying for college or university, searching and registering for classes, pay tuition and that in addition to being integrated in the administration, etc. technology is also widely used to teach and is valued by higher education.

Those students, however, feel that technology poses a barrier to success as they struggle to align with the ways in which the institution values technology.” A student explains that technology is used in her freshman year to turn in assignments, participate in discussion boards and blogs, emailing the professor, viewing grades and for a wide range of other administrative task including tracking the next school bus. This particular student whose name is Nichole says that she does not own a laptop but shares a family computer. She has a younger brother who also uses the computer to complete his school work so she consequently has to stay up late to complete assignments. She states “technology and I? We never had that connection” (Lohnes). Nichole dislikes the fact that her college requests that she had more contact with technology than she is conformable with. Nonetheless, she explains that as she started doing those school online assignments so frequently she came to realize that they were not that bad.

One of her issues though with technology is that she had come from Puerto Rico about a year prior entering college and that she never had to use the computer so much there. The articles relates that other college students like Nichole have admitted that they are “reluctant technology users” (Lohnes) The article wants to explain, in essence, that although most people would expect that college students prefer technology and are already familiar with it,” that assumption is faulty” (Lohnes).

On the other hand, the article “What Screenagers Say About… ” High school age students were asked about what they thought of technology but most expressed liking it. One of them said about PowerPoint: “My history teacher did a good job with Power Points. He would put them online, which made for really great reviews.” (Screneagers, 2011) Others expressed how technology was really who they are and that teachers should understand for example that when they text in class, they are not being rude but that they have gotten used to multi tasking. Another student invites teachers to not be afraid of technology “Teachers shouldn’t be afraid of technology. Understand that it’s how we live our lives. So don’t just push it out. Learn to cope with us and how we work.” (Screenagers, 2011)

Another student however, expressed how she prefers simpler technology that her teacher is comfortable with rather than high tech that the teacher does not manipulate well “The most important thing for teachers is to be comfortable with what they’re using. It doesn’t have to be super high tech. My math teacher used a projector, and it was one of my favorite classes. Then I would go to this other class where the teacher used Power Points and the SMART board, but I didn’t get any more out of it because she wasn’t comfortable with the technology” (Screenagers, 2011) Students spoke about their appreciation for virtually all types of technology used in the classroom. Another said “One of my teachers used Skype. That’s face-to-face interaction. If I had a problem with some math problem I was working on, I could take a picture of it and put it on the Skype screen. She could see where I was making my mistake. It really helped.” (Screenagers, 2011) The bottom line is that those high school students wanted to let teachers know that they really like technology and that it is already a great part of their daily routine but that it had to be used properly in order for them to enjoy it.

Similarly, they summarize a few things that they dislike as well. Among the list, they said: reading on the computer, paying a lot for an online textbook and the fact that they often forget everything else when they get caught up with using technology.

Nonetheless, they had much more positive things they liked in technology like for example that some teachers would text a question for them to think about before class, so if they do not know they answer, they would communicate with classmates to discuss the possibility for the answer before class. This allows them to go to class prepared. They also like using Skype, emailing their teachers instead of going to speak to them in person. They also enjoy discussion boards. The advice they would like to convey to their teachers is to make sure that they are comfortable with whatever technological tools they are using, to give them more freedom to use the good sites and those in the middle range when they are surfing the net using school computers and to understand that technology is part of their lives.

After summarizing those articles, we can see that the students mentioned in Youngs, 2004 dislike technology because their experience with it was not satisfactory. In other terms, a group of students dislike technology because some teachers are not mindful about technology use or they need additional training. For example, some students are frustrated because they feel that instructors waist their time when they are not properly trained to use the technological tools. Others disliked the fact that some teachers had PowerPoint presentations which were either not meaningful or they would just read whatever they wrote and add no additional comments. Those examples are called “bad teaching (Young, 2004) and they are in fact terrible examples that teachers should not follow because technology is not meant to help teachers do the least work or to adopt poor teaching practices. Somme students related that PowerPoint was widely used by teachers so they even call it PowerPoint abuse.

I can relate to what is being expressed by those students. I observed a Teaching Assistant teach a grammar class recently. He purchased a device to allow him to monitor the screen without touching the computer. He was able to walk throughout the class while changing slides. It all looked so impressive but despite all of this show, students were left so confused at the end of the lesson. When they asked questions, he went back to the slide that had the grammar rule and read it over to the class. The PowerPoint was a duplication of the textbook chapter. The same examples of the book were used. At the end of the course, he felt that he had done a great PowerPoint when in fact, it was not meaningful. It was a copy/paste project from the text book to the screen. This example shows that we need to use common sense when using technology. When teaching grammar, a teacher has to be able to come up with examples other than those in the book, you have to write on the board, have student practice what they have learned. PowerPoint use was a real bad idea, in my opinion, for teaching this course. It was just not the right technological tool for the lesson.

Students in that class may decide that they hate Power Points because it confuses them more while the issue is not with the use of PowerPoint but instead with the teacher’s poor choice of technology. The point I also want to make here is that teachers may sometimes be unaware of their improper use of technology. This is why, as educators, we sometimes need to ask students for their feedback so we may make corrections where needed.

We can then conclude that those students dislike technology as a result of improper technological use by teachers, and also because many teachers do not attend workshops or training sessions to help them obtain a broader knowledge of technology since they are so busy. Like suggest (Youngs, 2004) and (Lohnes, 2012), those same busy teachers would have attended those trainings if there were given an incentive. In the article “Technology Standards in a Third-Grade Classroom” (Kovalik, 2001), it is related how a study done on a 3rd grade class of 25 showed that students were properly using technology. There is no indication that those students dislike using technology. The article also mentioned how the teachers were highly trained because the Ohio board pays incentive to teachers to participate in technology training which teaching them not only how to use technology by teaches them strategies on when to use them.

Boards from other states should consider doing the same thing to ensure that their teachers are responding to the technological need of their students and that they are teaching them according to the standards. The Ohio school mentioned above met the standards as far as technology is concerned because of the technology coaching received by the teachers. If teachers learn how to properly use technology in the classroom, it will be a less frustrating experience for them and for the student who will less likely dislike technology since it will meet its purpose to enhance teaching.

The other groups of students who dislike technology are those who were not exposed to it for long enough. The College Freshman, Nichole advises that she was not exposed to so much technology while she was in high school in her home country; consequently, it seemed to be a burden to her to have to need a computer to complete most of her school assignments but also to interact with her classmate via a discussion board. What is interesting though is that even though she claimed to dislike technology so much, she advised that once she started to spend so much time using it, she realizes that it is not so bad. Even though it is likely that some people do not like the telephone and texting so much, the computer and some website have become part of most people daily routine. In Nichole’s case, she does not own a laptop and has to wait for her turn to use the family computer which means that she has no attachment to this media because her use of it is controlled. However, once she gets to own her own computer, it is a guaranteed that her view of technology will change.

I returned to school after about 12 years. When I was in college the 1st time around, nothing was electronic but when I contacted USF to apply, they told me that everything was online. At first, I asked why everything was online but once I got used to it, I started to understand the value of having the convenience to do a lot of things without having to live my home.

Therefore, Nichole will certainly not continue to dislike technology that much once she gets more familiar and more attached to it. The fact is that she stated that she started to realize that it was not that bad once she started doing so many assignments. She came to the conclusion that the computer was not yet a friend but that it was no longer an enemy; it became to her an acquaintance.

With this understanding, depending on the background of some ELL students and depending on whether or not they were exposed to technology in their home country, they may not like technology at first but this should not be a sign that they will never come to appreciated it. As teacher, we will need to allow them time to familiarize themselves with it while we continue to properly use it so that we do not advocate against it or involuntary send missed information about its true value.

On the other hand, the last article testifies to the fact that the new generation is technology driven and that when used properly, they benefits from it in the classroom, there are several examples of how teachers originally used technology to teach which are appreciated by students. What should the conclusion be then?

We have proven that technology use is effective in the classroom but that teachers need to take some actions in order to make this tool useful to students. It is necessary that they received some training if they lack it, and like a student suggested in the Screenager article, they should refrain from using complicated tools if they are not sure about how to use them. It’s best to properly use something much simpler that they are familiar with like a high school student suggested.

In addition, it is important for teachers to screen the countless technological tools and to research them before introducing them to their teaching. Should they test some that do not work well, they have to stop using them and seek one that is more appropriate. Most importantly, technology is not always the answer this is why teachers should be balanced when using it. If it is required that we use the board and chalks to help students better understand, this is what we should do. Doing so, we will ensure that more students appreciate the use of technology in the classroom for what it is worth.

Real Estate Investing – Part III

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A Bit of Valuable Theory First: Vince Lombardi Would Approve!!

Cause and Effect Relationships

We are familiar with “cause and effect” relationships. A particular “cause” or action will result in a predictable “effect”, reaction or response.

  • “Laws of Physics” tell us that if you throw a tennis ball at a wall, you can accurately predict the direction that it will bounce off the wall.

That is an example of a “cause and effect” relationship within earth’s gravitational fields.

Further, if you change the “angle of incidence” (the angle at which a thrown ball hits the wall) then, you can accurately predict the direction that the ball will take as it bounces off of the wall.

The angle of incidence equals the angle of reflection, and predictability exists.

  • “Laws of Human Response” tell us that if I use hurtful words or actions toward you, then I can anticipate that I will probably receive a predictable response in retribution from you.

If I don’t wish to receive that type of negative response, then I should be careful not to use hurtful words and actions toward you. We call that human nature.

While Laws of Human Response may be less predictable than the Laws of Physics (people can develop good acting skills), a good real estate negotiator learns to control his or her emotions in order to guide the negotiations to a desired result.

  • “Laws of Financial Markets” tell us about the “cause and effect relationships” between “Supply and Demand”.

If demand for a scare commodity increases, but the supply or availability of that commodity decreases, you can anticipate an increase in it market price.

Qualifying Demand Factors:

1.Demand is influenced by purchasing capacity. When dealing with “demand”, only those with purchasing capacity should be considered. Point: If I would love to own one, but can not afford to buy one, my vote does not count as part of “effective demand”.

2.Demand is influenced by availability of financing. If I could afford to buy one with a loan with an interest rate at 5%, but interest rates just increased to 6%, then my “desire to own” remains strong, but only at a lower price that would allow me to finance its purchase within my capacity to service debt. Restated: My “demand” no longer counts at the previous price.

3.Demand for real estate is influenced by the attractiveness of the stock and bond markets. A large part of demand for real estate that caused the “Real Estate Boom of 2004 through 2007” was due to the wholesale rejection of the stock market and the bond market.

Point: Many people lost 40% or more of their retirement account that was invested in the stock market. Many flocked to real estate for fear of continued losses in those other markets. A “feeding frenzy” pushed prices up rapidly. Too many dollars were blindly chasing too few attractive properties.

Qualifying Supply Factors:

1. Supply Responds Slowly. It takes a while for supply for real estate to respond to an increase in demand. You can’t just leave the printing press going over the weekend at the US Mint to create more money. That is an option that is only available to the federal government.

Point One: Observation: To create a new apartment complex, it takes a year or so to acquire the right property, get plans approved as a building permit, build the complex, then rent it out until it’s full. It does not happen over night. This can cause a substantial increase in market price for an existing good looking apartment complex.

Point Two: My prediction: When the market finally stabilizes for apartment complexes, we will see a horrendous increase in “cost” of generating that new complex. Systems development charges, cost of building materials, and financing costs will boost the “finished price” of that property.

Suggestion: Consider buying existing “pre-owned” apartment complexes right now. You will look like a hero later!

2.Political Considerations Influence Financing. The federal government has the capacity to regulate interest rates. The easier it is to finance the acquisition of an income property, the more appeal it will have.

Question: Why isn’t this a “supply-side” factor?

Answer: It is. The easier it becomes to buy a property, the more available property becomes to buy.

However, it is also a demand-side issue in that it is now possible to obtain a new mortgage with ten year fixed interest rate.

Observation: Ten year fixed rate financing allows the investor to neutralize the “cost of capital” issue during a recession.

Suggestion: Take advantage of available new financing.

3.Tax Law Changes Influence Appeal. Recently the federal government provided real estate investors with the opportunity to increase their tax shelter from real estate. Cost Segregation depreciation allows such an opportunity.

Understanding Changes in the Real Estate Financial Markets

These “Laws” or financial cause and effect relationships have recently become substantially altered, and thus have become far less predictable.

  • Change One: Artificial Supply-Side Pricing. Real estate prices are being adversely impacted by a large number of “forced sales” caused by defaulting borrowers being forced to sell under pressure to sell, and foreclosure sales by lenders in need of a quick sale.
    • Situation: A borrower is unable to make the mortgage payment, and has attempted to sell the property.
    • He discovers that it will not sell for enough to pay off the existing loan. He then notifies the lender of the situation.
    • The lender must then decide which course of action to take.
    • If the borrower has not been declared to be in default, the lender frequently ignores the borrower’s plea for relief.
    • If the borrower has been declared to be in default, then the lender will either:1. agree to accept less than the full loan balance in satisfying the loan (a “short sale”); or,2. take steps to foreclose on the property, then resell it quickly to recoup the amount of the loan.
    • Result: Discounted sale prices resulting from “short sales” and “foreclosure sales” impact all property values and force prices down. You will have difficulty attracting a buyer who would pay more for yours than they could pay to acquire a very similar property offered through a short sale or foreclosure priced property. Even if you are successful in seemingly avoiding the impact of “forced sale” discounts, the appraiser who the buyer’s lender will use to value the property for loan purposes will include those low priced forced sale. The buyer will not be allowed to borrow as much, and your sale may be in jeopardy of closing.
    • Observation: Until the lenders sell off all of their REO and the number of short sales is substantially reduced, the value of real estate will continue to be adversely impacted.

“Real Estate Foreclosures 101”

What is a “Short Sale”? A “short sale” occurs when the lender agrees to accept less than the full loan balance as repayment of the existing debt.

Why Would The Lender Agree To Accept Less? Once a borrower defaults on a loan, the lender must form a course of action that would result in the least loss to the lender.

Would the short sale be less costly than a foreclosure resale of the property on the open market? If so, agree to the short sale and be done with it.

Observation Concerning Short Sales: As a buyer offering on what will be a “short sale”, there is never a quick decision to allow the deal by the lender.

The lender’s decision making process causes the potential transaction to travel through several departments of the lending entity before a decision to accept the short sale is reached.

It has been known to take months for the lender to finally agree to a short sale. By that time, the buyer lost interest in the property, and has walked away by the time that the lender approves the short sale.

Lenders are slow to agree to lose money, even if money is being lost with each passing day.

What Happens to the Lender When the Lender Forecloses? The lender’s financial statement will be immediately and substantially altered. The previously performing loan (an asset held as a “Loan Receivable”) is converted to a less liquid asset known as “Real Estate Owned” or “REO”.

Lender’s Financial Consequence of the Foreclosure: The lender will experience several negative consequences as a result of the foreclosure.

    • The lender is often the only bidder to show up at the foreclosure sale.
      • At the foreclosure sale, the lender makes a bid equal to the balance of the debt. If no other bidders bid higher, then the lender receives title to the property.
      • If the lender receives title to the property, then the dollar amount of the previously performing loan is subtracted from “Loans Receivable” and the value of the property acquired through foreclosure is added to a category known as “Real Estate Owned” or “REO”.
      • The lender is well equipped to make loans, but much less equipped to hold real estate in lieu of a Loan Receivable.
    • In order for the lender to get out of real estate ownership and back into the lending business, the lender must resell the foreclosed property on the open market.
    • Probable Result: If the prior borrower could not escape foreclosure by selling the property, then the lender probably can’t do any better. This is where the lender’s bigger problems begin.

1. “Mark to Market” While the previous “Loan Receivable” and the “Real Estate Owned” are both “assets” owned by the lender, the bank auditors will soon require the lender to periodically mark down or reduce the reported value of the REO to reflect what it would sell for in a quick cash sale. Any action that reduces the value of the bank’s assets will directly reduce the lender’s “Shareholder’s Equity” (the bank’s net worth).2. “REO Reserves”. In addition, the auditor will require the bank to create a “Reserve for REO” or a cash fund set aside to cover the performance of the REO asset.

This reduces the amount of available funds that could be used to create new loans and generate more revenue for the bank.

Summary: Both of the above actions will reduce the bank’s ability to generate more revenue and increase Shareholders Equity.

Lender’s Decision Point: Consequently, the lender may conclude that it is less expensive to avoid a foreclosure and to accept less than the full repayment of the loan balance by taking a short sale, and being done with it.

Foreclosure Sales: What Happens

Nature of Sale: An All Cash Auction: The trust deed foreclosure sale is an all cash auction conducted by the trustee at a published date and time at a specified public place. Typically, the only all cash buyer to show up at the foreclosure sale is the lender who brought about the foreclosure. The lender bids in the amount of the loan, and receives title to the property.

  • As the lender starts to convert more of its performing asset base (performing “mortgages receivable” on the asset side of the balance sheet) to “REO” or real estate owned, the bank auditors will force the bank to set aside available cash (that could have been used to make another loan), and hold it as a reserve to cover the REO portion of the bank portfolio.
  • A double hit has just occurred:
    • 1. The bank’s Operating Statement no longer has a performing mortgage loan, and now has instead a piece of real estate “REO”(Hint: banks are good at making loans and collecting monthly payments, but are not very good at holding real estate that must be managed and tenanted to prevent damage and further loss of value to the property); and,
    • 2. The bank has to use a portion of their available cash to set up a cash reserve to cover the REO.
      • Too much of that action, and bank auditors will write down the value of the REO property and increase the size of the REO reserve…both actions will reduce the “Stockholder’s Equity” (net worth of the bank). If it gets too thin, the Federal Reserve could close the bank.
  • Example Two: The bank-owned foreclosed properties are soon sold at substantially reduced prices compared to other “non-foreclosure” properties in the same neighborhood.
    • The reduced sale price creates lower neighborhood values. Those most recent low sale prices form the “comparable sales” data base that the appraiser will use when appraising your “for sale” property for a buyer’s lender.
    • Your appraised value is reduced, and the entire process will continue to spiral so long as there is a bank-owned REO that is there to compete for the limited number of buyers for your property.
    • SOLUTION: Only when the last REO is finally sold will the artificial reduced prices cease to exist. Buyers may love this environment, but everyone else is perplexed by artificially lowered prices.

FINALLY… Part Three

THE QUESTION: WHAT SHOULD I DO NOW?

THE ANSWER: If you can complete the following steps, then I may be able to help you sort out a course of action that you should take.

Part One: Where Am I Now?

Define your current position in terms of money

1.Complete a detailed “Financial Statement” of your current position.

a.The Asset Side:

i.What assets do you own?

ii.What is the current value of each of those assets? (ignore debts owed on each asset, since they will appear on the Liability Side of the financial statement)

Note: Organize the Asset Side of the financial statement in the sequence of “most liquid or cash-like assets” at the top of the list, and “lease liquid or hard to liquidate assets” at the bottom of the list.

Now total the value of assets listed on the Asset Side.

b.The Liability Side:

i.To whom do you owe money?

ii.How much do you owe each creditor?

Note: Organize the Liability Side of the financial statement is sequence of “shortest term debt” like short credit lines at the top and “longest term debts” like mortgages at the bottom.

c.Your Net Worth – The difference between what you own and what you owe is your Net Worth.

2.Complete a current “Income Statement”

a.List all incomes that you receive

Note: Separate various incomes by category: Vocational Incomes, Investment Incomes, other incomes

b.List all expenses that you incur

Note: Separate various expenses by category: Vocational expenses, Investment Expenses, and Living Expenses

c.The difference between Total Incomes per Year and Total Expenses per Year is the Surplus Available For Investment

Part Two: Where Do I Need to Be? (a retirement goal)

Project your living expenses to your desired date of Financial Independence

1.What will be your Survival Number?

This is the minimum monthly income required to cover all living expenses. ALWAYS KNOW YOUR SURVIVAL NUMBER!!!

2.How much of that Survival Number will be covered with “other Retirement Funds”? (e.g.: Social Security, pension fund distributions, etc.)

3.How much of a Short Fall appears to exist?

a.This is the amount that your real estate portfolio much cover on a dependable monthly basis.

Part Three: How Long Will I Be Willing to Work to Get There?

1.How long am I willing to work to amass my retirement portfolio?

2.Does it appear that my vocational employment will continue that long?

3.What happens if it doesn’t?

Compare Auto Insurance and Save Big Time

In the past, before the internet revolution, most people found themselves going with whatever their car insurance broker recommended. If you wanted to compare auto insurance, it usually took a long time going through the phone book and calling up various companies to check on their rates. Things have changed.

With the emergence of the internet, auto insurance comparison has become much easier, and with a few clicks of your mouse you can quickly and easily see a variety of quotes online. Taking the time to compare auto insurance prices is imperative now days, and it can also save you a great deal of money.

Compare Auto Insurance Prices

Of course one of the main things you want to do is compare auto insurance prices. Check out various companies and see what kind of insurance rates they have to offer you. Some people are paying very high car insurance rates; however, if they only took the time to do some auto insurance comparisons, they could save hundreds of dollars a year. Never be content with the first quote you get, and go on to see what kind of deals other insurance companies can offer you.

Compare Auto Insurance Plans Too

Not only should you compare auto insurance prices, but you want to compare the plans that they offer as well. When you compare auto insurance, one company may seem to have the better deal price wise, but when you check out the plan, it may not offer everything that the more expensive plan offers. When you are comparing insurance, be sure that the plans offer similar coverage when you compare the prices.

Know Your Needs When Doing Auto Insurance Comparison

When you are doing an auto insurance comparison, it is important that you know your car insurance needs. Know whether you need full coverage, comprehensive, collision, or if you just need liability insurance. If you are prepared and know what you need out of your insurance, you will be able to get a more accurate quote. Remember, not only do you want a great price on your insurance, but you also want to know that it covers all of your needs.

As you can see, taking the time to compare auto insurance is a great idea. Now days, with the internet available, it will not even take you very much time to sit down and get a few quotes to compare. So, what are you waiting for, why not see how much money you could be saving on your auto insurance today and take a few minutes to compare auto insurance prices.