Short Sales Success
In an earlier post, there was a discussion of about the frustrations being experienced by both real estate agents and homebuyers with short sales. There are very clear reasons why frustrations are arising in this type of real estate transaction beyond the mortgage lenders rejection of the offer and the time it takes to get a response. The reasons actually start before the homebuyers’ offer is presented to the seller and lender for approval. This article will discuss how to possible eliminate the frustrations and the collaborative efforts between seller, real estate agent and lenders.
A short sale by its strictest definition is one whereby the seller of the property is having a financial hardship and needs to sell the property at a price lower than what is owed to the mortgage lender. Do all sellers fall into the financial hardship category, does the property true estimated market value reflect a value less than what is owed, and finally, establishing list price that is reflective of the true estimated market value.
Eight sure steps to a successful short sale transaction:
- Select a real estate agent with a background and experience to reverse engineer.
- Identify the wrong real estate agent.
- Explore alternative options with the real estate agent.
- Exercise control when communicating with the lender(s).
- Recognize who the ultimate seller is.
- Meeting obligations and being fair.
- The offer to purchase is reasonable or fair.
- Furnish a fully documented, appropriate and required package.
Step 1
First step requires the seller, to look for the right real estate agent to handle their potential short sale transaction. Who is the right real agent? The right agent is one that has the knowledge and experience to reverse engineer the entire real estate process or have the resources to accomplish this task, as well as, a business experience background in several disciplines. Reverse engineering the real estate is harder and more complex than the straightforward real estate transaction which most consumers and real estate agents are familiar with.
Step 2
The second step in the process is to recognize a real estate agent who is not the right one to handle the possible short sale. A knowledgeable and experienced real estate agent will ask the seller to furnish a number of documents – closing documents, income tax returns, bank statements, paycheck stubs, in addition to other documents, prior to discussing the listing agreement. If the agent discusses the listing agreement prior to receiving the requested documents and doing an in-depth review of the documents and evaluating the seller’s financial position (from a global stance – not just for the individual property being considered for the short sale), the seller not consider this real estate agent to handle their potential short sale transaction. The in-depth review of the documents and financial position in many cases can determine the eventual success of the short sale.
Step 3
The third step in the process is for the real estate agent is to discuss with the seller the various options available to them other than the short sale – renegotiation of the loan terms, deed in lieu of foreclosure, etc. The real estate agent may in fact, based upon the review, evaluation, and discussions not elect to work with the seller. The various circumstances will not be discussed here.
Step 4
The fourth step for the process is the execution of various documents by the seller to enable the real estate agent to talk with the lender(s), as well as, the listing contract and associated documents related to the listing contract. The real estate agent should immediately start to open a dialogue with the lender(s) and communicate the results with the seller. The dialogue, if done correctly, will produce sufficient information to assist later in the process when an offer is presented to the lender(s). If the lender(s) should communicate with the seller, which they will, as the seller is in a collection process, the seller should be both polite and pleasant to the representative of the lender(s). Remember, the lender(s) have more control over the transaction than the seller or real estate agent and should not be alienated in any manner.
Step 5
The fifth step requires the seller to realize, they are seller with a partner – the lender. Shockingly as this statement maybe, it is a fact. Why? Because, both the seller and the lender have to approve or accept the offer to move forward with the sale. The lender in many cases actually holds the largest investment in the property. Here is the hard part – both the seller and the selected real estate agent often forget the lender has an interest in the property. This directly relates to the above statement regarding the determination of the estimated market value of the property. Estimated market value deals with the eventual selling price and the list price.
Step 6
The sixth step in the successful short sale process is for the seller to maintain the property in such a fashion to insure the highest and best price for the property during the listing period. The seller when they purchased the property signed the mortgage agreement, which does require the seller to maintain the property in the same condition as when the mortgage agreement was signed. Not maintaining the property properly does affect the eventual sales price as well as showing the lender, their interest in the property is not being protected. Notice this relates to the seller understanding the concept of the lender(s) being a partner in the property. There are situations where this might not be possible, due to financial situations and the real estate agent should be aware of this. Anyone that is any type of a partner has an expectation of the other party to continue with their agreement.
Step 7
The seventh step for success with a short sale may or may not come into play when an offer is presented by a potential buyer. With short sales buyers are looking for a bargain they may make offers that are so low compared with the estimated market value, that the lender(s) determine it is a better financial situation to foreclose on the property than to approve the offer. A knowledgeable and experienced real estate agent does know when an offer is being “low balled.” It does not hurt and does show good faith if a counter is made on the offer, prior to presenting the “low balled” offer to the lender(s). These “low balled” offers are a time waster for the lender(s) to review and one reason why the length of time for a response or no response is given.
Step 8
The eighth step for short sale success is to follow to simple rules – “those that have the gold rule” and “do unto others as you would want them to do to you.” Here comes the true reverse engineering of a mortgage. The real estate agent needs to prepare an appropriate package of documents required by and meeting the needs of the lender(s) and will answer any questions the lender(s) may have. Anyone familiar with the mortgage process knows from experience two important items – if you turn in mortgage applications which are denied, the lender(s) will stop accepting applications from you (too many “low ball” offers), the documents supporting the application are incomplete or does not answer the questions which arise normally within the underwriting process (this delays loan approval or in this case a positive response, and finally don’t follow their instructions or requirements can result in delays (same is true with short sale offers). In dealing with foreclosures, it has been found through experience, it is not always the best offer that gets accepted, but it the offer that has the appropriate documents, meets the requirements, and answers questions which REO needs answers to.
Following these eight steps can and does result in timely responses and acceptance of short sales transactions without the frustrations.
Comments
6 Responses to “Short Sales Success”
Got something to say?
Your advice is very solid. I recognize the fact that I do not have the staff and time to work these transactions to the end and therefore I hire a local brokerage to finish the files out. This has been a very sucessful approach for us. I do however find that our commission is cut by the lenders making this an expensive option.
The negotiation of the payoffs can be hard on the commissions, but we are all working harder with less payback. There are truly no big winners with short sales after all is said and done.
When dealing with short sales, remember, there is a desk jockey somewhere hoping to keep their job in this uncertain period of economic decline. They are not going to JUMP at the first offer because they know, contrary to the proverb, the first offer is never the best in a short sale situation. You want a short sale to succeed? Offer %2.5 under the listed price and offer to cover inspections & closing costs. If that won’t work for you forget it. Their listing price is pre-conditioned to accept a %5 loss on their original loan. They’ll take half if there are no additional fees and contingencies because they’ve already collected that in interest 9/10 times. TRY IT!
My experience indicates the lender bank will only accept offers which are very close to the BPO. They will pay for standard seller closing costs and fair commissions. Like any reasonable person, they are likely to counter. Careful proparation of documents and a pleasant demeanor when talking to the bankers will help. Just remember, you have no control at all in the process, and the prospective buyer of the property needs to understand that. They may be tied up in a contract for 120 days just to be asked to ante up more money.
Hi Pete and thanks for your thoughts on the subject of short sales.
In short sale situation the lender is not establishing a list price, as in a foreclosure.
Hi Jonathan - thanks for stopping by and leaving your comment.
You are quite right on a the points that you are stating.
My experience thus far, but should be changing quickly, has been a lender response and negotiations completed in 17 days of the submission of the file for acceptance.
Now lenders are saying they are running between 30 and 60 days behind before assigning an analyst.