When I began negotiating short sales and assisting distressed homeowners (including those with over-leveraged properties who found themselves in the unfortunate position of owing more on their home than it was worth), this market was largely underserved. The reason, the majority of my colleagues simply weren’t interested in investing the time, money and effort necessary to acquire the unique skill set required to successfully negotiate these complex transactions. Furthermore, short sale listings were (and still are) considered by many to be substandard – too much work for far too little pay. In other words, many of these agents felt the short sale was a real estate transaction unworthy of the effort required to complete.
Short sales represent an opportunity for homeowners to avoid the devastating consequences of foreclosure. Negotiating short sales gives me the opportunity to help struggling families avoid foreclosure and get a fresh start. I find this to be very fulfilling and a great way to make a living.
The market that we are experiencing today is filled with homeowners who are truly hurting and don’t know where to start, or who to turn to. Lately, with few options as it pertains to inventory, more and more real estate agents are attempting to break into this niche, falsely representing themselves as short sale and distressed property specialists. Witnessing firsthand how other agents conduct short sales, I am reminded of what works and what does not in this type of a real estate transaction. After a lengthy career in real estate and successfully working countless short sales, I can honestly say that short sales are a moving target as the rules are constantly changing. Success comes as a result of thorough and meticulous work. Therefore, I cringe when other real estate agents, be they newbies or seasoned pros, jump into short sales and try to figure them out, oftentimes at the seller’s expense.
Know the Difference
It is important to note that the difference between a standard sale, and short sale is not limited to the additional negotiation with the lender(s) associated with the property and regarding the request for a discounted payoff. I won’t go into further detail in this blog post as I don’t want to provide any free tips to our colleagues but homeowners interviewing these so called short sale specialists should ask these individuals how many short sales they have successfully completed, and what techniques the employ to help ensure the success of their short sale transactions.
Sellers should also realize that the lender’s conditions regarding; sales price, sale terms, and occupancy after the sale are included in the final short sale approval, however, the ultimate decision to sell rests with the seller, not the lender. The granting of title from seller to buyer – not from lender to buyer – is evidence of this. Unfortunately, many agents fail to clarify this important point. Some of them don’t even know it themselves and mistakenly assume the negative equity in the seller’s property forfeits the decision to the lender.
Top 8 Steps to a Successful Short Sale
In this market, there are listing agents unknowingly misdirecting the short sale process, inadvertently dismissing the sellers’ rights. Subsequently, these agents hinder the chance of their client’s short sale being approved.
For sellers, taking the following precautionary steps will increase the likelihood of a successful short sale:
1. List your home at or around market value.
It has become common practice among certain real estate agents to list homes drastically below market value in order to attract a multitude of offers thus creating a bidding war. This strategy is misleading to potential buyers and may backfire on the seller. A lower-than-market-price offer oftentimes compels the lender to demand a settlement amount greater than originally offered. This means an impromptu contract renegotiation between buyer and seller ensues, which may lead to no sale at all. The lender may also opt to close out the short sale altogether and demand the agent re-submit the short sale package. Precious time is lost in either scenario. Listing a home at or around market value will avoid many of the pitfalls often involved in short sales.
2. Request buyer pre-approval to be submitted with every offer.
I am still shocked to receive offers from other agents without adequate buyer financial information. Much of the time, this is due to agent and buyer frustration. A buyer may have been out bid on several previous occasions and eventually revert to submitting incomplete paperwork for subsequent offers. Or, an investor may be submitting offers on various properties looking for a steal, thus not preparing each offer with due diligence. Regardless, it is in every seller’s best interest to require a pre-approval letter (different than a pre-qualification letter) from a direct lender (different than a mortgage broker), a copy of the potential buyer’s credit report and proof he or she has the funds to pay for the initial deposit, closing costs and the proposed down payment. These items are vital components of a complete short sale package.
3. Make sure the offer includes verbiage that protects you the seller.
Again I am not going to go into great detail here as our competition does read our blogs but your agent will want to make sure the buyer’s agent includes specific verbiage that is protective of you and which stipulates conditions, for example that the lender agree to accept the short pay off as payment in full and agree not to pursue you for a deficiency judgment. There are a number of additional contingency clauses that should be included to provide you the seller maximum protection.
4. Submit only one offer for short sale negotiation.
This is a big one. Time after time, I’ve called agents on short sale listings and asked how many offers they intend to send to the lender for short sale approval. More often than not, their reply is “all of them”. At this point, I politely hang up and advise my qualified buyer to move on. Submitting multiple offers to the lender is extremely counterproductive for a number of reasons but the sad part is that many of these buyers (whose offers are accepted by the seller) are speculators who don’t stick around to see the sale through. In the meantime, the agent, hoping to get the highest possible offer, let a qualified, eager and patient buyer slip through his or her fingers.
A fully-executed purchased agreement, aka an accepted offer, is a legally-binding contract. Therefore, accepting several offers on a single piece of property means that this same piece of property has been sold as many times as the number of accepted offers. This is true even when there is an addendum in place stating each is subject to the lender’s short sale approval. This practice exposes the sellers to liability and possible legal action on the part of disgruntled buyers. To circumvent this issue, some agents send multiple offers to the lender that haven’t been signed by the seller. In cases such as these, the property has not been sold at all because a purchase agreement that is not fully-executed is not a contract. This practice is just about as useful as faxing blank pieces of paper to the lender.
A short sale is not a bank-owned property (REO) but some agents treat them as such. In a real estate transaction, only the seller has the right to choose the buyer, regardless of what the lender may want. Needless to say, it is in everybody’s best interest to select the strongest offer available. My approach is “first come, first served”. I do not wait to collect dozens of offers before I present them. I present offers as they come. Once my client accepts one from a qualified buyer at or around market price, we submit it and move on to short sale negotiations. Any other incoming offers fall to back-up position. Selling agents truly appreciate knowing this. By the way, lenders don’t want to review twenty offers on one property, either! This responsibility falls on the listing agent and seller.
5. Collect a good faith deposit.
I encourage my clients to immediately reject (or at least counter) an offer that does not include a good faith deposit. Many agents advise their clients to do otherwise: they believe a short sale is not a deal until the lender’s approval is received. While this is true, for all intents and purposes, short sale approval is only an additional contingency to the purchase contract, not any different from loan, appraisal and home inspection contingencies. The short sale contingency just takes a longer, most of the times a lot longer. I always say that a little skin in the game will keep the players around. The cashed deposit proves a buyer’s level of commitment. I encourage my clients – buyers and sellers alike – to adopt the philosophy of “No deposit, no deal.”
6. Request regular updates.
From explaining the short sale process to understanding seller and buyer expectations to submitting a comprehensive short sale package, communication is a fundamental part of a successful short sale. With short sales, it is virtually impossible to predict when a file will be updated. For this reason, it is imperative that agents contact lenders on a consistent basis. I contact my clients’ lenders every Tuesday and Thursday. When we’re getting close to lender approval, I contact the negotiators up to three times in one week or more if I feel it is necessary. Being the “squeaky wheel” gives my files much needed attention. While this doesn’t guarantee a faster approval time, sometimes it makes the difference between closing in June and closing in September. Weekly or biweekly client updates are a great way to stay connected during the short sale process.
7. Having the right strategy from the start.
Again our strategies are not something we care to share with our competition but what you should know is they are the difference between your sale being approved and denied!
8. When things aren™t moving it helps to know the right people.
The banks are overwhelmed with requests for short sales and while they™ve hired additional staff and increased the size of their loss mitigation departments they still struggle to keep up with the number of files they are working. As such files will frequently be reported not received or as incomplete and missing documentation that has previously been sent, negotiators may simply not return phone calls or emails, and agents often feel like they are getting nowhere and have no one to turn to. When this happens you’ll know with absolutely certainty whether your Realtor is in fact a short sale specialist, as this is when his or her’s contacts within the bank will come into play. If your Realtor is a specialist he or she will have contacts within the bank they can contact to escalate and prioritize the file and get it moving through the process and towards approval!
In short (pardon the pun), even with everything in place, successful short sales usually take 60-120 to close. Team work, patience and dedication are required every step of the way.
Short-sightedness is not a short cut, but will cut short your short sale process. Whether buying or selling, please do your research, and consult an expert who will help you make informed decisions. That is the long… and short of it.
If you’re facing foreclosure you’re facing some very important decisions. We want you know you’re not alone and we are here to help with any questions you may have to assist you in making the best decisions for your situation. There is no charge for this service and we are happy to help! We offer confidential and professional real estate advice.
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Hilliard 43026 Lewis Center 43035 Marysville 43040 43041 New Albany 43054 Pickerington 43147 Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235