Short Sale Reform – A Better Way

Short Sale Reform - A Better Way

2009 and 2010 will certainly be the year of the short sale. A short sale makes sense for the lender who will incur less expense and will never have to take ownership and responsibility for the property. A short sale can also make sense to the property owner who wants to sell their home for no cost, eliminate their mortgage and avoid foreclosure. Yes, it's more complicated, but this article is more about the process.

Here's the problem. The short sale process is the most inefficient, ineffective sales process in real estate. While there are exceptions, a short sale is normally priced below local comparables to generate high traffic and multiple offers. The highest and strongest offer is then submitted to the lender with the homeowner's hardship package for an approval of the price, terms and net cost to the lender. The process of gaining an approval typically takes anywhere from 30 days (rare) to 90 days or more with no guarantee of success. In the meantime, the listing agent will often keep the property listed as active, knowing the buyer whose offer was originally submitted is likely continuing their search and not holding their breath waiting for a bank approval on this one property.

So now we have an "active listing" which should in "back up" position overcrowding our inventory, confusing our buyers and creating mass inefficiently. Of course, if you call every listing agent as we do (regardless of their rude "do not call - just submit your highest and best offer" warnings in the private agent remarks), you'll usually learn that there are multiple offers on these short sales ranging from list price up to 20% over list price - all of which are sitting in a large pile, or perhaps to save a tree, in an Outlook folder named "123 Elm Street Back Up Offers".

Frankly, I don't like wasting my client's time touring short sales so we can submit an offer to be sorted by price in a huge back up pile, hoping the bank approves a price higher than our offer, no higher bids come in during the process, Buyer #1 backs out and my buyer still remembers the property in the event this needle claims victory over the haystack. Do I do it anyway - yes, but I'm going to call every agent regardless of their warnings that they are too busy for me and see how high this haystack really is so my client can decide whether to invest their time.

Here's the solution. Lenders - treat short sales the same way you treat them after you foreclose. When a short sale package arrives, order several broker price opinions and an appraisal. Determine what you willing to accept as a net sales price after concessions, pre-negotiate with any second lien holders and provide a 60 or 90 day approval letter at that price. DO NOT require an offer to be submitted with the package. And don't worry - if you price it right, we'll get the offer for you.

This way, listing agents can wait until they have an approval to list the property. Then, and this is the best part, the listing agent can price the property at the APPROVED price. And it gets better - buyers will know that they can actually buy and close in 30 - 45 days on this property if they are the highest and best offer with a minimum bid of listing price. And are you sitting down ... we'd sell a lot more short sales because people would not fear them and agents would not avoid them. 

Bottom line, we would save the entire industry millions and millions of dollars, and turn this crisis around faster than we otherwise would.

In the markets that are most impacted by foreclosures, demand has skyrocketed. Properties that are not overpriced are generating multiple offers over list price within days. In Orange County, California we have only a 3 week supply of bank owned foreclosures. We have plenty of demand to absorb these short sales, side-step the foreclosure process and save everyone time, money and frustration.

Nancy Moeller, CPA, Real Estate Broker

Short Sale Specialist at www.ZeroShort.com

Direct Access: 714 276-7006