When I began to list overleveraged properties and negotiate short sales two years ago, many of my colleagues advised me that I was wasting my time. Short sale listings were (and still are) considered by many to be substandard- too much work for the often slashed commission. In other words, a real estate transaction unworthy of the effort required to complete.
Regardless, I kept making my way through my new niche. 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.
Lately, with few options as it pertains to inventory, more and more real estate agents are listing overleveraged homes and negotiating short sales. Witnessing first hand how other agents conduct short sales, I am reminded of what works and what fails in this type of a real estate transaction. After a lengthy career in real estate and successfully working short sales for over two years, I can honestly say that short sales are a moving target. Success comes as a result of thorough and meticulous work. Therefore, I cringe when other real estate agents, newbies and 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 only difference between a standard sale and short sale is the additional negotiation between the seller and lender(s) regarding a discounted payoff. 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 5 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 a short sale actually going through to close of escrow.
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. 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. It makes no sense to take part in a bidding war where there's always somebody willing to pay thousands more than asking price -in cash. The sad part is that many of these buyers (whose offers are accepted) 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 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 don't 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 open escrow 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.
4. 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."
5. 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 Monday 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.
In short (pardon the pun), even with everything in place, successful short sales usually take months 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.
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Thanks for the reblog Fernando...Brenda has hit this one right square...Perfect!