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How to prepare for a short sale listing

By
Real Estate Agent with Key Realty Group Inc. 200512291

How to prepare for a short sale listing

The first problem we face when working on a short sale, is that we are not the owner, but need to discuss matters of their loan with full authority and disclosure. This requires an authorization from your client.  A typical authorization will authorize you to speak on their behalf regarding their loan. It is usually best to avoid the Power of Attorney so as to limit your liabilities to not exceed your expertise.

Your letter of authorization must have some specific information:

  • Name of borrower
  • Loan #
  • Social Security
  • Vesting of authority to specific individual
  • Signature of  borrower
  • Physical address of property
  • Contact info for the agent


The first thing to do once the loss mitigator has acknowledged your authority is to find out the drop dead date when the house will be foreclosed. In my experience the Loss mitigator will often do nothing until three days before 3D (drop dead date). This is why you must take action early.


Find out how much money the seller owes. You should expect to be very patient. Lenders will typically not respond very quickly. Unless the lender has already approved the short sale for a certain amount, it will take a while before you receive a response. If there's more than one lender involved, it will take even longer as the second lender is usually offered peanuts, they are not motivated to accept the offer. Lenders have their own short sale procedures. The success of the short sale will also depend on the seller's situation and how compelling the short sale package is that they submit to the lender(s).

  • If the seller can demonstrate a hardship the lenders are more likely to approve a short sale.  You must make a strong case here.
  • Cite health reasons, financial reasons, etc. You must have the evidence to verify this claim. More evidence is better!
  • No matter what, you'll have to expect about 90 days before escrow can close if the lender(s) approve the short sale.

There will be a lot of documentation involved in a short sale transaction that is not typical in a regular transaction. You can expect to sign lots of waivers of liability as a buyer, limiting the transaction to "as is" condition. The reason why the property will be sold "as is" is because the seller does not have any money and the bank will not approve a short sale if the seller agrees to do repairs or credit money to the buyer. Remember your sellers will still have a duty of full disclosure. You will still need property disclosures and have your standard fiduciary obligations in this transaction.

This makes it important to price your listing accordingly. In a buyer’s market, it is important that you have a price that will allow this property to compete with others in which sellers can offer closing costs and pre-paid fees to be included in the deal. Establishing this figure early is your key to a successful short sale. You are not going to have the luxury of getting price reductions. Once you have your figure, you need to start establishing facts to verify your figure. Do a thorough CMA of the property. Don’t hesitate to call other Realtors to inquire about details of comparable sales (NOT PENDINGS!). Note if there were any concessions to the sales agreement that allowed the sale price to be lower, just like an appraiser would.

Questions You Must Ask Your Seller Prior to Taking Their Short Sale Listing

  • Is the Seller in foreclosure or have they missed more than 3 mortgage payments?
  • Is the Seller insolvent? (unable to pay their debts and looking at bankruptcy)
  • Is this his/her only home?

If the answer to these questions is NO, then you are probably going to be wasting your time. The Bank will evaluate the Sellers ability to pay any short fall, if the Seller has money or resources to pay the Bank they will deny the short sale.

Assuming the Seller meets the Banks qualifications, and provides the necessary paper work to prove those qualifications, and then the Bank will send out a Broker or Appraiser to determine the value of the home. (A couple of banks send us out to determine the value of these homes).The Bank needs to determine what they can sell the property for if they get it back at the Foreclosure sale. They compare the money from the Foreclosure option against the money they will get from the Short Sale offer. It is critical to have a strong negotiator handling these discussions with the Bank to constantly remind them of the uncertainty of foreclosure compensation.

Banks usually get value estimates that are higher than the true value of the marketplace. Appraisers focus only on the past sale comps. In a declining market, the competing listings and pending sales are far more indicative of the true value. Your team will need to be able to justify the sales price to the Bank. If this can be done you are half way there.

  • How far from a Trustee Sale is the Seller?


Most of the time decisions by the Bank are not made until a Trustee Sale date is set. The Banks are getting hundreds of short sale requests a week. The limited staff can usually only handle the “emergency” deals, those that are scheduled to be sold by the Bank soon. Most of the Loss mitigators time goes into those deals. So you will need to be patient.

At last check 70 - 90% of short sales fail.  

I believe the most important thing is to have an experienced Realtor working for you.
 

   

Comments (5)

Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F
Thanks for such a detailed and thorough post.  It seems like short sales are the way of the future for the next 2 or 3 years.
Oct 24, 2007 06:48 AM
Team Thayer Key Realty Group Inc
Key Realty Group Inc. - Eugene, OR
We will sell your house faster for more money
Definitely not going anywhere. If we do our homework, we can really avoid the ones that are destined to be a waste of time from the get go. When I am representing a buyer on a short sale, I require a Buyer Broker Agreement so that I have some comfort going into this extensive, and long term process!
Oct 24, 2007 06:57 AM
Sal Poliandro - Helping People Win
RE/MAX Properties - Ridgewood, NJ
Broker Associate
Elizabeth and Justin - Thanks for a great post!  This was very informative and I'm going to save this for future reference.  It sure seems like short sales are coming into the mainstay.
Oct 24, 2007 01:04 PM
Josh and Jenn McKnight Team
Keller Williams Real Estate - Horsham, PA
Short sales are so abundant in today's market. However, I have found that they take an abundance of your time. Also, keeping the buyer party happy is tough
Oct 24, 2007 02:16 PM
Team Thayer Key Realty Group Inc
Key Realty Group Inc. - Eugene, OR
We will sell your house faster for more money

Sal: It does appear that they aren't going anywhere. I will keep updating you as I learn more tricks/tactics

Joshua: You couldn't be more right. But, there is a lot of down time with them too. If you are totally busy without handling short sales, I would not recommend taking them on. However, there will come a time when one of your past clients comes to you in dire need of a short sale solution. At that point you got to decide; Send my client somewhere else, or bite the bullet and fight for my clients return business. Thanks for commenting!

Oct 25, 2007 06:14 AM