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Short Sale Pricing: The "X Factor"

Ariel Dunes Destin

Yesterday I received a phone call from a competitor in my Destin Florida real estate market. The agent had a short sale condo listed in the same building as I did, and questioned why my list price of $260,000 was $40,000 less than his unit. He asked, "Is that price approved by the bank?" I told him no, as most short sale lenders do not pre-approve prices. He then asked if I truly thought I could get it approved, as he was hesitant to "chase" my price and match or beat it with his listing. I thought about that, and the factors that go into short sale pricing.

When pricing any real estate listing, one must consider several standard factors. Briefly:

1. Competition: Similar properties for sale may be overpriced, since they have failed to sell

2. Pendings: Properties under contract indicate what price entices a buyer to purchase

3. Solds: What price buyers were actually willing to pay

4. Expireds: What price was rejected by the market place

The obvious strategy is to price a property to be the best value in the category. Further, once a property is listed for sale, prices should be adjusted upon the following circumstances:

1. It has been on the market for a reasonable period of time with no showings (buyers rejecting "price)

2. It has had many showings but no contract (buyers finding better value in price range)

With a short sale, there is the final factor- the "X Factor". The "X Factor" is the price the short sale lender comes up with after receiving a purchase and sale agreement. This is the price that can make or break a sale (although it can sometimes be challenged). The lender price is based on a Broker Price Opinion (BPO) or appraisal. This third-party opinion changes the game and actually may distort markets. The "X Factor" price opinion may come from an agent with one year experience who has signed up on a website to perform BPO's. The price opinion may come from one appraiser who does not adjust for inventory levels. In the example of my condo listing, I may have "crossed the imaginary line" of what a bank may approve. The question lingers, at what point do you disregard the "X Factor" guess, and adjust the price to entice a buyer.

In the case above, after 7 months of gentle price reductions from $329,000 to $260,000 - the unit finally had a showing this weekend, and is getting an offer today. There are 2085 condos for sale in Destin. Less than 2% of them sell per month and there is a 5-year inventory. There are 120 units for sale in the subject's complex, and the last one sold in December for $300,000. The offer price should be around $260,000- the list price. Let the "X Factor" games begin.

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Wendy Rulnick, Broker, CRP, CRS, GRI, ABR Rulnick Realty, Inc.

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Wendy Rulnick specializes in real estate sales, short sales, traditional sales on Emerald Coast of Florida: Destin Florida real estate, Santa Rosa Beach, Fort Walton Beach, Niceville, Bluewater Bay, Navarre, Seagrove Beach, Watercolor, Sandestin, Seaside, Dune Allen, Blue Mountain Beach, Crestview, Freeport, Rosemary Beach, Mary Esther, Shalimar, Eglin AFB, Hurlburt Field. Wendy Rulnick, Broker and Realtor, has been selling real estate for 20 years. She has won numerous awards, including the coveted ADDY for advertising design. Wendy is in the top ½ percent resale agents on the Emerald Coast, and was featured in Kiplinger Personal Finance Magazine as a short sale specialist.

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Posted by Wendy Rulnick "Its Wendy!" Destin Florida Short Sales on 01/14/2009 07:30 AM

Comments (24)

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Originally posted at: Destin Short Sales- Emerald Coast Florida Real Estate: Short Sale Pricing: The "X Factor"

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24 Comments on Short Sale Pricing: The "X Factor"

JAN

2009

Great article -- very informative

Thanks, Kathy! I appreciate it.

Good Job Wendy....wish we were seeing you this weekend when we go down to the CPDE training....most realtors here "don't get it" in the short sale dept...u do !

Thanks for the post Wendy. We are not experienced with short sales and are still learning. In your scenario, even if you get an offer, is there a chance that the bank won't accept it as their BPO comes in much higher? In other words, is it better to get the bank to approve a short sale up front or just get the price low enough to get an offer and then deal with the bank?

In our market there are people who can still price their homes to sell without a short sale. So that has to be considered, too.

Sally & David- Thank you-- next time you are in the Destin area, call!

Dan and Amy - Yes, there is a definite chance the bank will come in higher. Most large lenders will not approve a price upfront. They have too many thousands already in process with legitimate offers. The other problem with upfront pricing is that many markets are still declining, such as my Emerald Coast market. So then you'd be stuck with perhaps an unrealistic price for 3 months. It is best to follow the steps I've outlined.

Heath - True- non-short sales may actually sell for more because they are almost "guaranteed", no waiting or guessing games.

Wendy, Very good post. Pricing is everything with a short sale. Just the fact that it's a short sale makes it worth less. The problem is getting the agents who do BPOs to understand this. Plus..a buyer purchasing a short sale, if they are smart, will be basing their offer on future value(2-3 months down the road). Of course we should be doing that as well. Our job is get the lender to understand that the contract price we have is better than what they will get selling it as an REO, 5 months form now.

Your strategy of pricing at market and then reducing every couple of weeks is exactly how a short sale should be handled. By doing this we are able to show the lender the listing history and show them that we tried to get as high a price as possible but the market rejected it until we got this contract.

It's never boring with short-sales is it Wendy? ;P

Nice write-up though, for consumers especially.

Thanks, Bryant. I just had to send new comps, basically do my own BPO to contest one done by - I could tell - a very green agent. She came up with a price higher than my list. I could find about eight comps proving the offer was good. The problem I run into, for example, is that a bank will use the ONLY TWO SALES, despite a thousand languishing listings, thinking, geez, that's what the price should be.

Michael - The unimaginable becomes reality. Every day. Thanks for commenting.

HMMMM so what part of those dreadful statistics does the other agent not understand. BTW... Cool that you were mentioned in Kiplingers!

Hi Bill - Thanks much to all!

Wendy - Thanks for the continuing great posts...Question...What happens when the "X-factor" kicks in with a higher price and requests that you also lower your commission to help lower the promissory note your client has to sign? How often do run into that situation?

With such a competitive market as yours, banks need to keep in mind that the 'imaginary approval line' is constantly moving. Until the market determines that the price is right for an offer, nothing can move forward in the short sale process.

JAN

2009

Kent- You're welcome. I have not yet run into a situation where I was asked to lower my commission to reduce a promissory note. What bank was that?

Joseph - I completely agree- the market "is" the market. I cannot understand why one comp of 2000 unsold properties justifies a price, especially in my area. Last BPO agent I emailed her my price point - duh - she came in higher than list, gum chewing on the phone ! Meeting them with contract is good tactic.

John - Right - my market is sincerely dropping every day. It's unbelievable. The agent that called me implied I should have left my price higher, as I was bringing down the market.

Great Article Wendy! Let's face it, short sale listings need to be priced significantly lower than the competition from the start. Buyers need incentive to deal with the hassle of a short sale. Why would a buyer pay full retail for a home that takes months to close when they could pay the same price, for a nearly identical home (in many cases in the same building or on the same street) without dealing with the hassle of a short sale. Most lenders will accept an offer below what they determine to be market value. Most short sale properties in our area sell significantly lower than their non- short sale counterparts. It just makes sense.. If you were a buyer, why would you deal with the hassle of a short sale without incentive (lower price)? There are more than enough homes for buyers in our area to chose from without dealing with a SS.

JAN

2009

Hi Sandy - How are you? Your logic is flawless. However, many of the banks I deal with are "flawed"!!! The unit in question in the same complex, that sold for more than my unit, was NOT a short sale, so that proves the point. Thank you, nice to hear from you.

Hi Wendy! I'm doing great, and business is booming in 09. I hope things are going well in Destin!

Every lender is different and every short sale is different as well. No matter what you do, a "flawed" lender or loss mitigator can kill any chance of a successful closing. And we've certainly been taken aback once or twice by some of the actions (or lack of) lenders take when dealing with a short sale- all logical thinking goes out the door. I am confused by the comment though. According to my theory, non- short sales should sale for more than short sales, and that's what happened in your complex right? At any rate, it sounds to me like you're doing the best that can be done to get this condo to closing.

Keep up the good work and I hope we'll get to work together in 09'!

Hi Sandy - I probably have not had enough coffee, so maybe my reply came out backwards? I agree, non-short sales absolutely should sell for MORE than short sales! Or maybe, you didn't have enough coffee? :) I could have been more clear... I hope we do biz in 2009, too, and hope you have an exceptional year!

JAN

2009

Pricing is alway the fun part,

thank you for sharing

Andrew - Pricing, then guessing ! You're welcome.

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Wendy Rulnick "Its Wendy!" Destin Florida Short Sales

Destin, FL

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Address: 12889 Emerald Coast Pkwy West, Ste. 107-A, Destin, FL, 32550

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