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Anybody Offering on "Under Contract" Short Sales?

So Short Sales are starting to close in the DC area. For example in Arlington, last year only 3 had closed in a year (out of hundreds of attempts). Now not only have 3 or 4 closed in my building alone, but many more in Arlington.

If the agent knows what they are doing (ala, have closed a short before) the closure rate is betwen 70-80% now (no hard numbers, just my 2 cents).

Also these short sales are selling for FAR less than bank owned properties. The bank tends to accept a 15-20% reduction off market price.

So changing times, require changing strategies.

So this is what I want to start doing, and I want to hear the pros and cons and if you have done it before.

I want to start making offers on Short Sales that have been under contract for a few weeks or months (from agents with a history of closing them).

Sure, sometimes the listing agent will say "no more offers," but that is probably because they were flooded with offers at the beginning. But a month later... why would they not be open to an offer that is $10,000 or $20,000 higher? It will still be 10-15% below "market."

Heck, the higher the offer, the more likely the bank will accept it right? And that is the goal right?

Well one might say "But they are under contract and are obligated to sell to that buyer." Um, no. They are obligated to show that contract to the bank. The offer is contingent on the bank saying yes. No reason you can't show ANOTHER $10k higher offer to the bank at the same time. The bank would then reject the first off and accept the second offer (I don't know technically how that 2nd offer would come over. Would it be signed by the seller, or signed as a "bank up").

So Realtors,

1) Have you done this? Did it work?

2) What do you think of the idea?

3) What are pros and cons to think about?

Frank

Broker FranklyRealty.com

Posted by FRANK LL0SA- Northern Virginia Broker .:. FranklyRealty.com on 02/06/2009 10:46 AM

Comments (21)

Short Sales in the Sales Strategies / Tactics Channel

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21 Comments on Anybody Offering on "Under Contract" Short Sales?

FEB

Frank,

I do not quite understand why you need to wait and then submit. The agent has to submit all offers, even after the offer is sent, and, according to our licensing laws, even after it is accepted by the Seller. It is a different story that the Seller may not legally change anything, but this is not the point here.

I am working with the attorney, as it frees my hand and the Attorney is not taking money from the commission, and their success rate is over 90%, so why not have the best people to negotiate, while you do not pay for that?

Anyway, my attorney told me that the first offer is to be signed by the Seller, and technically others do not have to. Because the Seller does not stand to get a penny, he can't care less, who buys (or should not care about it).

Hey Jon,

Well I wasn't necessarily thinking in terms of waiting. It was more of having a buyer TODAY that looks at the market, they might be better off with a deal that might be closer to the end. Ala, AFTER (or just before) the bankhas done the BPO.

While the agent has to show all contracts to the seller, they do NOT have to show all the contracts to the bank. They have to do what they feel is in the best interest of the seller. If confusing the bank is worse, then they can shelf it.

Frank

Frank - I don't know anyone who is making an attempt to do this. However, we do have an agent around here who lists (and closes) dozens of short sales. He says, "bring any offer any time".

FEB

Hi,

It is such a nice stuff and I really like it. Thank you so much for sharing.

Stella

Real Estate

Frank, I believe it is a good strategy.

However, so many listing agents or their asset managers will ONLY work on one at a time. It is so frustrating and in a short sale situation not fair to the seller.

I have one going on now, where our offer was better, the asset manager at the big box company would not present it. The seller had already agreed to take back the difference. Do I smell ethics violatin coming?

FRANK,

Although it seems like a "logical" strategy, the fact is that submitting multiple contracts makes the process longer. The Loss Mitigators have many files they work at the same time and every time they get you file and find another offer they will tend to set it aside and work on the files that need more immediate attention. It also give the LM a false sense of how the market it, they will believe they have a hot property and be more willing to wait for a higher offer.

They key to successful Short Sale negotiations is in the attention to detail as far as pricing and gathering all the documentation necessary. Submitting a file via piece meal is a structure for perpetual waiting. Also, I have a better ability to hold a buyer when they know they are the only ones who is waiting for the property. They don't want to go to the agent down the street that is sending in offer after offer.

That strategy has been played over and over in this area and the lenders have caught up.

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Hey Sidney, I agree with your point. It would not necessarily be unethical for a listing agent to only show 1 offer, for that very reason. But after all the multiple offers have cooled off, I have heard from 1 other frequent short seller, that taking a "back up" offer for $10k more is something they would show to the bank.

And the buyer has no say in the process, but yes, if you advertise "please bring more offers" you will tick them off and they will find a way to walk.

Thanks for contributing.

Frank

FRANK,

I don't agree about the Buyer, he does have a say. If you sent an executed contract to the lender then that Buyer has every right to expect to be THE owner of that property once the deal is closed. You would need to let everyone know that if they submit an offer it will be held as a "back-up."

The reason most buyers walk is because they are treated as if they don't matter. By submitting one offer I'm able to have the buyers sign on for three and four months instead of 30 days. When they have the expectation that they will get the house they will stand with you. If they think they're being played, then see you later. In the long run, would you want the agents in your area know that you submit what comes in or that you respect the "Purchase Contract" and submit that executed contract? What is better for you and your clients?

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I hear you Sidney,

But you have to keep in mind the client is your current buyer, and NOT your future clients and your reputation.

I still maintain that the buyer has no say as to whether the listing agent will accept a back up offer, and whether the bank is allowed to see that "back up offer." I maintain, the first buyer does not need to be informed of a back up offer.

Now if you want to sell them on the fact that you will not take back up offers (or you won't show them to the bank), I guess you could do that, as it would be in your client's best interest to have a buyer that is more likely to stick around.

Thank you for contributing. You do know more than me.

Frank

We all have different expiences, so I don't think it's about knowing more than the next guy. The beauty of this forum is the sharing of ideas. We all have something to contribute.

FEB

Frank,

Back here in Calif,I was doing Short Sales back 2 yrs ago, when banks were in denial. Now, every vendor out here is promoting workshops and pkgs, for short sale, due to being a factual tool, AND supply and demand, these vendors are making big bucks! I stand alone.....

Before moving forward into a short sale, you have to offer them a loan modif. Lenders by law have to offer the borrows that option. Have you heard that Countrywide is being sued, for not offers a borrow a modification....borrows lost home and hired a Attorney.

BACK TO YOUR QUESTION:

1.I SCREEN THE SELLER TO BE FULLY QUALIFIED, BY A FORMULA, LENDERS USE TO IN ORDER TO NET THEIR SHARE, IF IT DOABLE, THEN I SUBMIT A FULL PKG, 26 PIX OF THE PROPERTY, "DISTRESSED/REPAIRS, FULL TERMITE EST.REPORT, LIC.CONTRACTORS EST./FULL PRELIM, REPORT/BPO OR THIRD PARTY BPO,,,, GET THE PICTURE..BY THEN IT'S 60 PGS W/LOAN NO# ON EACH PAGE INCLUDING AN EXECUTED CONTRACT, IF THE LOAN IS FROM THE DIRECT LENDER, THE TIME FRAME IS 45 DAYS FOR RESPONSE,IF IT'S A INVESTOR FROM THE EAST COAST, WE'RE TALKING 90DAYS and some.... MEANWHILE, I SENT OUT BPO ONCE A WEEK AND REDUCE THE PRICE 2%-3% TWICE A MONTH, I keep all back up offers and keep all agents updates, by e-mail once a week. no phone tagging,,,

2, Once a verbal approval, I contact the first buyer and go from there, within 1 wk we get the written approval, and we all see each other in Escrow.

3. We're in the business of negotiation, with these lenders, they need us "Realtor" w/CAR FORM CONTRACT to start a short sale process. We negotiate, starting at 7% commission, termite work and NRCC. We are their solution to a short sale vs a REO, it costs them over $15,000 where a short sale is 75 cents / 45 cents to the dollar...

4. Have a team of vendors to refer out, such as tax advisers, credit repair/purchase again within 2 yrs. Real Estate Attorney'. Property Managers and etc.

5. JFYI...if the lender is Countrywide, I have the buyers get fully qualified by the same bank.. Buyer has a much better chance..

Maybe I shared too much, I'm not much on the net chatting, but I hope this was helpful, and next time....it will be short and sweet!

I prefer to work w/lenders that are move reflexable, were we've build a business relationship....I have my blk book,,,,lol,,,,others I farm off to the new agents......................or the word for the year is NO......yes I turn down some short sale listing..,,I would be doing a disservice to the cllient.

Meet you at the TOP!

Laura Q

Hey Frank..honestly...if a short sale is under contract, I don't bother.. A short sale that is pending release...now theres a gold mine.. :)

FEB

If I understand correctly, each local BOARD of REALTORS has their own set of rules for handling short sales, especially how they are categorized and handled on the MLS system (and feeds). So to answer your general question, each area has it's "customary" way of marking them CONTINGENT, PENDING and so, on.

You ask a timely question, and I am very curious as to the local ways of handling these sales so that the process becomes "transparent" to every party involved.

O. Kheir (386) 527-8492 cell

FEB

Just about every agent I know in my area uses an addendum written by an attorney that specifies that no multiple offers will be presented to the lender until the 1st offer is rejected. Offers may be taken as back up offers but they won't be submitted until rejection by the lender. This speeds up the process.

Before this we were all trying to sell the same house a half dozen times and waiting a year just to have it all end in frustration. It's not a board decision, but the addendum has been adopted by nearly everyone.

Lenders tell me not to submit multiple contracts because it slows down the process.

Keep life simple and don't submit multiple offers.

FEB

Hi Frank,

Good discussion topic and I like the comments too. I recommend you watch the FDMC Webinar on Short Sales for Realtors at http://www.freddiemac.com/ontrack/html/LearningCenter/ClassDescription.jsp?crsNum=Intro_Ssalesrec.

Please notice that according to their guidelines, one contract and one settlement statement must be used throughout a short sale case. The case can be closed by the lender, buyer, or seller (if lender's written terms of acceptance are not agreeable to the seller). Then another case can be opened on the same property with one new contract and one new settlement statement.

I've been working exclusively with pre-foreclosures in Lehigh Acres, FL for the last 2 years. And the pre-foreclosure market is continually changing, even this week as new government housing initiatives are launched. But there is something in my experience that has remained constant. This has been verified by the experiences of my associates across 35 states. The # 1 reason a short sale fails is in the way the Buyer's offers are handled by the Agents involved.

It's not really the Agents' fault. Short sales are unique and the detailed process used by the Lenders' loss mitigation departments has not been widely taught to Agents. Very few courses are offered to Agents who want to specialize in the short sale market niche. More are coming.

There are some great opportunities for Buyers of short sales. And there is the added bonus of saving someone from a foreclosure while minimizing the Lender's loss. According to the Mortgage Bankers Association: The Lender's average loss on a foreclosure is 40%, while the average loss on a short sale is only 19%.

But if you are considering a purchase of a pre-foreclosure listing, be sure to ask your Buyer's Agent to get the answers to these 2 questions from the Seller's Agent and report back to you before you commit to making an offer.

1. Who will you present my offer to?

The correct answer ALWAYS is: the Seller, as indicated on the Listing Agreement. Any other answer, like, the Lender, is a good reason to walk away and find another Agent to work with.

2. What is the process for approving my offer?

The correct answer ALWAYS is: First, the Seller must approve my offer contract. Then the Lender(s) must approve the amount of their payoff(s). If any other answer, walk away.

There are 2 correct detailed answers, depending if my offer is the first and best to the Seller.

If I'm first and best, the Seller must approve my offer by signing and returning a copy of the contract with both party's signatures. Then a copy of the contract with both signatures is submitted to the Lender(s) along with a preliminary settlement statement so the Lender(s) can see how much they will (each) receive at closing. The Lender(s) must approve the settlement statement, not the contract, or the listing price. Once the Lender approves the settlement and the Seller accepts the Lender's contractual terms and conditions of their approval, it's on to the closing table.

If I'm not first, the Agent must disclose to me that a previous offer has already been accepted and signed by the Seller. And it has been submitted to the Lender(s) for approval of the short sale payoff(s). The Seller can receive my offer, and other offers, as back-up offers, but cannot sign acceptance. If the Lender or Buyer ends negotiations on the previously accepted offer, the Seller may accept and sign my back-up offer and submit my now "first and best" offer to the Lender(s), along with the new settlement statement.

As a buyer, you need to decide whether to move on to another property or not. If you really don't care if you get this particular house, make a verbal offer to complete a written offer if the current sale falls through. Then move on to the next property. Don't get caught making multiple written offers you can't complete.

But if you do care, or the seller has not accepted an offer yet, always make a written offer to be taken seriously. Verbal offers can be misunderstood, forgotten or preempted by a someone else's written offer. Remember, a written offer, signed accepted by both parties is required before anything else happens in a short sale. Without it, a lender cannot open a short sale case to approve their payoff amount.

Lenders are under no obligation to approve anything in any timeframe, so prepare yourself to possibly wait months, and even then there is no guarantee of closing. But if you can be patient, and are able to handle a few disappointments along the way, you may get a great deal on a short sale listing.

I'm open to comments, questions and opinions. I blog as Tom Teece on trulia.com. This is how we all learn from each other.

Best regards, Tom

FEB

Tom,

Very nice work. I think you're right and I'd like to add that agents need to keep in mind the reason lenders are willing to do short sales. It saves them money on a foreclosure. At the point where the savings are minimal or non existent the lender will always go with the foreclosure.

The initial price and subsequent price reductions are not important to the sale itself (we can all figure out the price at which a certain property should garner attention) but it is important to show the lender the market trends in the area and how the market is behaving. Doing that, counter acts the skeptisism in believe they are getting the best price the market will bear.

A short sale negotiation is about the lenders and not the homeowners. By paying attention to the lenders needs and addressing their bottom line you will better serve your client.

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APR

Thanks so much for the information. I have a back up offer on a Short Sale and really thought it should be presented to the seller and to the mortgage company. I thought it was in the best interest of the seller to get the best offer. i didn't quite understand all the ins an outs. Something comes up new all the time even if you have been in the business for several years.

APR

Frank,

Our law firm (Law Offices of Jill Pogach Michaels) represents the sellers (MD, DC ,VA) to get the lender approval. We have a very high approval rate. Sometimes, it takes some time to negotiate and the buyer walks during the process. If you are looking for lender approved short sales that can close in a couple days let me know. I'll send you our current list of approved short sales.

Regards,

Lee

MAY

I've had a situation with a great buyer who waited patiently for months on a full price offer and then got bumped by a higher bid. I can understand why you would want to do it as a frustrated agent, but from the side of the bumpee it's a really lousy ending to a long contract process in which he did everything he was supposed to.

JUN

Our company negotiates literally HUNDREDS of short sales for local agents in Southeastern PA and NJ. While I do find this strategy interesting, I refuse to submit multiple offers to the bank. First of all, LEGALLY, the bank does NOT own the property. The seller still has legal rights and realtors should be knowkledgable about these rights. One of them is that the sellers still gets to CHOOSE who they want to sell the house to. If they want to sell to a particular buyer for a particular reason, they have the legal right to do that. This may be one of the few legal rights this distressed seller still has and we need to honor that right.

It's also my opinion that it is unethical to submit multiple offers from the buyers perspective. Once their offer has been signed by the seller they have the right to have their offer reviewed by the bank and either accepted or denied. ONLY after an offer has been denied or a buyer withdrawls do we submit other offers if we have them.

I have had banks send me their guidelines and one of them read "PLEASE DO NOT SUBMIT MULTIPLE OFFERS". Imagine a clerk in the loss mitigation department now being responsile for reviewing contracts, determining the one with not only the highest offer, but the one most qualified to buy, with fewest contingencies, etc..... does this really make sense??

People, we are selling and buying REAL ESTATE not shoes!! Families make big decisions based on making offers to purchase real estate, inspections are done, money is spent, time is invested, etc.. So, how ethical is it to push a higher offer or more qualified buyer in front of the original buyer? We don't get to do this once a property is under contract with a seller who is not in a short sale situation and we should not be doing this to the short sale deals.

OCT

I sounds like a good strategy.

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