After participating with Broker Bryant in Jennifer Allan's webinar on Short Sales for beginners, I realized there is just wayyyy to much info, even at the most rudimentary level, to go over in a 2 hour class, so here is blog 2 of the promised follow up.
Since working on the buyer side as your first time short sale has seem to create the most frustration, below is a short primer on buyer side dealings...
As short sales spread from the hot spots of Las Vegas, Florida and AZ into the rest of the country, it seems that it is becoming unavoidable for an agent to run into one on the buyer side. If you are not familiar with them, frustration can soon ensue, both you with the process and your buyer with you. If short sales are newer to your market, you have the added risk that the listing agent is not too familiar with them either, exponentially heightening the frustration factor. With education and a few tools, you'll be able to enter those murky waters with at least a snorkel and a mask (for both you and your buyer).
DISCLAIMER: This is how we do them in our market (Miami, FL), check with your state, board and broker for your area - these are just suggestions! (also, as with everything in real estate, everything is a negotiation, these may not ALL be possible, but at least get them on the table so everyone is aware of how things stand on all sides).
DISCLAIMER: I am not a guru or trying to sell anything, I am just explaining our OWN experiences to help other agents. If things are done differently in your market, I understand, this is just a general overview that might help people realize what to think about in order to make a smoother process for everyone in their transaction.
Here is that Short Sale Webinar recording
Here is the Q&A that came from that webinar
I have marked the issues that seem to spark the largest frustration with a flame for easy identifcation!
A few tips to protect your buyer:
1. Make sure there is a short sale addendum (your board may have) or create one that states how time frames will be counted. We have inspections and loan commitment dates starting from the date of the lender acceptance.
2. State in that addendum how long your buyer will wait for the lender approval during which time they are contractually bound. Ie - "seller and buyer understand that third party approval is needed. This contract will allow x days (60?) for such approval, after that time, in the absence of an approval, either party may elect to no longer go forward with the contract upon written notice" or something to that effect.
3. Take pictures and include descriptions of everything in the home you expect to stay. Appliances, fixtures, etc. Homeowners are notorious for taking their upgraded appliances and swapping them out for standard ones.
4. I would definitely do my own research if publicly available to make sure there aren't any ongoing code or permit issues. The listing agent may not know and something could blow up at the end of the process. It may just be a simple on-line check. If so, I'd do it.
5. We put that escrow will be submitted with acceptance of the lender. This is normally accepted it may not be in your area.
Things to ask the listing agent:
1. Will they continue to market the property and accept backups and submit them to the lender? (market area specific, find this out!)
2. Have they spoken to the lender about commission? If there is a chance it will be lowered, do they intend to honor what they advertised to you or split it 50/50? (another major area of anger and frustration - find out in the front end what the deal is and you won't end up angry. If not clearly indicated on the MLS I'd do this BEFORE I showed the house just so I knew)
3. Have they already gotten the package from the seller and started the process with the lender?
4. How did they come up with the list price? (If it SEEMS to good to be true, it probably is, a lender isn't going to just give the place away!)
5. If the owner plans to continue to live in the property. If not, are they going to keep the utilities on and the pool, lawn maintained? In a "regular sale" this is a no-brainer (I would hope!) but in a short sale, it may not be as they might not have the finances to do so. Again, if you flush this out in the beginning, you have far less chance of a buyer being upset at the end.
6. If the owner is not going to be living there, are they going to be willing to turn on the utilities for inspections. This becomes a problem as they often have seriously defaulted utility bills and to have them turned back on might require the bills being brought current.
7. How many loans are on the property and are there other issues? This might just help you understand how long the process may take.
8. Who is going to negotiate and deal with the lender(s)? The listing agent? A third party? Find out and get the phone and email of that person.
Things to advise your buyer of before you ever look at a short sale listing:
1. This is a long long process. They can't become too emotionally attached to it as they may with a regular offer, there is just too much that has to occur between offer and closing.
2. Due to the length of time they are waiting for an answer, they are going to possibly see values continuing to drop, media, friends talking in their ear and they may begin to have buyer's remorse. Talk this through before making the offer so they don't suddenly want "out" or to lower their offer out of fear. The best offers are the ones made anticipating all of these things. The buyers will remain patient and keep a level head during the process.
3. Explain to them even a full list price offer is not guaranteed to be accepted. It is normally just the listing agent's best guess as to what might be acceptable to the lender, buyers need to understand this before looking at short sales. This is very very important.
4. That depending on how things are done in your market and by that listing agent, the home may continue to be shown and that better offers may be submitted to the lender for review. This is again lender/market specific, but if you find out from the listing agent before hand, everyone is playing fairly and knows the deal. If you and the buyer know how it will be done, there is a lot less misunderstanding and anger.
5. That the seller likely has no money for anything that comes up at inspections, so make your best offer keeping that in mind. Seller won't be able and lender likely not willing to make those repairs that would normally not be a big deal.
6. Lenders want to recoup as much of their loss as possible, therefore are normally not willing to go more than 10-20% below current market value. You have to assist your buyer determining what current market value is and make the offer accordingly. If they are looking for deep discounts (ie 40+% off current market value) foreclosures may be the better answer for them. With a short sale, a buyer is normally going to get a little deal, and normally a maintained and habitable (and financeable) home.
Once the offer is submitted:
1. A Pre-HUD will need to be submitted with the package. Find out if who provides that and ask to review it (if buyer's side does title that means you may have to get this from the title company). This is very very crucial to be correct and have numbers for prorations accurately projected out to when closing might occur at it's latest. - the HUD actually might be an entire blog post in itself!
2. Follow up with the listing agent at least once a week. Then call your buyer immediately, even if you have no news. They want to be kept in the loop and if you call them before they call you they will feel much calmer about the process.
With some education and understanding by the buyer and buyer's agent about short sales in general and how the listing agent in your particular deal plans to handle things, the process will be easier and less painful for all involved. In many of the deals I hear about that went sour, most anger and frustration could have been eliminated if everyone just knew what the "deal" was in the front end. We just all need to work together, inform ourselves and our clients and do the best we can in less than ideal situations.
Want to read more about Short Sales? Visit my other posts!
If you need assistance with a possible short sale in the South Florida Area, we are here to help! 786-252-4970 or janie@janiecoffey.com
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