Unfortunately, the bozTEAM has had a lot of experience with short sales over the past year. You may have seen a few of our blog posts that deal with the actual process. This one does not.
This post deals with the psychology of a short sale. It's hard enough to put together a successful (and quick) short sale without considering the emotional state of the Seller. The Buyer and Buyer's real estate agents can help quite a bit if they understand some of the feelings 'baggage' that comes with this process.
The Buyer, for the most part, has the easy part of the transaction. Oversimplified: the Buyer submits the 'short' price to the Seller - a price that is LESS than the amount the Seller owes the bank. The burden is on the Seller and Seller's Agent (or Mediator) to negotiate that 'short' price with the bank.
Here's where the psychology comes in. It's not like that shortage just evaporates! Something has to happen to that money. Either the bank agrees to write it off; (Yeah, right! That RARELY happens) OR the Seller:
- ...takes out a LOAN to pay the difference (or some portion of it) back to the bank.This is usually an unsecured loan because the bank is feeling very generous and is kind enough to extend some pretty flexible terms to that Seller so they can make their money back. These loans can be low interest rates, interest only for some period of time until the Seller gets 'back on their feet' after the financial crisis that caused the short sale in the first place...Sometimes the loans are really long time frames. Either the low interest or the long time frame are supposed to ease that burden to the Seller.
- ...refuses or just CAN'T take out a loan. The bank sues for the difference.This is likely to end up in some judgment against the Seller and, ultimately in bankruptcy or some form of debt management program. In either event, there will be years of financial consequences for the Seller.
I could go on and on about these options, but you should start to get the idea by now. The Buyer is most likely getting a really good deal on this house. They are excited. They feel like they have had some small victory in this tough real estate market and are going to come out WINNERS. But it's important to have some humility in the face of that victory. Keep in mind how that Seller must feel.
The Seller is going to be paying for that victory, either literally with loan payments for years, or with the impact on their credit rating. The Seller may also feel like they are 'giving' their home away.
This is real stuff. And here are some real examples of how a few short sale Sellers we work with have been emotionally impacted:
Case 1: The Seller - a builder - was selling a personal, custom-built dream home for $200,000 less than the amount owed to the bank. This sale resulted in the loss of the dream home AND the loss of a career as a builder. The bank wouldn't write off the difference and the result would be Bankruptcy for the Seller.
In this example, the Buyer was very aware of this and made the sale go very smoothly. The Seller was extremely grateful for the compassion during this stormy period of financial distress.
Case 2: The Sellers had passionately restored a home to resell for almost a year. The home was selling for $400,000 less than appraisal and $150,000 less than their loan. The bank was arranging a loan for the Sellers to pay off that difference.
In this example, the Buyers came by the house unannounced almost daily the week before the sale. Their agent was not even aware they were 'stopping in'. They directly asked the home's residents if they would mind leaving wine racks and shelving. When they called and asked the Agent (and then, the Seller directly), where an optional glass insert in the $2000 range hood was; they almost killed the deal. Whether the Buyers intended or not, the implication was that the glass (which was omitted by the designer for aesthetic reasons) was removed from the home by the Sellers.
It was all I could do as an agent involved in the transaction not to take these Buyers and their Agent and shake them! Happily, there was no assault. The Sellers completed the transaction and moved on.
I only hope that, if you are fortunate enough to buy or work with buyers of a short sale, that you will not be so short-sighted as case 2 Buyers were. Consider the feelings of loss, the financial distress and the emotional toll that these changes in the Sellers' lives are causing and be gentle in how you deal with them directly during the process. You might just get the home of your dreams, even though the Seller might be giving theirs up.