So you want to list a short sale property ? Despite all the negative stories that most people hear, I think the winner at the end, is the Buyer. In many parts of the country, property values are still below the 2005 level, and many are below the 2003 level. In Boston, I've seen many communities are recovering faster than other parts of the country. Short sale properties are attracting huge amount of buyer calls. Many agents do not know how to list and sell short sale properties and therefore, are unable to get the short sale close at the end of a very long process. Short sales are highly technical and structured and they must be followed through with great care or they will not close.
There are many parties involved in a short sale and when you decide to take on a short sale listing, you must be prepared to manage the following:
Seller: Typically financially stressed out & has no incentive and motivation to do anything except to move on with their lives. You'll need to pre-qualify the seller and find out where they are financially and emotionally. You'll need to have their full cooperation through out a very long process. If you can't have that, you'll totally waste your time at the end, as the deal will not close.
Buyer: Manage buyer's expectation. Prepare the Buyer for the worse possible outcome such as high BPO/appraisal value, meaning they will need to come up with more money and if they are financially not capable of doing this, you'll need to go to the next buyer instead of wasting time as buyer will walk away at the end due to lack of extra funds to close. Create a short sale update email list that includes all the parties (ie. seller, buyer, buyer's agent, seller & buyer's attorney, etc) and send out an email each time you communicate with the lender's short sale department. Keep everyone informed. If the buyer needs to take possession of the house by certain date, forget it as it will not happen! You need to pre-qualify the buyer before negotiating a contract. They have to be flexible with possession and they have to not worried about any increase of mortgage rates.
BPO Agent/Appraiser: This is probably THE MOST important party in the short sale. Many short sales die due to unrealistic high valuation against realistic low offer. When these two don't match ,the process becomes more stressful, especially for the listing agent, the buyer and the buyer's agent. It's important to keep in mind that many BPO agents or appraisers are probably not from the town where the property is located. They do appreciate if you bring some recent comps to support the value of the property. However, being overly aggressive to "bad mouth" the problems of your property will only turn them off and will not help you in any way. I recall one personal experience in 2009 when I was completing a BPO in Newton and was called three times by the listing agent before I event met her at the property. When I arrived, she pointed out some areas of concern and insisted that I should take pictures of these areas and she also wanted me to take the comps that she brought over. It was totally unprofessional as she was trying to influence my valuation. I did not disclose the purpose of my BPO and she had no clue that the house was in foreclosure. Sadly, the house was foreclosed two months later and she wasted the previous five months working hard without a clue of selling that property as a short sale.
Bank's Short Sale Department: Most banks today are overloaded with short sales and foreclosures & most short sale departments are under-staffed and therefore the short sale process will take at least 3-6 months to complete. It's critical to keep a detailed record each time you contact the bank and who you talk to. This includes all the phone, emails and fax records. Since the short sale is a long process, if you do not keep a log, you'll lose track of what you did and didn't do, and the result will be painful and time consuming. Each time you call, you must find out if there is a sale date as you need to make sure the sale date is postponed at least 7-10 days ahead of the scheduled sale date. The foreclosure procedure does not stop during the short sale process. The bank reserves the right to foreclose until short sale is approved.
Property: Welcome to FREE property management service! This is true especially when the owner has moved out. You'll need to pay for re-keying services, lawn maintenance, professional trash out and cleaning services, snow shoveling, winterization and utilities. These are typical REO brokers responsibilities but the difference is, they get paid by the REO asset management companies, but in short sales, the listing brokers do NOT get paid! As I mentioned earlier, most sellers are financially stressed out so there is no money to do the necessary upkeep of the house. You'll need to budget some money for these services and can try to get them back from the bank when you submit your HUD for approval. Many banks DO NOT allow third party fees so do not count on it!
Commission Treasure Chest: So after a long period of 3-6 months of hard work, and you finally got the short sale approved, be on high alert! Now come the invisible hands that will be opening up your commission treasure chest and before you know it, the future commission may end up in someone else's bank account!
Beware of the financially depressed seller! Banks do not allow any proceeds to be paid to the seller at closing. If they've moved out of town but still have tons of personal stuff on the property, and they don't have money to come back to move things out, what's going to happen? You may need to buy them an air ticket and rent a U-Haul truck for them! Or you'll need to rent a dumpster and hire people to dump the stuff out so the property can be delivered in "Broom Clean" condition unless you have prior agreement with the buyer that the property will be delivered in "as is" condition with buyer responsible for removing all personal properties. Seller may agreed at the time of signing the Purchase & Sale Agreement that the property will be delivered in "Broom Clean "condition, However, as the short sale process lingers and the seller's financial situation deteriorates, very often the listing agent will need to give in at the last minute in order to make the deal work.
The other invisible hand comes from the closing attorney, believe it or not! Many banks require the HUD for closing to be submitted for approval 24-48 hours before closing. If your original approved HUD was prepared by a different attorney other than the closing attorney, you may have a problem! If there's a shortage of proceeds to the bank, the approval needs to go back to the investor instead of the closer and that means another delay which may take a few weeks! So to make things go smoothly with no more delays, guess who's going to pay for the shortage? The other issue with the closing attorney may be due to the lack of short sale closing experience. Most real estate attorneys are experienced with traditional real estate transactions so most are not familiar with short sales which could involve multiple lien holders who must mutually agree to release the liens with certain amount of money. Every payoff amount has a deadline and interests will start to accrue when the deadline is missed. It is important to have a closing attorney that is experienced with short sales to do your closing otherwise guess who's going to pay the accrued interest due to the delay? In a short sale transaction, no changes, no delays and no missing commission!
If you're still willing to take up the challenges in listing short sale properties, feel free to email me any question or situation that you encounter. Otherwise, you may want to send me the referrals and receive a check without doing any work! I'd rather be you in this short sale transaction. However, I'm so experienced with short sales now , I figure if I can help to save one family from foreclosure and help to stop the devaluation of housing in a community, it's all worth it. There is a purpose in that I enjoy what I do, that is to serve people that are in most need. These short sales and foreclosures will eventually slow down and go away when the market recovers and I hope I have made some impact in some people's lives.