Bulletproof Your Short Sale Transaction

Bulletproof Your Short Sale Transaction

If you're an agent reading this you may not know all the things I'm about to share. When I did my first short sale, I didn't know many of them. If you're a homeowner in trouble or soon to be in trouble, these things could help you set expectations for your agent so your home isn't the one they "learn from".

You should have Short Sale Offer Instructions as a part of the supplements on the Multiple Listing Service. Both agents and buyers have to read, follow, and sign these resulting in the proper expectations for all involved. Some of the elements included in the instructions are:

• Collect the earnest money once the offer is accepted. If you don't you may get all the way through the approval process with the bank only to find out the buyer bought something else and did feel like they had to tell you since they had no earnest money involved.
• If the buyer has an inspection contingency, have them do it immediately. Let them know this is an As Is purchase but you want to know if they're going to uncover something major that will stop them from buying BEFORE the bank gives approval for the short sale.
• Be sure the PA includes the language "Purchase Agreement is subject to lender approval at terms acceptable to the seller." You want to be sure your seller can say "NO" if the bank's short sale terms need more negotiation.
• Don't accept a closing date. The buyer's agent should write in "Within 30 days of lender written approval." That way no one can point to a missed closing date plus the buyer understands that it could take 90 days or longer for approval.
• Require an "As Is Addendum". You don't want the buyer thinking they can ask for a repaired dishwasher or other minor repair. That's why the buyer is getting a better deal than retail.
• Remind the buyer that the seller/bank won't pay for well testing, septic tank pump out, home warranties, or work orders. They are right to want these things but must pay for them.
  
• No more than 3% seller paid closing costs. I have no idea why this is the case in a world where more than 50% of the current loans are FHA, which allows up to 6% in seller paid closing costs. However, buyers should know they need to make other arrangements. Take a slightly higher rate in return for 1 or 2% to be put towards closing costs.
• Also if the short sale seller has an existing FHA mortgage, the buyer can only ask for 1% in closing costs.
  

In addition, if you think the home is likely to go to a buyer using FHA for their financing - and unless you're offering a property likely to go for cash, your chances of an FHA buyer are good - look for and fix the problems called out by an FHA Appraisal. Cracked and peeling paint is the biggest culprit. Buy the paint for your seller if you need to. Make friends with the buyer's mortgage person and the two of you along with the buyer's agent can take a half day and paint. 

Be persistent and picky about the terms of the offer you accept and you're far more likely to close your short sale. It's all about planning, expectations, and project management.