Those of us doing short sales know that one barrier to be overcome is getting the Lender to agree to a reasonable price. Sometimes it can take months for a short sale to be completed, and the buyer has to hang in there for the duration. The price they end up paying has to be worth all the waiting and aggravation! How do you get the Loss Rep to agree to a fair price?
First, you want to communicate with them in such a way that you are both on a team working toward a common goal. The best ways to have the Lender join your team are two: have a complete package for them, and talk to their WIFM’s. WIFM’s are What’s In It For Me?
One thing you know is they want to get a deal done so they can make a bonus check. To do that, it helps to know the 5 Key Considerations they have in making a loss mitigation arrangement. The Lenders have actual checklist that permit them to discount the value of a property. These are critical ingredients for you to know.
THE FIRST KEY for the bank to allow a big discount on a short sale is showing that the property is functionally obsolescent. That means such things as having only one bathroom. In my area, we have a lot of homes affectionately called bungalows. These have typically a living room, a kitchen, a dining room or a bedroom and a bath on the first floor. Then upstairs they have three bedrooms off a small hallway. They are functionally obsolescent because the only bathroom is on the first floor off the kitchen.
Anything that is not 3-4 bedrooms and at least 1.5 to 2.5 baths is functionally obsolescent in my area. A condo for a similar price point offers far more functionality than these old bungalows.
Other things that fall into the functional obsolescence besides the layout and flow of the house are outdated kitchens and bath and poor heating systems. So you can cast some of the needed repairs under the category of functional obsolescence.
THE SECOND KEY for the Lenders to give huge discounts is poor site or location.
This can be location on a major highway. It can be a huge cliff in the yard, making the yard unusable. I had one property with a 40 foot retaining wall in the back yard. While the property had plenty of acreage, the usable space was about 12 feet from the back door to the retaining wall. I had another home located right next door to a church that was under major reconstruction that would last for the next several months. While not a permanent problem, it was a location issue that impacted the salability of the property until the construction was completed. Another home I worked with was located to the rear of another property and had no driveway and very limited access. The property owner in front of her was constantly allowing her tenants to park on her accessway as well. This is a location issue, too.
A THIRD KEY on the Lender list of undesirables is structural problems. Structural problems could be a deal killer for you as well. If there are major cracks in the foundation, or severely rotted sills, or crumbling walls or a leaky roof, you may want to walk away from the property. Or you may want to market it to a builder or major rehabber. It could be a tear down.
One big factor that I look to include in my short sale offers is the presence of mold in a property. Most mold is harmless, but there are some that are actually toxic. If I have any moisture in a basement, there is a strong likelihood that there is mold. And I will certainly include that as a part of short sale offer package. You can even buy an inexpensive mold test kit at a Home Depot and mail it in to the Lender as a part of your offer presentation!
The thing is a major structural problem is something that will not go away, and definitely impacts how a Lender will respond to your offer for a short sale.
THE FOURTH KEY on the Lender List for maximum discounts is economic impact. This is the category where you group your information about the marketplace. Things like average days on market. The number of similar homes listed for sale. The trends of real estate values in your area. The new construction activity that competes with your existing property.
AND THE FIFTH KEY on the Lender list is the financing terms. This encompasses just about everything else the Lender must consider. It includes the closing costs, the amount of the write-off they will take, the discount you are looking for from their appraisal result.
If the property needs repairs, this includes buyer financing qualifications. Whether the buyer will be able to go FHA or VA, or will they need to do a conventional loan with a higher down payment? Or does it need to be a cash or rehab financing deal?
Or, let’s assume for a moment that you have a property that is in pristine shape. It does not have functional obsolescence. It has a great location. There are no structural problems. And the market in the area is really not all that bad. What can you do?
Even with a prime retail property, the Lender will do a short sale. Remember it is not their business to own properties. Their business is to collect interest payments. When that is not happening, it is in their interest to get rid of the bad debt. And the fastest ways for them to do that are either work out a Forbearance or Loan Modification agreement with the borrower, or do a Short Sale if the current owner does not qualify for the reworking of the mortgage.
The Lenders have guidelines for how much they can discount for a short sale. Depending on the type of loan involved, the discounts can range from 10-18% off the retail quick sale market value, even for a home in good condition.
I believe in team building. The Loss Mitigator is not your adversary. They are a part of what makes the short sale happen. (I know, sometimes it seems they are the enemy.) If you give them a good package, and address with them the issues that permit them to work with you, you can work with them toward the same goal ~ completing the short sale successfully!
The more you can slant your presentation to address the 5 Key Considerations, the higher the discount from retail you can get on your short sale. Strengthen your presentations by keying in on these points that matter to the Lender, and you will get bigger and bigger discounts, and higher and higher successes in working short sales!
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