Why Does a Charlotte SHORT SALE Seller Care if You Write a Low-ball Offer?

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Real Estate Agent with www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 228209

Why Does a Charlotte SHORT SALE Seller Care if You Write a Low-ball Offer?

Buyers and even, more often than we would like to see. their agents don't understand why a seller would care at all about the Offer which they receive on their short sale home for sale.  

Why would sellers care about the Offer they receive on their short sale home for sale?

Buyer AwarenessFirst of all, let's be clear about the definition of a short sale:   A short sale occurs when the seller does not have sufficient proceeds to pay off their mortgage.  In order for the transaction to be completed, the bank either has to "forgive" the debt or allow the seller to turn the deficit into a personal loan to be paid off after the home has been sold.

A short sale is a initially unilateral agreement between a buyer and a seller, the homeowner, NOT the bank.  The seller is the property owner on the Deed of record.  The bank is not a party to the Contract.  No one from the bank will ever sign the Contract/Offer, thus never being an actual party to the Contract itself. 

However, if you are attempting to purchase a short sale in the state of North Carolina, you will be required to sign a short sale addendum which states that the seller cannot actually sell the property without his/her/their lender agreeing on the terms which the buyer and the seller agree upon.  This means that the bank/lending institution/investors will be taking a lesser amount owed to them by the seller, for which they may or may not accept.

Therefore, it is in the homeowners' best interest to recognize that the bank will be extremely diligent about the Contract price, especially if the seller is facing foreclosure.  In this case, time is of the essence and the seller doesn't want the bank to tary on their approval of the Contract price.  Having a fair price to initially present to the bank can save valuable time for the seller.

The bank is already having to accept a net loss to their investors so, they have no interest in accepting a short sale payoff based upon a Contract price which is well below market value.  In order to determine the fair market value, the bank will hire a local third party appraiser or Realtor®, who will provide the bank a fair market value.  The bank will then compare the market value and the Contract price to determine their net loss.  This net loss will then be presented to their investors who will then either reject, counter the buyers' offer or agree to accept their loss as stated on the Contract.

Sellers must calculate the risk of the Offer received, based upon the information provided them regarding the buyers' lending, the price offered and the buyers' timeline.  Upon acceptance of an Offer, the sellers' home will be removed from active listings in MLS.  Should the seller accept a low-ball Offer, their home could be off the market for an extended period of time, during which time the bank and your Realtor® will negotiate the short sale Contract.  With low-ball Offers, the bank will most often reject the Contract and the home must be placed back on the market, pending another Offer.  This time is costly to the seller/homeowner and could very well lead them to foreclosure.

Low-ball Offers on short sales do not accomplish the desired end results for either party.  The time delay is certainly a factor and neither party's desired outcome is achieved.  This is why sellers who are short selling their homes for sale do not wish to accept low-ball Offers from buyers.

Are you upside down with your mortgage?  Do you owe more than your home is worth?  Have you suffered a hardship making it impossible to make your mortgage payments?  There are other options other than foreclosure; learn what those options are.  Perhaps a short sale is your best option.  Consult your real estate attorney, CPA and a Realtor® who is a short sale specialist.

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Ambassador
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Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

Beautiful post about the politics of a short sale Debe!  Time is of the essence depending if the seller is behind on payments or not to receive a good solid offer that can close.

Feb 27, 2011 02:29 AM #24
Ambassador
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Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

Lenn, AMEN!  If you understand short sales, you will recognize that our list price is market value BOTTOM and coming in 25% or more below that price is not going to do anything but, spin wheels.  

Fernando, and it wastes the buyers' agents time as well!  Why BOTHER?!

Bryant:  You taught me well!  Yes, it's a much smoother process when we're all on the same FMV page.

Richard:  Mine won't, that's for sure!

Allison:  You're right and then we KNOW we're going to battle the BPO so, going in strong initially is imperative.

Irene:  I believe that the understanding from buyers agents is better now than it was a year ago but, we still battle those who have no clue every day.

 

Feb 27, 2011 02:31 AM #25
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Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

Renee:  Thanks!  It applies nationwide as well!

Gabe:  I guess that mentality is nationwide as well because I get that argument more than any other!  

Missy:  Countering is a must with lowballs--some will even demand that you present the lowball to the bank--because 'after all, they ARE the seller!'  LOL I like your 90-day form and do not do that but, great idea.  Is this a state form or one that you personally use?

Keith:  We do continue to show with a Contract in place for a short sale--and continue to take back-up Offers.  However, if we're lowballed and counter back to them, they often don't understand the 'why's' to our counteroffers.  They feel that the bank is the seller as in a foreclosure!

Gary:  That's our mantra too!

Howard & Susan:  That is SO true--we need to protect them as best we can by advising NOT to accept the lowball's that are so out of range that they will get nowhere--as their property values continue to drop!

Michael:  They need to understand that they, indeed, ARE getting a great deal--but, they're not going to STEAL it!

Kenneth:  Thanks ang agreed!

Renee:  Yes it is!  That time needs to be spent more wisely by entertaining reasonable Offers and not wasting everyone's time with lowballs that will ultimately get us nowhere.

Feb 27, 2011 02:55 AM #26
Rainer
122,929
Cory Barbee
San Diego, CA
Broker (760) 563-4022

Great post and this is exactly the reason I have had to fire some of my wife's clients (buyers) as they think they are smarter than the system with their desire to exploit the market trying to get a (DEAL)....

Feb 27, 2011 02:59 AM #27
Rainer
33,424
Mark Smith
Cherry Creek Properties, LLC - Erie, CO

Nice explanation. It used to be Ok to "start the process" with a low offer. Most banks now want to see it once and move on.

Feb 27, 2011 03:24 AM #28
Rainmaker
1,420,796
Bill Burchard
3B Realty: 951-347-3818, CA - Murrieta, CA
Broker, Realtor, Representing Buyers and Sellers

Good morning, Debe. Great point and explanation why buyers should offer a fair purchase price instead of a low-ball offer… that will likely be rejected by the lender.

Feb 27, 2011 03:53 AM #29
Rainmaker
575,553
Terry & Bonnie Westbrook
Westbrook Realty Broker-Owner - Grand Rapids, MI
Westbrook Realty - Grand Rapids Forest Hills MI Re
To many times the seller has little interest in the actual sales price they just want to be done with it. They need the advice of someone that can guide them through the process. Good evaluation.
Feb 27, 2011 03:59 AM #30
Rainer
153,278
Dori Kay
REALTY ONE GROUP SOUTHWEST - Temecula, CA
TEMECULA, CA Realtor®

Great post Debe.  Provides all the more reason why distressed sellers and buyers should use an experienced short sale agent.  Thanks for sharing!

Feb 27, 2011 04:27 AM #31
Rainmaker
525,554
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Debe,

Great post that sets the record straight. Every buyer's agent in the country should get a copy of your post.

The seller's primary motivating factor is speed and likelihood of closing. Offers that cannot be supported by comps just end up getting denied and getting the seller closer to the foreclosure auction.

Feb 27, 2011 04:56 AM #32
Rainer
17,030
Kieno Simeon Your South Riding Real Estate Consultant
Keller Williams Realty - South Riding, VA

Wonderful post.  Many buyers don't often understand that the bank is going to do their part in making sure they they can recover as much money as possible so they can lose as little money as they have to.    There's so much education that needs to take place for the buyer prior to writing an offer on a short sale.

Feb 27, 2011 05:06 AM #33
Rainmaker
255,325
Dick & Sandy Beals
Wilmington Real Estate 4U Wilmington, NC - Wilmington, NC

Hi Debe,

I'm seeing that many banks and listing agents want to see a preliminary HUD from buyers and their agents....great tactic for all!

Dick Beals

Feb 27, 2011 09:22 AM #34
Rainer
189,075
Don Hintz
2D-enterprises / HAUS Design, LLC - Anderson, IN

Debe,

An excellent informative post.  Besides being a waste of time, it's like kicking people when they are down.  But what I've learned is most people don't do anything that isn't directly going to benefit themselves.

Feb 27, 2011 11:36 AM #35
Rainmaker
387,816
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Very informative post Debe.  We've been in a buyer's market for so long, that it seems that any offer has a reasonable chance for acceptance.  While this is not true, for the Short Sale seller it's even more disadvantageous for the reasons you've mentioned.

Feb 27, 2011 12:33 PM #36
Rainmaker
229,831
Nathan Tutas
Tutas Towne Realty, Inc. - Davenport, FL
Your Central Florida Real Estate Expert

I had an offer come in for a short sale listing which was about 28k below the fair market value. They also only alotted 15 days to get short sale approval from the lender. ????  Can you say counter offer? Haha

Feb 27, 2011 04:57 PM #37
Ambassador
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Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

Nate--Really!  What on earth was the buyer's agent thinking too?  15 days--only your dad can do that and even then, it's probably not a high percentage of those that he actually CAN do!  

Feb 27, 2011 05:20 PM #38
Rainmaker
705,051
Richard Bazinet /MBA, CRS, ABR
West USA Realty - Scottsdale, AZ
Phoenix Scottsdale. Sellers, Buyers & Relocations

Hi Debe - I agree with your comments, but I'll throw this in for discussion. I wonder why we keep saying that the lender(s) in a short sale is a not "a party to the contract".

Really? Perhaps we need to revise how we say this.

I know they are not on the executed offer but they are "the party" in approving the sale of the contract, the settlement terms of the transaction, what the seller pays or does not pay, what the buyer pays or does not pay, the counters, the final sales price, the terms of the sale, the commissions, the escrow settlements fees, the close of escrow date, and the short sale approval letter... well, you get the idea. In other words, without the lender(s)'s terms and conditions, and approval, there is no contract between the seller and the buyer that can be closed - they carry the greatest amount of authority in the transaction.

So why do we say they are "not a party to the contract" when they actually govern and approve almost every single item in the transaction?

I'd say they are a party to the contract.

Feb 27, 2011 05:26 PM #39
Ambassador
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Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

I agree with you Richard to some degree--legally, however, they're not a party to the Contract itself.  The reason that we say that is to inform buyers and their agents who are unfamiliar with the short sale Contract, that the bank does not actually sign the Contract.  One of the most common questions that I get is, "Did you present the Offer for the bank to sign?"  That's why we explain it in those terms so that they'll understand why sellers won't sign their Offer and submit it to the bank until it's a 'quality' Contract--one that the banks will ultimately approve (or should approve!).  

And, you're also correct--the sellers cannot perform on the Contract without the bank agreeing to take the agreed upon price between the buyer and the seller/homeowner.  That is another thing that is often a misconception.

Feb 27, 2011 05:35 PM #42
Anonymous
Kyle

How many lower offers are refused before the home ends up in foreclosure?  If sellers are coached to accept only offers at or near full retail price, the inevitable will happen.  I'm sorry, but a distressed property in an already flooded market, with sellers facing foreclosure, needs almost any offer the lender might consider.  Too low of an offer will get rejected immediately.  A ball park offer vs. the cost of foreclosure will get the lenders attention.

The IRS can NOT collect tax on debt forgiveness if the property is the sellers primary residence.  This is part of the Debt Forgiveness Act that was enacted in December of 2007.  Too many sellers are being misinformed and led to believe that they will receive a 1099 on any debt that is forgiven.  This is not at all true, unless it is not a primary residence.  In almost every case, the homeowner is selling their personal residence.

The seller can receive a deficiency judgement, which any skilled negotiator can negotiate out completely or have it largely reduced.  Most lenders will sell any deficiency debts for around 10 cents on the dollar so they can and will negotiate the balance due. 

Buying and selling is about negotiating and not being afraid to ask for some concessions.  So many sellers are being misled about all of this.  Holding out for retail value only gets them closer to the foreclosure.  Ever month that goes by without mortgage payments made only lessens the chances of  a short sale working out for them.

How many homeowners are being told that they need to be behind on their mortgage to qualify for a short sale?  Shame on anyone that has told a client that.  The process may take a little longer, but lenders can and will do short sales on current mortgage payments.

Yes, I am an investor, and yes I do buy short sales.  I do put in lower intial offers, but the bank will counter back  closer to where they need to be.  They will not accept my offer if it isn't the right financial decision for them.  They accept, I buy the property, I sell the property for a profit.  The lender moves on, the seller moves on, and I move on.

Folks like to throw stones at investors for trying to make a profit and can't believe that someone should be able to flip a property.  The next time everyone goes looking out for the lenders best interest, keep in mind that they are the biggest "flippers" out there.  They finance a mortgage and turn around and sell it almost immediately for a profit, do they not?

You would be far better off to let the seller make his/her own decision about what to accept.  Does it come down to doing what's best for the seller or what's best for your comission?

Feb 27, 2011 07:01 PM #43
Ambassador
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Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

Kyle,

Ten cents on the dollar is not happening in our area AT ALL.  Fair market value--not full retail price is what we're working to achieve for the approval.  I've seen other agents' sellers go into foreclosure because the bank refuses to work with the lowball offer that they have in-hand--they sit and wait and wait until foreclosure takes place.  Full retail price isn't even happening often with resales but, with short sales, we price them at fair market value because ultimately, the bank WILL obtain a BPO and if we don't have what they want, they will counteroffer the buyer who, oftentime walks at that point, costing the seller precious time.

And, I resent your final statement--my commission is not, in any way, my reason for penning this article; it's to help my sellers, hopefully bring in educated buyers who know that lowball offers do NOT get accepted by the banks--especially ones that are offering ten cents on the dollar.

Feb 28, 2011 01:37 AM #44
Anonymous
Kyle

Debe,

I cannot buy any properties at ten cents on the dollar.  What I stated was that the seller cannot receive a 1099 on a primary residence, due to the Debt Forgiveness Act of December 2007, though they may receive a deficiency judgement.  It is the deficiency judgement that can be negotiated with the lender down to ten cents on the dollar or often times waived entirely.  There are times when they won't budge on it, but that is unusual.

Most homes that go into foreclosure in this area is because a seller won't come down on their price.  Too low of an offer is rejected immediately by the lender.  I've yet to see a lender spend days, weeks, or even months to decide that an initial offer is too low, tying the property up and leading to an eventual foreclosure.  It is just the opposite.

My initial offers are discounted but in ballpark range to get the banks attention.  I know that they will want to counter my offer and I know that they will do a BPO, giving the property their own price oppinion.  Not a problem, and we go to work from there.

A lot of folks tend to forget that these are generally distressed properties in an already flooded market and need to be treated as such.  Too often they are treated as a normal sale as if nothing is going to happen when the listing expires.

You wouldn't believe the calls that I get from misinformed sellers that tell me their auction date is just a couple days away.  They stopped making payments because their realtor told them they had to be behind on payments.  They rejected several lower, reasonable offers because they were told that the bank would never accept it.  They were told they would receive a 1099 on the forgiven debt.  By that time, it's too late.  Another one bites the dust.

Lower offers can and do get accepted.  It does provide an alternative for the seller with the right negotiations, such as deficiency waived or extremely reduced, no 1099 on a primary residence, foreclosure avoidance, and peace of mind.

I do apologize if I offended you with my last statement in my last post.  Often times it seems to be the case, though that certainly doesn't apply to everyone.

Feb 28, 2011 11:26 AM #45
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