Know the value of the home
When I say the “value of the home” I mean the value the Bank is going to accept. This is actually a range. Know the high value, and the low value. This is important because the bank is going to approve the short sale price based upon the comparison analysis method of appraising. They will not approve a value or price which is a below market so it’s important for buyers to know they are not going to steal the place and for seller’s to know they can’t give it away. The bank arrives at their value based upon “Broker Price Opinions” which are like appraisals only they have very strict rules regarding the evaluation process. Generally, the Broker performing the service can only use select comparable properties in their report. The limited selection tends to create a higher value than buyers are willing to pay. This inflated value is seen most when the home in question shows wear, has unique features, or is part of a declining marketplace where the next sale to be closed is the new low for the area. If the Listing and Selling agent know the Value Range they won’t be surprised when the bank returns a short sale approval higher than their accepted offer amount. Your agent must know the bank’s BPO guidelines so that they can predict the value conclusion. Most short sales stall out because the bank returns a value which is over market but supported by a BPO. Agents caught off guard waste a lot of time sending comparables to the bank’s negotiator and begging for them to take a lower price. This delay causes most buyers to get discouraged, and move on, at which point the listing agent starts the whole process again, usually with the same result. Ever seen a short sale listed for two years and 50 price reductions? My solution to this problem is simple.
Get an Appraisal
One thing Banks know is the power of an appraisal. Every lender knows that in order to get financing a house must appraise for the purchase price. On every short sale I conduct I purchase a full appraisal for the buyer the moment the seller accepts an offer. I do this regardless of whom I represent. I meet the appraiser at the property with the purchase agreement and explain to them the reason we unable to attract a higher buyer or offer a higher price. Things like needed repairs, small backyard, no upgrades, noisy street, etc. Unlike a “Broker Price Opinion” an appraiser has the latitude to arrive at a value which may be the low for the market area. I’ve found that appraisers tend to agree with purchase prices and in some cases assign an even lower value.
Send the Appraisal to the Bank
At some point the bank will contact the parties involved and let them know the price at which they’ll approve a short sale. If this price is any higher than my appraisal/purchase price the conversation usually goes like this, “There is no way I can sell this house for that price. In fact we were so certain you would approve this at our purchase price we went ahead and ordered the appraisal. The appraiser even came in at our purchase price. No we’ve got a problem because we can’t sell this house for more than the appraised price. No one can. Can I send you the appraisal for review?” I have found that the bank’s loss mitigation department will generally lower their approval amounts if you can provide a full appraisal.