As promised, here’s a list of things you should never, ever do when listing and negotiating and close short sales:
First things first: Know the Difference
Although short sales are complex, it is important to note that the only difference between a standard sale and short sale is the additional negotiation between the seller and lender(s) regarding a discounted payoff. The lender's conditions regarding sales price, sale terms and occupancy after the sale are included in the final short sale approval. However, the ultimate decision to sell rests with the seller, not the lender. Granted, the lender has to agree to take the loss but the granting of title is from seller to buyer -not from lender to buyer.
The BIG 5 No-No’s When Listing Short Sales
1. Don’t list at bargain prices.
Some real estate agents list homes drastically below market value in order to attract buyers. This strategy is misleading to potential buyers and may backfire on the seller. A lower-than-market-price offer can -and usually will- compel the lender to demand a settlement amount greater than the offer price or to simply decline the short sale. This means having to renegotiate the purchase price with the buyer, which may lead to no sale at all. Find comparable sales and list at a fair price. If no viable offers come in, lower the price every two to three weeks so that when you turn in your MLS history, the lender can see you did the best you could to net a good offer.
***Notices of sale change things a bit. Toss the above out the window if a notice of default has been filed and/or if you have a trustee sale around the corner. In cases like these, list low enough to get a buyer quickly but just high enough to keep the lender interested.
2. Don’t accept offers without a buyer’s preapproval and proof of funds.
I am still surprised to receive offers from selling agents without adequate buyer financial information. It is in every seller's best interest to require a pre-approval letter from a direct lender indicating income was verified, a copy of the buyer's credit report and proof the buyer has the funds to cover the initial deposit, closing costs and the proposed down payment. Besides, the lender will request this info soon after you submit your package. So do yourself, your client and the lender a favor and get this stuff early on.
3. Don’t send multiple offers to the lender for approval.
This is a big one. And I can’t believe some agents still adopt this practice.
A fully-executed purchased agreement, aka an accepted offer, is a legally-binding contract. Therefore, accepting several offers on a single piece of property means that it has been sold as many times as the number of accepted offers. This is true even when there is an addendum in place stating each is subject to the lender's short sale approval. This practice exposes the sellers to liability and possible legal action on the part of disgruntled buyers. To circumvent this issue, some agents send multiple offers to the lender that haven't been signed by the seller. In cases like these, the property has not been sold at all because a purchase agreement that is not fully-executed is not a contract. Doing this is as useful as faxing blank pieces of paper to the lender.
As much as lenders would love to have the last word, a short sale is not a bank-owned property (REO). Regardless of what the lender wants, the seller gets to choose the buyer. Needless to say, it is in everybody's best interest to submit the strongest offer available for short sale approval. My approach is "first come, first served". I don't wait to collect dozens of offers before I present them. I present offers as they come. Once my client accepts one from a qualified buyer at or around market price, we open escrow and move on to short sale negotiations. Any other incoming offers fall to back-up position. Selling agents truly appreciate knowing this. By the way, lenders don't want to review twenty offers on one property, either. This responsibility falls on the listing agent and seller.
4. Don’t accept offers without a good faith deposit.
I encourage my clients to immediately reject (or at least counter) an offer that does not include a good faith deposit. Many agents advise their clients to do otherwise: they believe a short sale is not a deal until the lender's approval is received. While this is true, for all intents and purposes, short sale approval is only an additional contingency to the purchase contract, not any different from loan, appraisal and home inspection contingencies. I always say that a little skin in the game will keep the players around. The cashed deposit proves a buyer's level of commitment. I encourage my clients -buyers and sellers alike- to adopt the philosophy of "No deposit, no deal."
5. Don’t assume the lender is working on your file.
With short sales, it is virtually impossible to predict when a file will be updated. Negotiators have hundreds of files to work on and dozens of fires to put out. It is vital that agents contact lenders on a consistent basis. I contact my clients' lenders every Monday and Thursday. When we're getting close to lender approval, I contact the negotiators up to three times in one week or more if I feel it is necessary. Being the "squeaky wheel" gives my files much needed attention. While this doesn't guarantee a faster approval time, sometimes it makes the difference between closing in June and closing in September. Updating your clients once or twice a week is also a great way to stay connected during the short sale process.
In short (pardon the pun), even with everything in place, successful short sales usually take months to close. Team work, patience and dedication are required every step of the way.
Short-sightedness is not a short cut, but will cut short your short sale process. That is the long... and short of it. (Had to go there. Sorry.)