How to coach your buyers through the short sale process
The process of obtaining an accepted offer and successfully closing on a short sale transaction on the buying side can be one of the most tedious and stressful things we do currently as real estate agents.
But it doesn't really have to be if you use a recipe for success for you and your buyers.
One of the most important issues in the beginning is knowing how to craft an offer that is conducive to a successful short sale closing.
Here is a task list that will help:
1. Obviously, you want to make sure there is a short sale addendum to the contract. Why? Because you need to make sure there is a time period that is clearly stated that the buyer will wait for the written approval(s) so that contractually they can safely exit the deal if the listing agent and/or short sale facilitor cannot obtain the written approval in a reasonable amount of time. If your buyer wants to continue to wait past that deadline, it is their choice of course, but it's good knowing there is a contractual date that allows them to exit from the transaction legally. If you expect a quick approval, then write in a smaller waiting period. If your buyers are completely married to the home, then write in a longer waiting period. That decision will have a lot to do with how much preparation has been done to date by the listing agent and/or short sale facilitor to date.
2. When will your buyer be submitting their good faith deposit? Upon the fully executed purchase agreement between buyer and seller? Or upon receipt of the written approval(s) from the bank? Well, that's for the parties at hand to decide, in writing. My recommendation is to have the buyer submit their deposit upon full acceptance between buyer and seller, prior to obtaining the written approval(s). Why? Because this is a REAL contract. It's not a "play" contract or "let's wait and see" contract. There's no such thing. Submitting your deposit within 3 days of signing off on the offer confirms that the transaction is REAL. It makes it very much so a tangible contract, and does not create an environment of it being a "disposable" transaction where the buyer can walk at will should they find something better or merely change their mind.
3. AVOID having the contract include personal property!! Why? Because it can throw a wrench into the transaction on many levels. First, in a short sale, the property is always subject to 2 appraisals - one from the bank that holds the lien, and one from the buyer's lender. (unless the buyer has waived the appraisal contingency). You do not want the appraisals to become "muddied up" by concessions that the appraiser has to take into account. Second - IT'S A SHORT SALE PEOPLE!! 9 times out of 10 it is a short sale due to financial distress, so don't create an environment of "rape and pilfrage" by kicking the sellers when they're down and wanting the refrigerator included, if you know what I mean. The seller's personal property DOES NOT BELONG TO THE BANK! So don't craft a deal where you make their personal property part of the bank's mathematical equation. Your buyers want to be portrayed as acting in good faith, and fully understanding of the situation. If you want to work something out regarding the seller's personal property, then do so outside of the short sale transaction and negotiate those directly with the seller for the sale of those items. And YES, it is legal to do so because part of the short sale approval process is the seller supplying a financial statement to the bank declaring their personal assets.
4. Make sure you provide weekly updates to the buyers on the status of the short sale approval. If the listing agent and/or short sale facilitator are on the ball, they will provide you with periodic updates on the status of the short sale file with the bank(s). BUT EVEN IF THEY ARE NOT (everyone gets a little overloaded now and then), then make it a point to make a friendly phone call to the listing agent or short sale facilitator for an update so that you have a regular update to relay over to your buyers. Non-communication is a recipe for anxiety, and anxiety is a deal killer on ANY transaction, even a standard sale. So mark your calendars to make a note to yourself to make sure you're able to provide periodic updates to your buyers.
5. Make sure that it is absolutely clear with your buyers that they should not expect ANY concessions from the bank. Those of us who have been through many short sales know that the banks will almost never allow any credits or concessions for repairs, and often will not pay for those expenses that would normally be covered by the sellers in a standard sale such as home warranty, retrofitting, HOA docs, local city compliances, etc. If you're buyers are fully prepared to pay for these additional expenses RIGHT FROM THE BEGINNING, then you've already passed one of the largest hurdles towards a successful transaction. Does it hurt to ask? Of course not, but do so with the expectations that the bank will almost always come back with a "NO", and consider yourself extremely lucky for whatever concessions you do receive. Make the overall net to your buyers be REFLECTED IN THE PURCHASE PRICE and remind them of that.
6. Have your buyer's lender do as much work as possible prior to obtaining the written approval. Why? Because once you receive that written approval, you do not know what closing date deadline you are going to end up with. You need to be ready to MOVE with the escrow quickly once you have that approval. And getting extensions are not easy should your buyer need more time. Have your buyer's lender do as much pre-approval work as possible so that you can hit the ground running once you do receive it.
- Make sure the buyers have looked into a homeowners insurance policy already.
- Choose an inspector and have them at the ready.
- Make sure they know who their utility providers will be to make arrangements for those.
- Make sure they have made their decisions on how they will take title to the property.
7. Keep in mind that a short sale is a drama magnet! - A distressed property is always subject to new liens, new judgements, HOA issues, accumulating property taxes, etc. SO MOVE QUICKLY once you have that approval so that there are no further surprises or increased closing cost requirements for your buyers.
MAKE USE OF THE TIME WHILE YOU'RE WAITING FOR THE APPROVAL. You do not want to have to extend the closing date if you can help it for these reasons.
So basically, all you need to do is KEEP EVERYTHING ON THE REAL, and you should do just fine.
It's when there are either hidden agendas or unrealistic expectations that your short sales will fall flat.
There are many other factors to consider that will create a plan for success, but I try to keep my blogs to a comfortable reading span so that they're not too lengthy.
I'll have some more blogs similar to this in the near future.
All the Best,