Just a few general tips for agents, buyers and sellers regarding listing, making offers and contracting to purchase short sale properties. Most of this is standard stuff, but I have found that many buyers, sellers and agents are not aware of the particulars of a short sale.
Remember that each lender tends to handle the short sale details a little differently than the next, so do your due diligence, make some calls and find out exactly how the lender for this property handles things, what they expect from you and what you can expect from them! It is best to always try to speak to the Manager in the Loss Mitigation Department (from the beginning) if at all possible. This could save you a lot of time and aggravation!
What is a short sale?
A short sale is when a mortgage company accepts a discount on the note to avoid a possible foreclosure action. Instead of buying from a seller, the property is purchased directly from the lender for a discount. When a homeowner can't meet their financial obligations on the property lenders are sometimes willing to accept less than the full amount due, commonly referred to as a "Short Pay" or "Short Sale".
Listing Agents:
- Be sure to list a stipulation within your MLS listing with regard to this being a potential short sale and that any offers are contingent upon Lender approval of a Short Sale and Commissions prior to closing, terms are subject to lender approval and may change and lenders must approve the offer and release all liens on the property.
- Without language in the contract stating that the lenders must approve the offer and release all liens on the property, the seller may face a legal problem for failing to execute the contract if the sale is not approved and closing does not happen!
- Lenders will typically try to get the Seller to pay back the difference. Is this something that your Seller/Homeowner is capable or willing to do? If not, be sure you have included the correct verbiage!
- Don't forget to have your Seller check with an accountant to decide if there will be adverse tax issues regarding the short sale! Very important!
- No matter what anybody at the lending institution tells you, do not list the property a price they suggest without first getting it in writing if it is thousands below market value!
- (example: an agent was told to list a property at a certain price, but the Loss Mitigator would/could not put it in writing. Now, the individual who gave that information is no longer with the company and the new Loss Mitigator is questioning the list/contract price. Unfortunately the agent's CMA/BPO could not justify this amount as it was listed over 40K below market value and the agent doesn't have anything in writing from the original Loss Mitigator.)
- Get everything in writing OR complete your BPO (realistically with comps only 6 months old if possible) and list closer to your "comparable" value to protect yourself, your client and potential buyers! Remember that the lender will look at your BPO, but will also order another from an uninvolved party. So be honest!
Be sure to read the following blogs for additional short sale information:
Hardship Letter | Imperative for Negotiating a Short Sale
Short Sale Package | Standard Items Needed
Buyer's Agents:
- If you plan to make an offer on a property that is listed as a potential short sale and have never worked one ~ please research and be knowledgeable so you can represent your client in his/her best interest and advise them affectively.
- Don't forget to prepare your buyers! This transaction/contract could tie them up for 1 to 6+ months, which could keep them from purchasing another home! Also, let them know that there is a chance that the property could go into foreclosure, but their earnest money will be refunded.
- Let them know up front that there may be weeks or even months that they don't hear anything from the lender with regard to the offer/contract/property. One of the mortgage companies that I am presently dealing with told me that they are currently looking at 36,000 possible short sales! It has already been 3 months and no news!
- Be sure that your Buyer is pre-approved for a loan. The listing agent will need to send their pre-approval letter with the short sale package!
Listing and Buyers Agents beware! Your commission could be at stake!
Agents, please be aware that the bank is going to try to cut costs if they agree to accept less money than what is owed on the property, which is a short sale! The first place they typically try to cut costs is with YOUR Real Estate commission. Make sure they agree to your commission in writing!
FACT: You will likely work harder for a short sale than any other type of sale and there's a good chance you will have to fight for your commission! Be patient and hang in there!
Best of luck to you! I think the Short Sale is here to stay.... For a while anyway, so we should all prepare ourselves and do the best possible job representing, preparing, negotiating and advising our clients in this matter!
Comments welcome! I would love to hear about your short sale experiences and/or any additional information that would be beneficial to our industry with regard to short sales.
Questions welcome too!
Life is GOOD!
Michelle
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