Short Sales-How To Handle Them

By
Real Estate Agent with MVP Realty Associates, LLC SL699603

 

I just wish FAR would come up with some required short sale procedures that ALL Realtors & R.E attorneys must follow so that we are operating in a manner that best represents our clients in this "Wild Wild West" scenario of real estate that we are all trapped in.

 There are several ways that short sales are being handled and you better make sure you understand how your clients, sellers & buyers, will be working with the seller's lenders. Each lender has its own agenda and usually dictates how the short sale process will be accomplished.  Most people are not mind readers, so when working with a lender, it is critical that you understand the lender's wishes and rules of operation. This might not be the way you operated as an agent in your past short sale transactions. We are continually having to adapt to the latest perceived, as the best way of transacting and negotiating with the seller's lenders. When did we all lose all of our power to the lending institutions? They are controlling all aspects of the contract and it's negotiations. Most of the time there will be no negotiating. It is their price and terms, on their time schedule with limited or no choices left for the buyers to make. Their only decision is to accept the counters and the addendums or don't and not get the property. No worries to the lenders, because they think there will be offers coming in packs.

 We are all wondering how to handle a short sale transaction in the most legal , ethical and fair way to not only represent our clients but to also satisfy the hurdles that these lenders and their representatives put forth. It seems that true market value, which is reasonably assumed by the general public, to be close to the list price of the property, no longer should be assumed to be the case. Some short sales homes have list prices set at half their appraised value in order to bring droves of offers to the lender. It becomes a challenge for the buyer's agent to convince their clients to make offers way above the list price. This is not easy to do with market conditions favoring the buyers.

  So much for buyer's making a fair offer with consideration and having that offer valued on it's own merit without other buyers, real estate agents and attorneys clouding the honored negotiation process. The term contract or executed contract has no meaning anymore when multiple offers, instead of back up contracts, are the norm.

In some short sale R.E. transactions, the buyer's are allowed to make multiple offers without any consequences or any regard to commitment. There is no seller's signature and no at risk deposit/consideration.

 In other cases, the buyers and sellers both sign the contract with deposit/consideration, so there is  execution of the contract, but the contract still remains contingent upon the seller's lender's approval to be made within a specified date. The seller will then submit multiple offers for their lender's approval, instead of one offer being submitted with sufficient time for the lenders to respond. This goes against all the contract law that I have learned, where the seller can only sign one offer with possible back up offers only introduced when the first offer has been dismissed.

This results in a disadvantage to the buyers. They are bound to this executed contract until the specified deadline for lender approval. The sellers are not bound because the lender is receiving multiple offers as if it was an auction. The winner is the highest bidder with the best terms and no one, not even the listing broker really knows what that number is going to be!

In my opinion, as a short sale listing agent, the best way to handle multiple offers, is to gather the unsigned offers and you and your sellers determine the best price and terms combination. The sellers then sign this best offer. The buyer's deposit will be made upon lender(s) approval.  This best offer is then submitted to the lender(s) for their approval. All other offers will be considered as backup offers and will this will be communicated to each of those buyer's agents. This method keeps things simple for the lender(s).  The lender(s) only need to evaluate market value and hardship in regards to one offer at a time.

Comments (2)

Anonymous
Maria

So what would you suggest to do if after you submit that best offer to lender for approval, you receive a better offer.  Would you still keep it as backup offer? I have a case where we got 2 offers almost at the same time and we submitted both to the bank for approval.  After BPO came, one was closer to the numbers they wanted and that's the one is going to the investor for approval. 

Sep 12, 2008 08:43 AM
#1
Deborah "Deb" Lamb
MVP Realty Associates, LLC - Naples, FL
Senior Real Estate & Resort Specialist

Hi,

When you receive an offer, you do not have to get the seller to sign it unless you think the offer is one that meets the banks needs or expectations. I know sometimes you do not know what those are until the BPO. Hopefully, you have  done your own CMA and have a good idea of what that BPO will look like.

You can hold the first offer and if the property is being shown a lot, wait a week for some other offers to come in. If there are some others. Lay them all out and pick the best offer with price and terms . Any offers with a lot of contingencies, should not be a top pick. At this point, have your seller sign this best offer and submit it to the bank. If they know that you have done the homework, they will work with that offer and order the BPO, if not already done. This is less confussing to a $8-9/hr employee that will be handling multiple offers, who really doesn't understand contracts at all.

 

Good Luck!

 

 

Sep 12, 2008 09:03 AM