Short Sales aren't so Bad.... Tips to Smoother Short Sale Transactions
In an industry where all agents are number one and all agents are the neighborhood “specialist” is there an expert when it comes to “Short Sales”? Consider this:
Although Short Sales are nothing new, they also are now abundant after basically being almost non-existent for many years as we saw property values rise to astronomical levels here in Northern California making the need for Short Sales obsolete. Oh my, have times changed…
Very few people have closed more than a handful of Short Sales so being an expert in Short Sales would be difficult as there needs to be years and years in addition to hundreds of Short Sale transactions closed in order for someone to qualify for an expert.
The fact is Short Sales are not a lot of fun. You have to negotiate with the buyer as many buyers think that they can come in and steal a property in a Short Sale. Then you have to negotiate with the lender while you are basically in limbo for the first 3-4 weeks not knowing if anyone has even looked at your file.
Then you as a listing agent have to report back to the selling agent that there is nothing to report. Or if you are representing the buyer you have to tell the buyer that there is nothing to report meanwhile your buyer watches property after property come on the market and you try and keep this transaction together because of all of the time you have put into the transaction and buyer.
Plus, you may not see a commission check for up to 60 days or more and we all know how we real estate agents are with our commissions, we want to get paid!
So why even deal with Short Sales? Because if you plan on staying in this business over the next couple of years chances are that you will run into a Short Sale either as a listing agent or representing a buyer. You just can’t avoid Short Sales or else you will limit yourself and your buyers on some pretty decent buys if you are both willing to be a little prepared and patient.
See, it does not have to be that difficult really. If you are patient, if you can handle not getting paid for 45-60 days, sometimes a little longer (although I have closed them in less than 35 days) and if you play by the rules you can thrive in this market. You can find your buyers some good buys. It is not a mystery and it is not really Rocket Science, it is just understanding how Short Sales work and understanding the game so that you play within the rules.
There are some key points to handling Short Sales. Before I go further please let me say that I am not a Short Sale expert. I am currently handling close to 40 Short Sales and I am learning new things everyday when it comes to this type of transactions and some of the things that were policy last week may no longer be policy today. But there are some things that are common on Short Sales and that will help you today or tomorrow and may not change much. They are as follows:
Price
Price your property accordingly and competitively at a price that will get attention. But don’t price it too low as pricing it too low may generate offers but will ultimately lead to failure when the lender decides and figures out that the property was priced way too low and they will not take that much of a hit. The common number (and I have been told this by more than one loss mitigation manager) is a sales price of anywhere between 85-90% of market value so price your home in such a way that will attract buyers and will ultimately end up within the target range when it sells.
When bringing in offers for your buyers also keep this in mind. It blows me away when I get an offer of $350,000 for a listing that is priced at $600,000 and the buying agent tells me that the buyer can pay cash and can close in 7 days if needed. Investors and lenders don’t care about this. They want to be in the range I described above.
Terms
Make your offer subject to lender and all lien holders’ approval of a short payoff.
Expect the lender to not allow any repairs. You may get lucky and have a lender allow some repairs but I have yet to see one.
In addition, most lenders will allow very little closing cost credit for buyers. The common figure I am getting is $3,500 maximum credit towards buyer’s closing costs.
Allow 60 days for close of escrow in case the approval takes longer than expected.
Contract
Have a COMPLETELY ratified purchase contract. Not having it all complete and having missing signatures will many times have your file in a stack with no action at all because you basically have no contract and lenders do not want to waste their time on something that is not technically sold.
Attach an AS-IS addendum.
Pre-approval Letter
Do not forget and underestimate the importance of the pre-approval letter along with your offer. In addition, here is a tip on pre-approval letters: Have the pre-approval letter at the final price agreed upon between the buyers and sellers. Having your pre-approval letter at the original offer price before you agreed to a higher price will be something that the lender will kick back. Having a pre-approval letter at a higher price than the sales price may have the lender countering you at the price that the buyer is qualified for. Trust me, I learned this lesson the hard way!
Complete Documentation
The moment that you take a listing get the authorizations signed by the sellers and send them to the lenders right away. You never know when you will get an offer and you do not want to be spending the first couple of weeks after you have accepted an offer just trying to get authorization to speak to the lender. Have this done right away.
BTW: You can download the documents that we use the moment we take a listing on the Casa Way Discussion Forum at www.casaway.com. They are free.
Make sure that all financials are filled out COMPLETELY as needed by lenders and updated throughout the listing period so that you are ready to go once an offer has been accepted. Ask ahead of time what the lender will need so that you are prepared.
In addition, here are a couple of tips that have helped me with my short sales and may help you with yours.
1. If there is more than one loan on the property find out immediately if both lenders are the same lender (Countrywide on the first and second loan) because if all lenders are the same the process tends to go much smoother. When you have two different lenders you sometimes have to do double the work in negotiating with each lender and sometimes they don’t see eye to eye. Make sure that you talk to both of them to see what their normal procedures are in terms of what a first lender will offer a second lender and what each is willing to take.
2. Be patient. Don’t push or get frustrated with your loss mitigation specialist because you need to close your transaction and because the buyers will walk if you don’t get an answer. Believe it or not, most lenders don’t care and are so flooded with files with some of them handling double the load they should be handling that they would just as well see it go into foreclosure if you give them a hard time or become frustrated and take it out on them. Although the logical thought would be that the lender will do anything to not let it go into foreclosure that is just simply not the case. It is not about logic but more about numbers and preparation.
3. Let your sellers know that if they fail to make their mortgage payments and even though they have given you authorization to speak to their lender, the fact is that lenders will continue to call them and ask for the payment that is due.
4. Your sellers may not need to be late on their mortgage to qualify for a Short Sale. Some lenders are now doing Short Sales even though the homeowner has never missed a payment. Why? Because the lender would love to keep their portfolios as default free as possible and understand that some borrowers just can’t afford to keep their homes and in a tradeoff for the borrowers seeing as little damage to their credit as possible, they may want to keep making their payments on time until their homes sells and closes escrow. And guess what? Maybe the home they sold for $800,000 was too much for them but they would be happy in a $450,000 condo. Think this is not a win-win situation? Of course it is!
These are just some tips that have helped me and I am glad to pass this information to you for your Short Sale transactions. Why? Because first and foremost, we are all on the same team. Regardless of what company we work for we are all in the real estate business and helping each other makes our industry better.
Secondly, I have a lot of listings that are Short Sales and I feel that sharing this information with you may encourage you to show one of my listings or may make you feel a little more at ease about Short Sales and may have you sell either one of my listings or someone else’s listings which will ultimately help our industry by doing more transactions. I know that when I represent a buyer in a Short Sale I want to have someone on the other side who understands Short Sales and does not go through the transaction winging it. Preparation leads to smoother and more efficient transactions.
I have flown and travelled to different areas to meet with some of the largest lending institution’s Loss Mitigation Managers to learn more about the process to help me and my clients and I am happy to send this information to you.
Oh, and by the way, did I mention to you that I have some great listings for your buyers? Some are Short Sales and some are not, they are just some good deals waiting to happen. To view them please click here.
Thank you for taking the time to read this. Give me a call or send me an email some time and “Let’s Talk Real Estate!”
Robert Aldana
800-882-7896
Even if someone has received training for Short Sales the fact is that lenders are changing their guidelines sometimes on a daily basis as markets continue to struggle in certain areas and lenders start to “get it” a little more each day. I know this as I have been told by top level management of some of the largest lenders that what was policy last month or even last week may not be policy this week or even today. I have attended several workshops and even had one-on-one meetings with mortgage companies to try and pick their brain on the process.
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