Short Sale SellersWhat You Should Know About Short Sales
Lately, many homes listed are for sale as a short sale or foreclosure. There is a big difference between these two purchases and the process of purchasing a home.
First of all, short sales are homes that are selling for less than what is owed to the loan holder (the bank or lender). Many lenders are dealing with homeowners in distress and have a huge amount of paperwork to shift through to settle for less than what is owed.
Quite a few lenders will postpone the foreclosure process while the current owner attempt to sell the property. Usually the bank will pay up to $60,000 to foreclose on a home and that doesn’t take into account how much they may lose later when they try to get it off their books.
Real Estate Agents should do their due-diligence but many have rarely an idea of whether or not the bank will cooperate and sell the home for less than what is owed. If there is a 2nd mortgage on the property, it makes it even harder to have a short sale. Since the owner of the 2nd mortgage usually has to completely forgive what is owed to them. If the 1st lien holder is settling for less than what is owed, then there is usually nothing left to pay the 2nd mortgage.
The Agents biggest challenge will be to find a price that will attract buyers. When there is a buyer for the short sale lined up, the Agent can then start negotiation with the lender to get an idea of what they will settle on the property for. This is when the Agent is required to put together a hardship package showing the current owners can no longer afford the home.
One an offer is submitted to the seller and approved. It’s sent to the lender which can take around 45-60 days to get an answer from the bank. Sometimes the bank will come back and say No after 60 days with no guidance or input on what price they will settle for.
The bank does not want to settle for less than (or too much less than) what the home is worth today. They will perform a BPO (Broker’s Price Opinion) which is 3rd party advice from a real estate broker on what the current value of the property is worth.
It’s best to know that because you see a low listing price, that doesn’t mean that you will be able to buy that property for that price. There is a huge communication gap between the lien holding banks, real estate agents and servicing companies.
Ask your real estate agent to do their homework. Make sure they follow up with the listing agent to get updates on what the bank’s response is.
What should your agent be doing?
1) Calling the listing agent
-Find out if a hardship package has been submitted and if the bank has reviewed it
-Find out if the listing agent has had any communications with the bank or servicer
-Ask to see if the listing agent has dealt with this particular bank before and if they have any expectations on a timeline
2) If comparable properties in the area have sold in the last 1 to 3 months, check to see how much they sold for. What is the average price per square foot? Were they short sales? The bank will check all of this data before approving the offer.
3) Search the areas for foreclosures that are at or below comparables.
Some winning ways to approach a short sale:
1) Make an offer they can’t refuse. If the bank accepts the offer, congrats!
2) Don’t look at the asking or listing price. Sometimes this number is pulled from thin air and may have no relevance on the actual value of the property. Ask your Realtor on a realistic value of the property.