A Short Sales Primer: For Real Estate Agents

It never ceases to amaze me how little fellow real estate agents know about various issues related to real estate. An example? Let’s take short sales.

Short sale: In real estate, a short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the mortgagee. (wikipedia)

Short sales are not our ‘niche’ market. I don’t focus on ‘getting short sale listings’. Frankly, short sales are a ton of work for significantly less money, not to mention all too often the banks move way to slow and the property ends up going to foreclosure despite having worked my rear off getting the banks offers to consider.

Needless to say, I’ve become a reluctant expert at short sales.  Our transaction coordinator, Joy, is absolutely awesome when it comes to dealing with all of the various parties involved, most especially when it comes to ‘out of the ordinary’ sales, i.e. short sales. She bugs the banks daily which is definitely a necessity to keep them moving.

Anyway, when a fellow real estate agent calls to schedule a showing on one of our short sale listings, we are very up-front with the agents. Initially we started out reminding them that the property was a short sale. Typically the agent would say ok and acknowledge that they understood (and then proceed to not understand the lengthy process involved). Then, we started explaining what exactly that means for their buyer client. It means that any offer submitted by the buyer needs to allow 35-90 days for the acceptance period. Typically, the acceptance period for a traditional sale will run anywhere from a few hours to 2-3 days at most.

Banks require 35-90 days to respond to the offers and that’s after we (the listing agents) have sent them a preliminary HUD1, comparables, the offer and all of the required hardship and financial information from the seller and, bug them every . single . day until they take action. We make it a practice to provide the hardship/financial information immediately upon receipt of the listing. This gets these steps out of the way ahead of time.

So here is the process in a nut shell:

  1. Show property
  2. Make your best offer allowing at least 90 days for acceptance
  3. Offer is submitted and banks are contacted daily by our office (When there are 2 banks involved (ie a 1st mortgage and a 2nd mortgage) typically the 1st mortgage will offer the 2nd mortgage pennies on the dollar as a pay off to accept the short sale. If the 2nd refuses (which is simply idiotic in this market) the property will end up in foreclosure and the 2nd will likely not receive any financial compensation).
  4. Bank accepts, rejects or counters the offer. Expect at least another 30 days if there is a counter by the bank.
  5. Allow 1-4 months additional time to close on the property

If you are a buyer interested in a short sale, please know that it is not an opportunity to offer a ridiculous price on the property. It is however, an opportunity to get a decent deal on a property, if you are willing to wait out the process.The banks require comparables with the offers and will typically not accept an offer priced more than 10% below market value. In the North Idaho market, they don’t have to take ridiculous offers. It is wise to note, while North Idaho is a declining market – it is considered a more stable market than other areas of the country that banks are currently overwhelmed with.  Short sales in certain areas of California speed along, here, it’s as slow as a snail.

We currently have an offer in on one of our short sales for 37% less than the listing price and the listing price is about 3% below what the home would sell for under normal circumstances. Additionally, another offer came in on the same property for about 5% less than the listing price. The banks are simply going to laugh at the first offer (whether or not there was a second offer to consider). It would cost them less money to foreclose and sell at market value than to accept an offer 40% less than current market value.

Buyers who are interested in short sale opportunities need to make sure they are working with an agent who thoroughly understands short sales. When you question your agent, make sure that they explain their knowledge thoroughly to you, not just giving you a short ‘pat’ answer, but explaining in depth.

Agents get more knowledgeable. There are more and more properties available for sale now that are short sales. Be an asset to your buyers and sellers in the short sale process. It is your job to understand this process inside and out.

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