Hi folks. Today I'm going to talk a little bit about short sales. As way of disclosure, I want to mention, that I am NOT an expert on short sales. However, I am an experienced Broker in Florida and do have short sale knowledge. I just prefer to not handle many of them.
But....I want to see if I can help when it comes to working with Sellers of short sales. How to price the property properly and how to negotiate the deal.
First, if you are a Seller facing foreclosure, a short sale could be a viable solution for you and the Lender. Seek the advice of an Attorney and an experienced REALTOR®.
My market, Poinciana FL, is saturated with short sale listings. Some will be successful but many more will not.
The key to being successful is pricing and negotiating.
When meeting with a Seller, who may be a candidate for a short sale, it is imperative that the property is priced right. When I say "priced right" I mean as close to market value as possible at a price that will get the property under contract quickly.
One of the problems I see in my market is that short sales are priced way to low. It seems like listing brokers are just picking a number out of the clear blue sky and placing the property on the market. While they may generate a lot of activity, these deals, more than likely, will not close. Plus they are doing the Sellers a major injustice. The Seller will either be foreclosed on or end up with a huge deficiency judgment against them. Not to mention the possibility of owing good ole' Uncle Sam some money.
Pricing a short sale should be just like pricing any other property. You are looking for a price that will sell the property in a reasonable amount of time and at a reasonable price. The fact that the property is a short sale, requiring 3rd party approval, is nothing more than a negative market condition.
If the true market value of the property, if not a short sale, is $200,000, then what you should be doing is taking this figure and making an "adjustment" for the "negative market condition(short sale)". Depending on your market it could be a 10% to 20% downward adjustment. Let's say that your market is showing you that short sells are selling for 20% below a normal sale of similar properties. That means that this property should sell for $160,000. So maybe you price at $165,000 or $169,000 depending on your area's sales price to list price ratio.
Now you have a property that is priced right AND you have a very good chance of getting the Lender to agree to the short sale if you bring them a CONTRACT at $160,000.
OK so here's the second step. Negotiating the deal. Notice up there where I bolded CONTRACT. This is important. Many REALTORS® are submitting OFFERS to the Lenders for approval. This is wrong and will limit your ability to get the short sale accepted.
A short sale requires 3rd party approval of the CONTRACT not the offer. What this means is the Buyer and the Seller should be negotiating the deal as they normally would. Once they have agreed on a price, hopefully as close to the $160,000 possible, they sign the contract and the deal goes pending, subject to 3rd party approval. The 3rd party approval is nothing more than a contingency and should have an end date on it. It's no different than inspections, loan approval etc., except that it is a Seller contingency. It is a contingency that needs to be removed or it will expire with time.
Once the deal is signed, by all parties, you are now in a position to submit the short sale package to the Lender. Then the wait begins.
It's important to remember that, if you are working for the Seller, your goal is to get them as much as you can for the property in a reasonable amount of time. By doing this you are limiting their liability created by the "short" and you are giving them a good chance to avoid a foreclosure by presenting a fair contract to the Lender.
So, if you are inclined to handle some sort sales. Do it right. I know short sale is the "buzz" word right now but as professionals we need to understand what we are doing. There's a lot more to it than just throwing it out there and hoping it sticks. If that is what you are doing then you are harming the consumer and need to stop. I hope this post helps. If there are any short sale experts out there that feel this info is incorrect please let me know. I'm trying to learn as much as I can. Thanks.
More articles on short sales by Broker Bryant.
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Bryant Tutas
Broker/Owner
Tutas Towne Realty, Inc
Licensed Florida Real Estate Broker
http://www.brokerbryant.com/
***The content of this blog is solely my opinion***
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Blog Boy...
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I wounded my lovely little typing thumb just to make you happy you :)
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Oops!!!! I forgot to add this very important little thingie.
JUST BECAUSE IT IS A SHORT SALE THE SELLER DOES NOT HAVE TO ACCEPT A LOW OFFER. THEY CAN DENY IT AND HOLD OUT FOR BETTER. THE BANK HAS NO SAY SO IN THIS. REMEMBER YOUR SELLERS LIABILTY IS AT STAKE. IF THE OFFER IS RIDICULOUS YOU DO NOT HAVE TO WASTE TIME SUBMITING IT TO THE LENDER. THE BUYER IS LOOKING FOR A DEAL AND IS NOT LOOKING OUT FOR YOUR SELLER'S BEST INTERESTS.
Mmmm. Our area is suffers from pseudo short sale saturation.
The words "short sale" is about as close as many listing will ever get to being a real short sale. There are more agents claiming short sale expertise these days than agents touting "won't last" for listings that have been on the market for 270 days.
BB,
Saturation is the key. When you are competing with a lot of other short sales in a declining market, the faster you can unload the property the better in a lot of situations. Each short sale that is sold reduces the comps on other listed properties. My bank seems to be looking only at appraisals that are 30 days old or less. AJ
BB,
About two months ago I successfully completed another one in 47 days. I have one right now that will be even tougher a challenge. But my main concern is time....I was able to save 2 weeks of mailing packages back and forth. I took the same process on this one.....the package is already prepared just waiting for a contract. It's a tough process that the consumer better understand that it is the unknown as to whether it will go through and the amount of time. At least if we follow the process correctly...we have just raised our odds. Many agents do not prepare ahead of time...they just wait until they get a contract and then they say ...now what?
Nice post.
Pretty post.
Great post.
Let's not forget to say thank you for the points :)
P.S. Will you kiss my thumb and make it all better? :)
TLW...ROAR!
I like the "danger" sign graphic, Bryant - very appropriate. I've been involved with a few in the last year and they are a bear! One went great, however - and that was one where the seller organized their finances and prepared a great hardship letter up front. The offer and closing went smoothly (but not quickly, as might be expected) as a result. Even the bank can be motivated if everyone does their part.
Well hey everyone. I guess I neglected this post. It's been a very hectic week!!! I haven't even been able to comment on other posts.
Great comments though. As always I appreciate you guys stoping by. I hope everyone is doing well in this difficult market.
I'm 7 weeks into a short sale right now and STILL waiting on a response from the Lender. One of the short sales I didn't get closed about 8 months ago just came on the market last week as a foreclosure. It's priced at $149,000. My short sale offer 8 months ago was cash at $200,000!!!! Go figure.
Bryant,
Good advice. I was fortunate to work with a short sale specialist on my first short sale listing. My mentor was invaluable in getting the deal to close. I think most consumers think that all agents know how to do a short sale. Nothing is farther from the truth and this truth has a huge impact on the success of the short sale. Pricing the home correctly is huge and will determine if the home will be a part of the minority of short sales that actually ends successfully, or if the home ends up an REO.