A “short-sale” is when the loan (or sometimes multiple loans) on a home are higher than the amount a home will sell for. The seller is hoping that if they present an offer for a lesser amount, their lender(s) will agree to release the home to sell and forgive the difference. Here are some common scenarios we run across when negotiating short-sales…
We want this one – it’s way nicer than the others in our price-range! Advertised short-sale listings look very appealing because of the LOW initial price agents place on them to get quick offers coming in. The prices are so tempting! That’s why at 1st glance, they appear to shine above the competition. Think of those short-sale prices as kind of like an “opening bid”; a starting point by a seller (a bank) who doesn’t even have to agree to sell (even though the house appears to be on the market for a specific price).
What does this mean? Does the bank set the advertised price? No. The listing agent sets a price to get quick offers coming in, in hopes of opening negotiations with the bank. The bank is under no obligation to agree to a short-sale and/or absorb a loss on the seller’s loan. Banks may not agree to a short-sale if they can get a better result by taking back the home in foreclosure and going after the owners for the shortage.
A $350,000 house for $200,000? If a price looks too good to be true - it is. The bank won’t take an ‘unreasonable’ loss if it can take back the home and sell it for market price? Like I mentioned before, even if a buyer offers the full "asking price" on a short-sale, the bank does not have to accept it (or even agree to a sale). If they consider a short-sale, they will most likely leave it open for higher bids. Often times the offer price is unacceptable to the bank and they will sit on the offer for up to several months while they put the foreclosure proceedings on hold, instructing the agent to adjust the asking price in increments, in hopes of bringing a higher offer – while the house remains actively on the market. If they don’t get a higher offer, they may counter offer back to the buyer(s).
Phones keep ringing. House remains on the market! Short-sale listing agents love the listings because the homes stay active on the market so long and buyers keep calling on them. You can’t blame them - they get a lot of new clients they can help into other homes.
We’ve done everything right. Why is the bank saying “no short-sale”? Among the reasons a bank may not consider a short-sale offer, would be if the sellers have funds or other assets. The bank will carefully evaluate their financial situation. As carefully as they scrutinize an offer on the property, they will scrutinize the financial health of the sellers. They may not agree to absorb a loss or shortage that they can put back on, or collect from the seller, unless there is a true lack of ability for them to pay it. This is information we do not have access to and may not realize until further along in the process of any given situation.
Poof! It’s gone! A couple of common wrenches thrown in… During the time the home’s on the market, the sellers may be pursuing their other options. The bank may agree to refinance or modify their current loan, so the sellers may pull the home from the market and stay. If the sellers file bankruptcy at any time during the process, the short-sale will be stalled indefinitely and may not be able to be sold.
Watch that financing! If too much time is expended in the home shopping process, you may lose the competitive edge. Interest rates may increase and the amount you may be qualified to borrow may decrease. Communication with a reputable lender is critical.
Rug pulled out from under our feet! If you choose to include short-sale listings in your search, I suggest that even if we put in an offer, we should continue to look at “plan Bs” since the bank can usually choose any other offer up to the point of written acceptance. We should not put “all your eggs in the one basket” to avoid frustration. Let’s keep our eyes open for a regular or bank-owned (foreclosure) transaction you love as much (or more) that you can get into more quickly. We'll be sure to include in an offer, that the offer placed on a short-sale home "can be rescinded (by you) at any time until bank/mutual acceptance".
At the last minute the OWNER does not want to sell after the bank said "YES"! Sometimes the bank(s) will agree to release the home to be sold, but will not agree to forgive the owner’s indebtedness. The seller then needs to decide weather to stay in the home until they are foreclosed upon, try to renegotiate with their lender(s), seek legal advice or make arrangements to cover the shortage and continue with the sale (this is not an option for most short-sellers).
Hard knocks! A simpler solution may make sense… Short-sales can be a great option for investors who don’t have an emotional attachment to the home nor a specific budget or timeline, but the process can cause a lot of confusion and frustration for regular homeowners/buyers who don’t fully understand the process of obtaining one of these listings. Many buyers have gone through heartbreak, wasted time and failures before coming to the realization that pursuing short-sales was not the best option for them. I don’t want to discourage you from looking at short-sales if you’re determined to do so, but if you want to secure a home in a reasonable amount of time, I would highly encourage you to focus your search on well-priced homes with motivated sellers and/or bank-owned (foreclosures) instead. A well-informed seller knows that in order to get sold, they need to be flexible and competitively priced.
I have short-sale training and experience. I will do my best to evaluate short-sale listings on an individual basis to determine the likelihood of success.