More On Short Sales

Sellers: Negotiating With Buyers & Lenders

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When your home has been on the market for a while, any purchase offer is greeted with enthusiasm and hopeful expectation. It is tempting to accept the offer but that may not be in your best interests. 

If the offer is excessively low, it would be a waste of time to submit it to your lender(s).  Although you can accept back-up offers, most Buyers are scared off once an offer is accepted and the status is changed in MLS.

Exceedingly low offers should always be countered with a price that is likely to be accepted by the lender. A Buyer that intends to live in the home will usually consider a higher sales price if they are seriously interested in the home. An Investor, who is likely bidding on multiple properties, will usually not respond, which is just as well. 

Short Sale Buyers must understand that Lenders will not accept just any offer. Short Sales often do sell below average market value, but not as much as a foreclosure.

Lenders hire a professional Appraiser or Broker to give an independent opinion of market value. They then apply a formula against this value to determine what sales price they will accept. They often have some latitude, but not much.

Your agent should prepare a detailed market analysis that clearly shows the actual market value of the home and homes in the area.  The Buyer’s agent usually prepares a similar analysis, but they may not know the details behind the sales in the neighborhood that can result in very misleading estimates of market value.  I find it sometimes helps to provide the Buyer’s Agent with your market value analysis and have a frank discussion about what price the Lender is likely to accept. 

What About Home Warranties & Closing Costs?

Purchase Contracts for Short Sales often include a request for the Seller to provide a Home Warranty and/or contribute an amount towards the Buyer’s Closing Costs.  Short Sale Lenders will not pay for a Home Warranty, and any request for this should be taken out in a Counter Offer. 

Lenders often do approve making a contribution towards Buyer’s Closing Costs.  They usually limit it to 3% of the purchase price of the home, or sometimes a fixed amount such as $5,000; however, you must also be aware that Lenders will not always cover every type of closing cost. 

For example, Lenders will often refuse to pay some fees associated with obtaining a loan and almost never pay for discount points. I have also seen them refuse to pay for prepaid interest and one time they would not pay the Buyer’s recording fee!  While being selective about what expenses will be covered does not directly affect the Seller, it could jeopardize the closing if this is not understood by the Buyers.

Here is the problem, taken from a recent sale:  The Lenders approved a contract which included a $5,000 allowance for Buyer’s Closing Costs.  Shortly before closing, the Lender is given a closing statement, called a HUD-1, for final review.  The Lender disallows about $1,000 of the closing costs and a new HUD-1 is prepared, moving those expenses to the Buyer.

The Buyers were not prepared to bring an additional $1,000 to closing. They had used all of their available funds, and it appeared the sale would have to cancel; fortunately, we were able to work this out.  All of this could have been avoided, however, if the rules were known well in advance, and estimated closing statements given to both Buyers and Sellers to review.

Negotiating With Lenders:

Negotiating with Lenders requires a great deal of tenacity, patience and excellent communication skills.  The Seller’s agent is responsible for these negotiations, and they often have to mediate between Lenders if there are two or more of them.

If there are two Lenders, the one in second position will likely lose everything if the home forecloses. They usually will not be enough funds left over for the 2^nd Lienholder in a Short Sale; therefore they have no incentive to approve a Short Sale unless the 1^st Lienholder is willing to give up some of their funds.

The Agent must act as a mediator between the Lender to find a payoff amount acceptable to both of them. This shuttle diplomacy can be time consuming, but common ground can usually be found. After all, if they do not agree, it is a failure felt by all parties.

Lenders may have their own negotiating team or they may outsource this to an asset management company.  Treating all contacts with the utmost courtesy and respect is critical here. This does not mean you allow yourself to be taken advantage of; agents must be firm but always work towards establishing a good relationship with all Short Sale participants. 

This means not yelling at them if they do not return a call or miss a deadline.  Understand they are overworked, but try to pin them down on a time when they will have information.

Agents must also be very patient, as they will often wait on hold for long periods of time. They will then get transferred around and the call will drop, only to have them start the process all over.

Agents must be tenacious. They should call at least once a week to check the status and find out when it will be assigned to a Negotiator. Once a Negotiator has been assigned, calling once a week should be okay, especially if you ask for “permission”. Excessive calling is like stalking; don’t do it.

Agents must also be very responsive and meet every commitment they make. They should also make sure the Negotiator’s keep their commitments. Exerting some pressure is okay. For example, if you are told on Tuesday to check back on Monday, I might try them on Friday, and perhaps this will act as a reminder to meet the Monday commitment.

Short Sales require a tremendous amount of work, and working with an experienced Short Sale agent is a critical requirement.  Agents must also be prepared to work long hours with no guarantee of success, while maintaining a positive attitude throughout the process.

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Buying Short Sales: The Good, The Bad & The Ugly

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Short Sales: A Buyers Overview

Short Sales & Foreclosures: A Homeowner's Perspective

Short Sales: A Seller's Overview

Pricing A Short Sale For Success

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