Short sales and the sale of bank-owned properties showed steady increases in the Puget Sound area through 2011, according to the Washington Property Solutions Annual Short Sale Statistics Report.
The percentage of single family home sales that were short sales remained fairly consistent from 2010 to 2011. The increase in distressed property sales overall as compared to 2010 is attributed to a steady increase in the number of bank-owned property sales. The report includes historical sales data for both Short Sales and Bank-Owned Properties in King, Pierce, Snohomish and Kitsap counties.
Wednesday, February 8, 2012
Monday, February 6, 2012
Short Sale War Stories: How A Third-Party Negotiator Can Kill Your Short Sale
Over the past few weeks, we've heard a number of stories from brokers who've had their short sales held hostage by third-party negotiators. Here are a few cautionary tales:
Case #1
The listing agent contracted with a third-party negotiator who typically gets paid out of closing costs (1.5% of the purchase price). However, in this case, the bank was not willing to pay buyer's closing costs. The buyer did not have an additional $7,200 in cash to bring to closing. The listing agent was willing to kick in 1% and requested that their negotiator take 1% instead of 1.5%. The negotiator refused to complete the sale without being paid the full 1.5%.
Case #2
A law firm negotiating a short sale neglected to have the listing agent or seller sign a services contract, leaving it unclear who was responsible for paying their 1% fee. Once the short sale was approved, the firm asked the listing broker to pay the fee of $3,100 and threatened to not allow closing until they were paid.
If you depend on a third-party negotiator for your short sale listings you are to a large degree at the mercy of their process and their timing. One third-party negotiator claims that their fees are paid by the lender "over 50% of the time." If the lender opts not to pay the fee, you may get stuck paying some or all of it.
So what are your options? We believe that short sales are foremost real estate transactions, and they should be handled by real estate brokers. Negotiating the short sale should be a part of the professional services that the broker offers at no additional fee to anyone. When we co-list with broker partners, we take the responsibility of negotiating the short sale. Our co-listing commission is 1% of the sales price. There is no fee to the buyer or buyer’s agent. The best way to avoid being taken hostage by a third-party negotiator is for you to be in control of the sale.
Case #1
The listing agent contracted with a third-party negotiator who typically gets paid out of closing costs (1.5% of the purchase price). However, in this case, the bank was not willing to pay buyer's closing costs. The buyer did not have an additional $7,200 in cash to bring to closing. The listing agent was willing to kick in 1% and requested that their negotiator take 1% instead of 1.5%. The negotiator refused to complete the sale without being paid the full 1.5%.
Case #2
A law firm negotiating a short sale neglected to have the listing agent or seller sign a services contract, leaving it unclear who was responsible for paying their 1% fee. Once the short sale was approved, the firm asked the listing broker to pay the fee of $3,100 and threatened to not allow closing until they were paid.
If you depend on a third-party negotiator for your short sale listings you are to a large degree at the mercy of their process and their timing. One third-party negotiator claims that their fees are paid by the lender "over 50% of the time." If the lender opts not to pay the fee, you may get stuck paying some or all of it.
So what are your options? We believe that short sales are foremost real estate transactions, and they should be handled by real estate brokers. Negotiating the short sale should be a part of the professional services that the broker offers at no additional fee to anyone. When we co-list with broker partners, we take the responsibility of negotiating the short sale. Our co-listing commission is 1% of the sales price. There is no fee to the buyer or buyer’s agent. The best way to avoid being taken hostage by a third-party negotiator is for you to be in control of the sale.
Monday, January 30, 2012
Understanding Form 22SS: The Lender Consent Deadline
Every week we get numerous questions about Form 22SS, the short sale addendum to the Purchase & Sale agreement. One of the most common sources of confusion is in paragraph 2, which outlines the number of days after mutual acceptance that the parties have to secure Lender Consent. What happens if that deadline passes?
If the date for Lender Consent outlined in the purchase and sale agreement expires, the agreement automatically terminates. However, termination of the agreement can be avoided. If the time limit is looming and it doesn't appear Lender Consent will be given in time, the listing broker can prepare an addendum to the P & S agreement to extend the deadline.
The addendum needs to reflect the additional time the lender will need, so it's important to talk to the bank and get a realistic estimate of their timeline. That information can then be used to talk to the selling broker and help them set expectations for their buyer. When there's uncertainty about where the transaction stands, buyers can get frustrated and walk away. If all parties have an accurate picture of the process, the chances of a successful closing are much higher.
If the date for Lender Consent outlined in the purchase and sale agreement expires, the agreement automatically terminates. However, termination of the agreement can be avoided. If the time limit is looming and it doesn't appear Lender Consent will be given in time, the listing broker can prepare an addendum to the P & S agreement to extend the deadline.
The addendum needs to reflect the additional time the lender will need, so it's important to talk to the bank and get a realistic estimate of their timeline. That information can then be used to talk to the selling broker and help them set expectations for their buyer. When there's uncertainty about where the transaction stands, buyers can get frustrated and walk away. If all parties have an accurate picture of the process, the chances of a successful closing are much higher.
Tuesday, January 24, 2012
Top 3 Myths about Short Sales
We hear a lot of misconceptions about short sales. In the interest of myth-busting, here are the ones we hear most often, and the facts behind how short sales really work.
Myth #1: All short sale negotiators charge a fee.
Most third-party negotiators, including attorneys, typically charge a fee of 1-1 1/2% of the sale price. They commonly try to get that fee paid by the lender. If the lender opts not to cover the cost, then who pays? In most cases, the seller doesn’t have the cash, or they'd be paying their mortgage. Usually, the buyer or buyer's agent is asked to pick up the cost.
Broker-affiliated negotiators like us include negotiating the short sale as a part of the professional services offered. There are no additional fees to anyone in the transaction.
Our feeling is: The market is tough enough – why make it harder to sell your listing? Which of these listings do you think will sell first?
"Short sale. Buyer to pay negotiation fee of 1 1/2% of sale price. ” “Short sale. Sale professionally negotiated by Washington Property Solutions with no fee to you or your buyer.”
Myth #2: Short sales are low-end properties.
There are short sales at every price point. Among our current listings are a $2.25 million home and two $1 million properties. Nearly 20 percent of all short sale properties sold in King County in 2010 sold for $500,000 or more. Short sales are projected to represent a significant portion of available inventory in 2012 and moving forward, and will be an important source of income for brokers as the real estate market works its way towards recovery.
Myth #3: You can buy short sales at huge discounts.
Short sale homes do sell for less, but not significantly less than market value. The selling price for short sales is usually 5 to 10 percent less than for non-distressed properties. The lender is looking to recover as much of the value of the home as possible, so they will not accept offers that are significantly under market value. So why do buyers purchase a short sale? In our experience, it's the same reason anyone buys a home- they like it. That 10% discount provides an added incentive, allowing buyers to get more house for their money.
Monday, December 12, 2011
How Does Short Sale vs. Foreclosure Affect Credit Ratings?
Many homeowners we work with have questions about how a short sale may affect their credit score, and how that compares with the implications of allowing your home to go into foreclosure.
The short answer is that both will lower your credit rating, however there are many benefits to choosing a short sale over foreclosure. We've put together more information about how short sales and foreclosures affect FICO scores on our website. It includes two documents that our colleagues at Windermere Mortgage Services created that may be helpful for clients who owe more than their home is worth and are looking at their available options:
The Impact of Short Sale and Foreclosure on Your Credit Score
How Your FICO Score is Calculated
The short answer is that both will lower your credit rating, however there are many benefits to choosing a short sale over foreclosure. We've put together more information about how short sales and foreclosures affect FICO scores on our website. It includes two documents that our colleagues at Windermere Mortgage Services created that may be helpful for clients who owe more than their home is worth and are looking at their available options:
The Impact of Short Sale and Foreclosure on Your Credit Score
How Your FICO Score is Calculated
Sunday, November 27, 2011
What "Lender Consent" Does (and Does Not) Mean
The term Lender Consent is found throughout Form 22SS, the short sale addendum to the purchase & sale agreement. When we're working with a buyer's agent on a short sale, we often find that there is a lot of confusion about what Lender Consent really means. What is does not mean is that the deal is done. Unlike a standard sale, there are two parts to a short sale closing. Here's how the process works:
Once an offer for a short sale purchase is agreed upon by the bank, they send the seller a written approval letter that outlines the terms under which the lender will authorize the sale. The letter includes the price, deadline for closing date and may address how the debt is treated. It may also include a dollar amount the seller must bring to closing or other terms. For the sale to actually proceed, the seller must agree to all the terms in the lender's approval letter. The seller's other option is to terminate the agreement. The sale will not move forward until the seller gives notice to the buyer that they have received the approval letter and have consented to the terms. We have additional FAQs about the short sales process on our website.
Once an offer for a short sale purchase is agreed upon by the bank, they send the seller a written approval letter that outlines the terms under which the lender will authorize the sale. The letter includes the price, deadline for closing date and may address how the debt is treated. It may also include a dollar amount the seller must bring to closing or other terms. For the sale to actually proceed, the seller must agree to all the terms in the lender's approval letter. The seller's other option is to terminate the agreement. The sale will not move forward until the seller gives notice to the buyer that they have received the approval letter and have consented to the terms. We have additional FAQs about the short sales process on our website.
Tuesday, November 22, 2011
How Brokers Can Avoid Common Short Sale Mistakes
Any broker who has worked on a short sale will tell you that it is much more complicated than a traditional real estate transaction. There are additional forms, endless calls to lenders, and numerous decisions you need to make along the way that can make or break a deal. Here are three of the most common mistakes that I see, and advice on how to avoid them.
Mistake #1: Assuming the bank is working on the transaction.
Just because you've submitted all the right documents to the lender doesn’t mean the process is moving forward on their end. Over the years we've sent countless reams of paperwork to lenders only to find that no one there has any record of receiving them. Regular confirmation and follow-up is critical. Your transaction may be one of thousands that the bank's negotiator is working on at any given time, so it's easy for your documents to get lost in the shuffle. Persistence and patience pay off big dividends in short sales.
Mistake #2: Thinking lender approval of an offer will automatically postpone foreclosure proceedings.
Several of our clients have received a letter of approval from the bank for the sale of their property only to receive a notice of foreclosure from that same lender a few days later. Loss mitigation and foreclosure are handled by separate departments at the bank, and they rarely communicate with each other. You need to be the communication bridge for your client and insure that all parties have the information necessary to postpone foreclosure and move the sale forward.
Mistake #3: Assuming that the short sale approval letter includes satisfaction of the seller's debt.
We always negotiate with lenders for satisfaction of our seller's debt, and have an excellent track record of achieving that goal. The short sale approval letter needs to clearly state that the lender is agreeing to waive all rights to the deficiency. Unfortunately, many approval letters contain ambiguous language. Make sure and clarify any language in the document before your seller signs or they risk having the lender come back at a later date to collect any balances due after the sale. You can find further clarification of the difference between a full debt satisfaction and a lien release in our Short Sale FAQs.
Mistake #1: Assuming the bank is working on the transaction.
Just because you've submitted all the right documents to the lender doesn’t mean the process is moving forward on their end. Over the years we've sent countless reams of paperwork to lenders only to find that no one there has any record of receiving them. Regular confirmation and follow-up is critical. Your transaction may be one of thousands that the bank's negotiator is working on at any given time, so it's easy for your documents to get lost in the shuffle. Persistence and patience pay off big dividends in short sales.
Mistake #2: Thinking lender approval of an offer will automatically postpone foreclosure proceedings.
Several of our clients have received a letter of approval from the bank for the sale of their property only to receive a notice of foreclosure from that same lender a few days later. Loss mitigation and foreclosure are handled by separate departments at the bank, and they rarely communicate with each other. You need to be the communication bridge for your client and insure that all parties have the information necessary to postpone foreclosure and move the sale forward.
Mistake #3: Assuming that the short sale approval letter includes satisfaction of the seller's debt.
We always negotiate with lenders for satisfaction of our seller's debt, and have an excellent track record of achieving that goal. The short sale approval letter needs to clearly state that the lender is agreeing to waive all rights to the deficiency. Unfortunately, many approval letters contain ambiguous language. Make sure and clarify any language in the document before your seller signs or they risk having the lender come back at a later date to collect any balances due after the sale. You can find further clarification of the difference between a full debt satisfaction and a lien release in our Short Sale FAQs.
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