Questions Buyer's Agents Should Ask in a Short Sale

Some buyer's agents shy away from short sales because of the complexity and uncertainty involved.  And it's true, short sales are complicated transactions even for those highly experienced in short sale negotiation. Properties that are represented by brokers with little or no short sale experience can result in transactions that are a nightmare for both you and your buyer. Here are a few questions you can ask to determine whether you want to move forward with an offer. 

    

1)  Who are the lien holders?

 

The amount of time it takes to process a short sale varies greatly from lender to lender. The broker should be able to tell you who the lien holders are, and the average number of days the lenders take for closing. This will help your buyer decide whether the lender timeline matches their timeline.  

 

2)  Who is negotiating the sale? How many short sales have they closed? Do they have experience working with the seller's lien holders? 

 

Real estate brokers, attorneys and mortgage brokers are the only individuals that can legally negotiate a short sale.  If the negotiator is a real estate broker, they must be listing or co-listing the property — they cannot legally negotiate the sale unless they are part of the listing agreement. 

 

Because of the complexity and ever-changing nature of short sales, you want to make sure the negotiator is highly experienced. That means they've closed a minimum of 100 short sales and have worked with a broad range of lenders, including the seller's lien holders. 

 

3)  Are there any additional costs to negotiate the sale? If yes, who pays those costs?

 

If the negotiator is a real estate agent, negotiating the short sale is part of the service that they provide when they list or co-list the property. There is no additional fee to anyone.

 

Attorneys typically charge a fee of 1-2% of the purchase price to negotiate a short sale. The lender may be willing to pay their fee, but more and more often they're not. The seller typically is undergoing economic hardship and doesn't have the funds. That leaves the listing agent, buyer or buyer's agent to pick up the attorney's fee. Before you make an offer make sure you have in writing who is responsible for the negotiating cost. 

 

4)  Is there someone dedicated specifically to follow up with the lender?  How often do they follow up? 

 

For a short sale to progress smoothly it is essential that the negotiator has a system to follow up regularly with all the various lender departments that are involved with the short sale.  The negotiator can never assume that just because they have sent the correct paperwork, the lender is moving forward on the sale. We call lenders daily to make sure the right people have the right information to close the sale in the shortest possible time. 

 

Here is more information to help your buyer decide whether buying a short sale is right for them.   

 

If you have any additional questions, we're happy to give advice. Call Richard Eastern at (206) 612-5541.

3 reasons why NOW is the best time to do a short sale

If you have a client who is considering a short sale,  there are a number of compelling reasons to make the move now.

1)  Tax advantages for doing a short sale are set to expire.

When a lender forgives a homeowner's debt, the tax laws had previously considered the forgiven debt as taxable income. This law applies equally to short sales and foreclosures. 

 

The Mortgage Forgiveness Debt Relief Act enacted in 2007 allows debt forgiveness of up to $2 million to NOT be considered taxable income if:

• The house has been used as the principal place of residence for at least two of the  previous five years.
• The debt has been used to buy, build, or make substantial improvements to the home.

That law is set to expire at the end of 2012. While Congress has begun discussions on extending the act, the outcome is uncertain. If a seller wants to make sure their deficiency is not counted as taxable income, their short sale must close by December 31, 2012. That means they need to get their house on the market now.        

2)  Lenders are offering significant incentives for sellers to do a short sale instead of foreclosure.

Banks have recognized how expensive the foreclosure process is for them. They also do not want to add to their already bulging inventory of bank-owned homes, which are expensive to insure and maintain. As a result Chase and Bank of America are paying significant cash incentives to encourage sellers to do a short sale and avoid foreclosure.

 

Recent examples include a client who sold a $200,000 home and received a cash incentive of $20,000 at closing, and the owner of a $350,000 home who received $30,000.  If you have a client who is – or should be – considering a short sale, this may be the incentive they need to move forward.  

3)  It's a seller's market.

 

Inventory levels in the Puget Sound area are the lowest they have been since 2006.  Low interest rates and affordable home prices have drawn additional buyers into the market. As a result, more buyers are competing for a shrinking pool of properties. That growing competition for homes has resulted in multiple offers and escalation clauses on many of our short sale listings. It's an ideal time to sell a home.   

Buyer's Brokers: The most important step in buying a short sale

We get many questions from buyer's brokers about things they can do to make sure their client's short sale offer is approved. The single most important step you can take as a buyer's broker to ensure success in a short sale is this: Qualify the listing broker.

If the listing broker is unfamiliar with short sales, no matter what you do on your end, the chance of a successful outcome decreases dramatically. If your client is interested in a short sale property, call the listing broker and ask them these qualifying questions:

1) Who will be negotiating the short sale?

2) How long have they been negotiating short sales?

3) How many short sales have they closed?

4) Do they have experience with the HAFA process? (HAFA provides incentives for the seller such as a $3,000 relocation incentive, and an agreement by the lenders to forgive the debt, which increase the likelihood of seller participation in the short sale.)

5) What is their system for communicating with you, the buyer's agent, so you know how the transaction is progressing?

Asking these questions will help you determine whether the broker has the level of experience needed to successfully negotiate a short sale-- and it can save you and your client a lot of time and frustration.

Is Buying a Short Sale Right For Your Client?

With short sales making up a significant part of inventory today, your buyers will no doubt run across short sale homes that they're interested in. There are bargains to be had, however short sales do differ in a number of ways from conventional home sales. Here are a few things to let your clients know if they're thinking about buying a short sale property.

Short sale homes sell for less, but not significantly less than market value.
Buyers hoping to snap up a home for half the market value will be disappointed. The selling price for short sales average about 10 percent less than for non-distressed properties. The bank 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. That said, with savings that can equal tens of thousands of dollars, a short sale is a great way for a buyer to get more house for their money.

Short sale properties are sold "as is".
The lender will not be making repairs to the home. Any improvements that need to be made are most likely going to be the responsibility of the buyer. It's a smart move for you to get contractor bids for any necessary repairs and use those to help negotiate a lower sales price.

A short sale will take longer than a conventional home sale.
Once your client and the seller have mutual acceptance on an offer, you need to allow 60 to 90 days for the lender approval process. There are often long stretches when the offer is slowly winding its way through the bank's system, so buyers need to be patient.

If your buyer has to sell you’re their home first, a short sale is probably not the best fit.
Lenders generally will not take contingent offers on a short sale.

The bottom line: As long as your buyer can be patient, and you're working with a listing broker who understands the process, buying a short sale is a great way for your client to purchase the house they want at a great price.