The Top 3 Reasons Short Sales Fail

Short sales are complicated.  With all the variables that need to be juggled,  it's easy to make mistakes that end up derailing a transaction.  Here are the most common reasons that short sales fail.  
 

1)  Failure to understand and justify market value. 

 

Setting a price for a short sale is the delicate art of balancing what a buyer will pay and what the lender will approve. It's important to understand how the lender values a property. The bank will commonly hire an appraiser or BPO broker to set a value after you submit an offer.  If you have set the price too low, the lender will not approve the offer.  Everyone loses.  The buyer has been given an unrealistic expectation of what they should pay, so usually is not willing or able to offer much more.  More importantly, your client's clock is ticking.  They have a certain deadline to do a short sale and avoid foreclosure, and you have squandered valuable time on a deal that was never going to go through. (If you think the value the bank set is unreasonable, this Ask the Expert article explains how to dispute lender valuations.)

 

2)  Not knowing the specific lender's short sale process.

 

On average, the bank's short sale negotiator has over 1,000 short sale transactions that they are processing at any given time. And each lender's process is different. If you don’t follow the lender's specific process or there is an error in the paperwork or you're missing a form, it all comes to a halt. Your file gets set  aside until the issues can be resolved. And unless you call, it can be weeks before you are even aware that there is a problem. (We have a dedicated staff that follows up with lenders daily to make sure the process is moving forward.)  The short sale transaction that closes, and closes quickly, is the one where everything is done right the first time. 

 

3) No system to monitor the short sale process.

 

Because a short sale has so many more variables than a traditional real estate transaction, one of the most important jobs the listing broker has is making sure everyone involved has all the information they need to make their part of the deal happen. We have a private password-protected online system that lets all parties see what's happening with a transaction at any time- 24 hours a day, 7 days a week. This helps everyone involved track deadlines and ensure that no details fall through the cracks.  It's also important for you to build a team of professionals who are highly experienced in short sales. For example, we work with title and escrow agents who understand the additional documentation and complex issues that are specifically related to short sales.

Tips For Pricing A Short Sale

We often get questions about the best way to price a short sale. In reality, many of the same principles that go into pricing a non-distressed property  apply equally to setting the list price of a short sale. Price depends on the location of the property, its condition, the availability of strong comparable properties, and the amount of competitive inventory.

When pricing a short sale,  the key is to strike a balance between what a buyer will pay and what a bank will approve. It's not unusual to see agents apply an across the board discount to a short sale property (for example, a 10% price reduction). This is a mistake. In so-called "hot" neighborhoods, short sales often can be priced at market value.  When the bank's appraiser does a value determination of a short sale property, they generally will try to seek out comparable short sales in the neighborhood. If there are none, the appraiser will use non-distressed properties as comps. If an agent lops $30,000 off the value of a home just because it’s a short sale, it's unlikely that such low offers would be approved by the bank.  

An added note: If you want to dispute a short sale valuation, and your client's loan is with Bank of America, BofA has launched a streamlined process for considering an alternate value.