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.

How to Dispute a Short Sale Valuation That's Too High

Occasionally a lender's valuation of a short sale property is significantly more than what the market will pay.  As a broker you may have recourse,  however, every lender has a different process for reevaluating value. The first step is to contact the lender and get a detailed overview of their value dispute resolution process.  You want to make sure that you are providing the lender with the precise information they need to consider a change in value.

The BPO broker or appraiser who sets the original value often does not have a complete picture of the property. When we request that a lender reconsider a home's value, we gather as much documentation as possible.  That includes comps, a summary of repairs needed, and contractor bids for those repairs. We sometimes pay to have our own appraisal done as well.

 

If the lender is unwilling to budge on their value, we find out when the appraisal or BPO figure expires and then work with the lender to order a new one. 

 

Bank of America is one lender who is making an extra effort to work with brokers. BofA has streamlined their process for settling valuation disputes during a short sale, making it faster and easier for brokers to get the bank to consider an alternate value. Get step-by-step  instruction on How to Dispute a Bank ofAmerica Short Sale Valuation.  

BofA launches faster way to dispute short sale valuations

Listing agents that disagree with bank valuations of short sale properties now have a new option. Bank of America has streamlined their process for settling valuation disputes during a short sale, making it faster and easier for agents to get the bank to consider an alternate value.  

The value of a property is established by independent third-party vendors shortly after a short sale is initiated. If a listing agent wants to contest that value, this is the new process:

How to dispute a Bank of America short sale valuation

1. Tell your BofA short sale specialist that you would like a reconsideration of the value.

2. The BofA short sale specialist sends you an investor-specific, easy-to-complete form that specifies all requirements for a successful value dispute.

3. You fill out the form and attach specified evidence.

4. You can expect a value dispute review within 10-12 business days once all required information has been received.

Evidence you need to provide to Bank of America to dispute a value

When contesting a home value, Bank of America requires compelling evidence to support your claim. Here are the guidelines outlined by BofA: 

• Do not reference property pricing amounts in the narrative on the form. This violates appraiser independence policy and is against industry standards. Any reference to pricing will disqualify the dispute. 
• Provide comparables that are recent, proximate (nearby) and similar to the property in question.
• “Recent” means sold within 90 days of the actual value document date.
• “Proximate” varies by location. In a rural area, for example, a home five miles away could be considered proximate.
• You will be able to provide additional notes to highlight characteristics of the comps.

When the dispute centers on property condition or hazards:

• Provide an itemized estimate from a licensed contractor on the contractor’s letterhead.
• Provide photos to illustrate the repair, condition issue or hazard you want to highlight.

The above is a summary of the new changes. Your Bank of America short sale specialist can provide additional guidance about the process.