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.

How to Use the New Short Sale Form 22SS to Your Advantage

This fall the Northwest Multiple Listing service made revisions to Form 22SS, the Short Sale Addendum to the Purchase & Sale Agreement- and we continue to get lots of questions about what that means to brokers.

One key change is that the new form presumes that the seller has the right to consider other offers after mutual acceptance (Paragraph #3). Another change is the option to have timelines in the agreement begin on mutual acceptance rather than the notice of lender consent (Paragraph #5).

Ultimately, the changes allow the listing broker more flexibility in negotiating the short sale based on the property and the situation. However, by opening up a greater number of options, it has also made this short sale form a bit more complicated.

Since every transaction is unique, there are no universal guidelines for which boxes to check or how you may want to alter the language of the addendum. The factors that will help you decide which course of action is in the best interest of your seller include:
The profile of the buyer
How committed the buyer is to the transaction
Who the lenders are
The price point of the property

Here's an example: You have what you've qualified as a strong offer. The buyer would like to close the sale as quickly as possible. You negotiate an agreement to deposit earnest money and do an inspection on mutual acceptance, rather than lender consent. The buyer's willingness to make a financial investment let's you know that they're really interested in the house. If they hesitate, you may have a less committed buyer.

Second, an inspection at mutual acceptance will help everyone in the transaction get their needs met. Most short sale sellers don't have the money to pay for the repairs that may be outlined in the inspection report. And the bank has set an "as is" value for the house. You're familiar with this particular lender's short sale process, so you know that if you submit a lower offer with an inspection report and contractor bid attached that explains the difference, your chances of getting a price reduction accepted by them is much greater. If you wait until lender consent to do the inspection and subsequently lower the offer price the chance that the bank will change its mind are very low.

10 Key Questions To Ask Short Sale Clients

When we get an initial call from a homeowner, they usually don't know if they need a short sale or not. In fact, they don't commonly know what a short sale is. To help determine where they are and what options are available to them we ask a standard set of questions. These key questions can help you discover how difficult the transaction will be, set proper expectations for the seller and position yourself as someone who can successfully solve their problem.

1) How many mortgages do you have and how much do you owe on each?

Since homeowners often don't know if they need a short sale or not, your first task is to determine the total amount of mortgage debt they have.

2) If you were to put your home on the market today, what do you think the price would be?

If the value the homeowner estimates for the home is less than what they owe, you know they're underwater. Keep in mind that most homeowners tend to overestimate the value of their home, but their opinion will give you a point to start your assessment.

In addition, the homeowner's estimate of the home's value is a valuable piece of information in managing their expectations and tempering your discussions. If a homeowner has a highly inflated view of the what their home is worth, you'll need to take some time to help them understand its current market value.

3) Are you current or behind on your payments?

If they're current, qualifying for a short sale is more difficult, though there are circumstances where it's possible. If they're behind, you can start to evaluate whether they will meet the criteria for financial hardship that lenders require for short sales.

4) Who are your mortgages with?

Because each lender has their own short sale process, knowing who the lenders are will help you determine potential recourse and timelines for approval. Knowing upfront how long the approval process takes will drive your marketing. For example, if Bank X is the lender and they take an average of 90 days for approval, you're looking at a five month process for closing. That timeline helps you define the type of buyer you need to find. If a buyer needs to move into a new home within 60 days, no matter how much they like the house, they're the wrong fit.

5) Have you received any notices from your lender?

This will help you determine the potential for foreclosure and the timeframe available to you to attempt a short sale. A Notice of Default is a private notification from the bank to the homeowner. It's the start of the foreclosure process. Generally, once your client has received a Notice of Default, you have less than four months to come to an agreement with the lender on a short sale. A Notice of Trustee Sale is a public notification from the lender indicating when the home will be put up for auction. If your client has already received a Notice of Trustee Sale, your timeline for finding a buyer and selling the home is significantly shortened.

6) Who is on the title?

It's surprising how many times homeowners aren't aware of who is on the title. A common scenario is a title that lists an ex-spouse, in which case that individual will need to be involved in the process as well. Pull the paperwork so you know who is legally obligated in the transaction.

7) Has the home been listed recently?

If it has, that listing price will help you determine what the market has established as its value.

8) How many beds and baths are there?

You want to gather information so you can accurately assess the value of the home. It's not unusual for a 2 bedroom/1 bath home to show up in the county records as having 2 bedroom/1 1/2 baths. This is also the time to ask about other qualities of the home that may negatively affect the value, such as a less than desirable location next to a freeway or a basement that floods regularly. When we work with brokers on negotiating a short sale, one of the critical steps is gathering information beyond the square footage and bed and bath count the lender will be relying on to value the property.

9) Does the home need any structural repairs?

If the home needs a new roof, you'll want to get bids that you can submit to the bank to help them set an appropriate price for the property that the market supports.

10) What's the best way for me to contact you?

Some clients prefer phone calls; others text or email. Calls during work hours are fine for some people and not for others. By respecting their preferences, you let your client know that communication is a priority for you. (Note: Lack of communication is one of the top complaints sellers have about the short sale process.)

How Short Sales Affected The Tax Credit Extension Debate...

Apparently, the huge number of short sales was a key factor in why Congress ultimately decided to extend the $8,000.00 tax credit deadline until September 30. In a letter to Congressional leaders on June 29, the National Association of Realtors said as many as 75,000 buyers and sellers were still awaiting bank approval of short sales or were coping with delays caused by third parties with responsibility for closing the transaction. Major news outlets such as CNN speculated that the complication of closing short sales was a primary reason so many people faced losing the tax credit benefit.

WPS knows this reality only too well...We track short sale statistics in the Greater Seattle and Puget Sound area, and we see than an alarming number of short sale transactions get stuck in the pending status and never get to a closing. This will continue to be a problem unless and until real estate agents get better education on how to handle short sales or hire professional third party short sale negotiators.

Maybe the Congressional tax credit extension debate will shine some light on this important issue.

Is a Short Sale Better Than a Foreclosure?

Washington Property Solutions is often asked about the benefits of a short sale versus foreclosure. In most cases, a short sale is considerably better. However, the issue is not about credit. Leave the credit conversation to a credit expert.

The pros/cons discussion should really be about how long someone will have to wait before buying again in the future.

We have combed through the latest information from Fannie Mae, Freddie Mac, FHA and VA to compare the financing waiting periods between short sales and foreclosures. You can see from the chart below, that in many, many instances a short sale is a better outcome in the long run compared to a foreclosure.

The Key To Navigating the Short Sale Process with Bank of America

Understandably, Bank of America has been the target of much criticism for how difficult they have been to work with in trying to successfully negotiate a short sale. Just this week nearly 100 angry homeowners took to the streets in Las Vegas, protesting what they call unfair treatment by Bank of America.

But since December 2009, Washington Property Solutions has utilized BOA's Equator Financial web-based system and it has been a great experience. Our ability to communicate with BOA directly through the Equator system is an extreme improvement on their execution and response time. Other lenders have been using Equator also and WPS has become proficient with each of their unique processes.

The system can be difficult to maneuver through, but we have been successful in learning the intricacies of the system. Previously Bank of America's short sale process could take up to 2 weeks for a file to be activated properly. Through the use of Equator we are now able to initiate the short sale process with Bank of America in less than a minute. We can upload the required documents directly into their system and get instant confirmation that they have been successfully received. The use of Equator has also eliminated the need for repeated requests for updated financial documentation from the sellers.

The new system does require that the sellers create an account and sellers do have required tasks assigned to them, but WPS is happy to assist all our clients to successfully navigate the system. At the seller's request, we are willing to take care of the tasks required for them if they are having problems or other time constraints.

Nice to see some positive developments with the Bank of America short sale process.