Good morning Superstars.Whether you like short sales, want to do short sales or want to avoid short sales, short sales are here to stay. Short sales are a major part of the market and in my opinion will become even more so. Lenders WANT to do short sales. A successful short sale cuts losses and keeps the lender from owning a declining asset.
This article is about taking control of the short sale situation from the get go, knowing what we are doing, preparing the Seller in advance of what to expect and being strong enough in our negotiation skills so we do not have to accept whatever bone the banks want to throw us.
Here are a few of my thoughts:
- With a short sale we are submitting CONTRACTS, not offers, to the lenders. We are not asking them to accept an offer we are asking them to accept a "short" payoff so a contingency can be removed from the CONTRACT and the deal can close. Anyone who submits an offer to the lender to see if they will accept it does not know how to handle short sales and is wasting time and clogging up the system. Hopefully we have moved beyond this already.
- The lender is NOT a party to the contract(s)(listing or purchase). They do not control the purchase price and the commission. They do have control over how much they are willing, or able, to accept as a payoff. If this payoff figure is too high then a solution needs to be found. The solution may be to have the seller sign a promissory note, raise the purchase price or lower the expenses of the deal(commission etc...). However, lowering the commission in the deal does not mean the seller is off the hook for paying the FULL commission as agreed in the listing agreement. They can bring cash to closing to pay the difference and/or they can sign a note to the Broker.
- If the lender, investor or PMI company ask the Seller to sign a promissory note, a good short sale negotiator, will be able to negotiate the amount of this note downward or may even be able to make it go away. The PMI companies almost always ask for a promissory note to be signed when the seller can afford to make payments. Be prepared for it. If the Seller has funds in the bank, IRA, mutual fund and/or decent income chances are they will be asked to pay a promissory note. This should be ascertained at time of listing. Get a complete financial package from the Seller prior to listing the property.
- Our job is to do the best we can to help qualified short sale sellers salvage their credit. It is the Sellers sole decision on whether or not to sign a promissory note. Their willingness to sign a note needs to be established at time of listing so we don't waste our time trying to help Sellers who are not willing to help us.
- When a MI company, Investor or Lender comes back requesting the seller sign a note take it as an acceptance of short sale request. Now all you have to do is negotiate the note. I have had a note request of $135,000 negotiated down to ZERO and one for $50,000 settled for $1,500 at closing. BUT the reason I was able to negotiate is because the Sellers truly could not afford to pay. Sellers who are doing a strategic short sale should be prepared to contribute to the loss.
- Commission should not be an issue in a short sale. A Broker/agent should know before listing the property what lender is being negotiated with and how much commission they will "allow" almost all are 5% to 6% if there are two Brokers...and 4% if there is only one Broker. But remember there are many legal ways to get paid above and beyond what the lender will allow form the proceeds.
Folks, agents are getting screwed on short sales because they don't know what they are doing. Sellers are getting screwed because they are hiring these agents.
Short sales are serious business and need to be treated as such. Sellers need to seek legal and tax advice and then hire a Broker/agent that understands the process.
My biggest frustration is the lack of education of folks trying to handle these transactions. The public is being harmed and that goes against every thing being a REALTOR(R) stands for. Let's take the time, to learn what we need to know, so we can help folks get on with their lives. Let's all step up to the plate. Not only can we help people but we can get paid for doing so!!! Are you ready to get serious?
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Well done and said Bryant. I would like to add some thoughts.
A reminder and friendly warning. For all of us that do Short Sales, it is important to remain vigil about the business. Short sales are traumatic events for families. They are emotion filled transactions. They are about people and it is very difficult not to get caught up in the emotion. You feel awful for you clients. You want to help in any way you can. There is a trap here. We need to continue to be professional. The danger is that in most cases, our clients are so happy that someone (us) has given them some hope, that they would do, sign or say anything we ask if it means the Short Sale will be approved. On the other hand, there are some clients (Sellers) that are angry. They are being forced out of their home. They are looking at every document, correspondence etc. They don’t want to move. Conversations can be strained. Obtaining documents and signatures can be difficult. You want to make their life as easy as possible. This is another potential danger. Again, remain vigil. There may be times when you think it might be easier to just handle the paperwork yourself. Why bother the Seller? They are so stressed. Another trap.
Please, all of you remember to be vigil. Be professional. Make the tough calls. Get the clients signature. Use your expertise. However difficult, keep your emotions in check. It’s not about the money; it’s about helping people and being able to look yourself in the mirror each morning.
Just a reminder and friendly warning.
Amen Mike. And also remember that we can't help everybody.
Right on Bryant!!!!
Well said Bryant!
Bryant,
I'd echo everything you said about listing short sales from my experience in Chicago short sales. One element often gets overlooked, representing buyers in short sales.
Buyers have just as great of a need to look for a Realtor with short sale experience. Frequently I've seen buyers on these boards after they're under-contract upset that they didn't know their was two loans, that their's a tax lien, that the property is about to be foreclosed on - all things that an experience buyer's short sale agent can check before even writting an offer.
Buyers, check if your agent has closed a short sale on the listing side, many haven't and assume that short sales are just something the listing agent needs to know about. Check if the listing agent processing the short sale has any short sale experience. You'll have a much better buying experience if you do.
As a would be buyer, I agree 100% Jim. We are so out of the loop that we often don't hear things for weeks on end. If the agents would just CC us with emails or send out a weekly message telling us something we'd be a lot happier. Even if the message was negative, at least it's something! I really believe this is the reason so many would be buyers end up walking. We feel like we're being ignored and taken for granted. It's a very stressful situation for the buyer and a little bit of knowledge goes a long way.
Right now, we have not heard a word from anyone since May 17th. Does that mean no one has done anything? Nothing is happening? If we'd had a weekly update we'd at least know nothing has happened, or they could tell us the lawyer called and left messages but no one returned them. At least we would know someone did something instead of just ignoring the sale and us.
Again, I really think if would be buyers could get regular updates, they wouldn't walk as often.