Short Sales

(Part 2 of 3)

How to Sell A Short Sale

After working on a several short sales, and talking with experts who have done Hundreds of them, I realized there was a simple method to working thru theses difficult and time consuming deals. I have tried my best to lay them out below.

LIST IT!

This is naturally the first step of most any sale, but even more important in a short sale. The fact that you have tried to conventionally market the home at a certain price helps later on when you have an offer to negotiate with. The best listing to negotiate with is one that has had lots of market exposure at or below what is owed on the property. Obviously, this may not be possible when time is of the essence, but you have to attract buyers, and more importantly, offers!

OFFER!

In over 3 years of working these deals, I have only once found a bank that would negotiate before an offer, and that was a 2^nd Mortgage Holder. That being said, the best thing to do when entering into a potential short sale is to make sure you can get an offer right away to negotiate with.

My method is to line up an investor or investors to write an offer. The best formula I have heard is to offer only 65% to 75% of the homes current value. It is a good point to start at because the bank will naturally want to negotiate either way. If time is an issue, or if you have an Owner Occupied buyer who is emotionally sold on the home, write a higher offer. The best method when dealing with an investor is to have the investor make an offer the reads “John Doe, or assigned.” This way you can continue to market the home and find an end-user.

If an end-user or owner occupied buyer comes along when the sale is being negotiated or anytime before close, have your investor assign the purchase agreement and all rights to buy the home to the new buyer for an “Option Fee.” According to several of the large Title Insurance companies, they will not “double close” a deal because of fraudulent insinuations.

NEGOTIATE IT!

This may possibly be the most Advil consuming, concrete crushing, and hair removing process anyone will go through. The easiest thing to remember is that the person representing the bank makes the same amount of money either way, whether the home sells or gets repo’d. With that said, I’ll walk you through the steps to negotiate a short sale.

1. BPO or Appraisal.

The bank knows how much the loan was for and what the home appraised for when they wrote the loan, therefore they will order a BPO or Appraisal to try to judge what the current value of the home is. The best thing to do is to meet the Broker doing the BPO or the Appraiser doing the appraisal at the property and show them through it. Actually, this is a MUST! Don’t let the homeowner clean the property up before they go thru it, the rougher it looks, the better. As you tour the house with the broker or appraiser, make sure you point out what is wrong, while letting them figure out what is good about the property.

The biggest mistake that is made at this step is a drive by appraisal or BPO. The broker or appraiser will try to find the highest value for the property and give the Bank a bad idea of what the home is worth. This makes any further negotiation nearly IMPOSSIBLE!

2. Repairs

When inspections come back on any other deal, and lots of things need to be done, doesn’t the seller typically pay for it? This is the mentality you need to bring is that the repairs will need to be done to effectively market the home in the current market, so they should be addressed in the price. Have a contractor or two come in and bid all the repairs in a home, and then submit them to the bank as well. It helps bring the purchase price down to a reasonable level..

3. Final Checklist

Make sure that any other typical factors are figured into the negotiations, such as encroachments, driveway maintenance on shared driveways, as well as any other costs that would reduce the price of a home. Sometimes you need to use your imagination here to see everything, but when all is said and done, it may be a factor for the buyer or future buyers, so address it now.

CLOSE IT!

Once you agree upon price and terms with the bank, get the deal done. After the price is negotiated and agreed to in writing, it becomes a typical deal. Throughout the process you will be submitting offers, with Net Sheets that show the Bank’s net figure; so when you get to close they will need to be the net figure that you agreed upon in the Purchase Agreement. If these numbers are not the same or better for the Bank, they may not accept the payoff, which can be disastrous. Always err on the side of caution when bringing these deals to close. I cannot stress that enough. The closing will usually be carried out like a typical closing; the only difference is that the seller leaves with no money and the Bank agreement to a “Short” payoff.

Copyright 2007 Daniel Sundberg, Five Star Real Estate All Rights Reserved www.dansundberg.com