Clever’s Luke Babich writes that with rising prices and lack of supply in some areas, many would-be homeowners are looking at unconventional routes to home ownership, including short sales.
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Even in the face of rising interest rates and a tightening market, Americans still want to be homeowners. more than half of americans Still checking Zillow listings at least once a week, which shows that despite the challenges, demand for homeownership is nearly bottomless.
With prices rising and supply low in some areas, many potential homeowners are looking to unconventional avenues to purchase a home — such as short sales.
A short sale is when a property is sold for less than the mortgage amount. These sales must be approved by the lender and only occur if the homeowner is unable to pay the mortgage.
The agent’s role is more prominent in short sales than in traditional sales because it is a complex process, It may take weeks or months And it requires a lot of back-and-forth negotiation.
Sensitive to the seller’s condition
Remember, a homeowner will only pursue a short sale when all other avenues have been exhausted. They may not be able to find a loan modification option that fits their financial situation and are desperate to avoid foreclosure.
Many sellers turn to short selling after experiencing a traumatic life event such as losing a job or a death in the family. You’ll need the seller’s full involvement to get the lender to approve the short sale, so be sensitive to their situation throughout the process.
Know your commission
In a traditional sale, the seller pays the agent a commission. However, the lender determines how much commission the agent earns on a short sale. When lenders see huge losses, they may even reduce agent commissions to zero.
Therefore, many agents who specialize in short sales make it standard practice to negotiate commissions directly with the seller.
Some short sale agents charge a flat fee rather than a percentage. Keep in mind that lender approval and negotiation of a short sale can take quite a while, which means the short sale agent often works many hours to earn a reduced commission.
Prepare upside down financial data
Buyers must demonstrate that they are financially stable enough to meet their mortgage obligations as part of a traditional home purchase. The opposite is true with short selling.
In a short sale, the homeowner must prove that their financial distress is so severe that they are unable to continue paying their mortgage.
Lenders won’t let homeowners abandon the property because it’s underwater. They must prove that there were extenuating circumstances that made it impossible for them to continue paying their mortgage – such as a death in the family, a job loss, or a similar disruptive event.
Lenders will want to double-check the homeowner’s financial situation to confirm they are unable to continue making payments. Make sure you get a complete, signed financial file from the homeowner (including documents like tax returns and bank statements) that clearly details their situation so that their short sale application can be approved quickly.
Understand your lender’s incentives
Negotiating with a lender is not like dealing with an individual seller. When a sales negotiation occurs between two people, the motivation is very clear: the buyer wants to get the lowest possible sales price. Conversely, the seller wants to maximize profit, but that’s not the case when you’re negotiating a short sale with a lender.
Lenders do not seek to maximize profits but rather to minimize potential losses. This changes the negotiation landscape significantly.
They want to avoid the long-term costs of foreclosure and keep bad loans off their books. In addition to the homeowner’s financial documents we mentioned above, you should clearly communicate to the lender how much money you can save them through a brokered short sale.
Determine initial quote
Your initial short sale offer will rarely be accepted – but that doesn’t mean you shouldn’t put in some effort to come up with a fair, market-supported offer. If your first offer is too low, it may be dismissed without a counteroffer, leaving you and your client in an awkward position.
The lender may know they’re going to take a loss on the property, but that doesn’t mean they’re going to let it go for a penny. Conduct research on comparable properties, consider the condition of the property, and submit a reasonable but competitive offer. Your goal is to elicit counteroffers, at which point the back-and-forth negotiations can begin in earnest.
Don’t forget the tight financing window
As an experienced buyer’s agent, you know it’s always a good idea to get the buyer financing before they even hit the market. But this may be even more important if your client wishes to enter into a short sale transaction.
Banks often impose limited closing windows on short sales (as short as 14 days in some cases), so a lot has to happen in a relatively short period of time. Many short sale experts recommend starting the financing process before the short sale documents enter final review.
contact directly
Once the negotiation process begins, the real estate agent will negotiate directly with the lender’s staff. Typically, this will be someone who works in the bank’s loss impairment department.
Find out the name of the bank employee who handled your short sale and get their direct contact information, including their work phone number and email address.
Establish lines of communication with them and discuss issues with them. Most of the time, they will be willing to give you some information about how much money they need to sell the property, and you can make a counteroffer accordingly. As with any sales, a little human touch goes a long way.
Luke Babich is smart real estate in St. Louis.contact him Facebook or Twitter.
