Short Sale: Where to Start
Just like purchasing a home, it takes time to work a short sale – in many cases, even more time. Be patient and take it one step at a time. This can often take 90-180 days, and if successful, could be well worth your time.
1. Contact your bank – before the end of the road, you want to make sure that you’ve given them notice (i.e., speed bumps). Calling 30 days before you can’t make payment might not be helpful. See if there are loan modifications or refinancing programs that might help alleviate the burden. If you can’t find a viable and durable solution, then consider short selling your home. Request a short sale package to get the process started.
2. Find a short sales agent – it pays dividends to make sure you work with a realtor that has time of the day to answer your questions and go through the process with you. A short sale requires more time, thought, and effort to execute properly to bring all the relevant parties such as buyer, seller, lender, agents, title and escrow companies. Use an agent with good follow up.
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3. Third party negotiators – sometimes (although not all) sellers in a short sales employ negotiators that charge a separate fee in addition to the realtor commissions (buyer’s and seller’s agent commissions). The beauty of this for the seller is that it does not directly cost the seller anything. It ultimately comes from the bank’s funds (or proceeds). However, there are plenty of short sales in which a “third party negotiator” is employed and the listing agent shares their commission with the negotiator.
I tend to like these arrangements where the seller’s agent and negotiator split the selling agents commission. Much of the work and brain damage comes from negotiating with the bank and making sure the borrower has everything right. If the seller’s agent does not do any negotiating besides list the property below market, they don’t earn their keep. In these arrangements, the listing agent can split their commission 35/65, where the agent gets 35% and the negotiator gets 65% or 50/50, etc.
“Feel free to ask your agent whether they play to employ a negotiator and what the commission split is and why. While some agents can get prickly, you have every right to know if you plan to hire the agent.”
4. Pricing – some agents will deceivingly tell you to list your property at a fire-sale price. They say this will help get an offer on the price after which you can send to the bank to move the short sale process along. If the agent tells you to fire-sale the property, do not use this agent. While this may not be fraudulent or negligent behavior, it shows inexperience. All banks that approve short sales employ a valuation method often know as a broker’s price opinion (BPO). This valuation gives the bank a reference point on the value of the property and whether the short sale makes “business sense” to approve.
For example, if the contract price is $300k, but the BPO comes back at $600k the bank will likely not approve a 50% discount. However, if the BPO comes back at $350k (a 14% discount) then may approve this just to get the property out of their hair.
Time is precious. Don’t waste it on apparent solutions that will not avail. In 2009, the banks were seen approving discounts of 15% or greater for homes. In 2010, banks have gotten tighter on their discounts and are typically seen approving discounts on short sales of 7-10%.