Short Sales and How I Think They Should Be Handled
First of all I do not believe that any real estate agent should list a home as a short sale without having done some research first.
You should have a preliminary title search done to determine if there is a second mortgage or any other liens on the property. Determine who the owner(s) are.
Next, you should collect all of the necessary paperwork that the lender will require for their short sale package. (Some banks require less/more documentation but this is a very ’standard’ list)
Obviously the following that you’d normally complete:
- CMA – YES, you need to know the market value of the property!
- Listing Agreement
- Short Sale Addendum (if your board doesn’t have one yet you should get an attorney to create one for you)
- Seller’s Real Property Disclosure (Yes, even AS IS deals)
- HOA documents/ HOA/Condo disclosures as necessary
- Lead Based Paint Disclosure as necessary (pre 1978)
- Last 2 year’s tax returns
- Last 2 month’s bank statements
- Last 2 pay check stubs
- Letter of Authorization
- Financial Statement
- Hardship Letter
(if customer is missing a tax return or pay check stub have them write an explanation as to WHY (i.e. No paycheck stubs because they are 1099 contractor)
*for your info: Copy of mortgage statements
- If there are 2 lenders you will need these documents for each.
Listing Activities at property
- Take multiple photos of the property – the good and the bad. Obviously use the prettiest photos for your marketing material but disclose any known defects. The bad photos are good to show the seller’s lender.
- Put an electronic lockbox on the front door or hidden if seller/tenant prefers. Agents that have to pick up a key or schedule to meet an owner/tenant/agent are WAY less likely to show that home. Especially in this current buyer’s market. There are too many other choices available. Check out my previous blog about tenant occupied short sales.
- Install your sign.
Back at office
- Call bank(s). Ask them where to send the authorization to release and what their short sale process is. They’ll either tell you over the phone or send you some additional package of information. Also make sure to verify where/to whom you will send the package once you do have an offer (ALWAYS goes to some different #/Dept)
- Enter property into MLS. Use multiple photos. Use a full description. Make the showing instructions easy to find and follow.
- Enter property onto the best internet sites. We typically start with point2agent and Realtor then add as necessary. Our listings are enhanced on Realtor so we can add more photos and a better description. Point2Agent is a great website to use to get your listings onto several other real estate websites.
- Add the property on your blog. Make it interesting. Use lots of photos. Talk about the emotional benefits.
Yay, Showings and Offers!
You get showings, and now an offer comes in. GREAT! How do I think offers on short sales should be handled? Like any other sale.
Present all in a timely manner. Encourage your seller to make a decision asap. If they like the offer, have them sign the contract. We require all contracts to be on the Far/Bar As-Is contract along with the Short Sale Addendum. We also require a bank letter of funds available or a pre-approval letter and a copy of the buyer’s escrow check.
What’s next? First of all, stop taking other offers! After the buyer and seller have agreed the property is now for all intents and purposes PENDING. Yes, there is a third party approval required but that DOES NOT mean that you do not have a CONTRACT. You do. I’m sorry to go off a little here but this one of my pet peeves. We have buyers write up all of the time to hear weird things like the following:
1) Our seller isn’t going to sign – it’s up to the bank
2) The seller has already accepted 4 other offers, they’re waiting on the bank to respond
3) They accepted another offer last week
My response to each:
1) Then we don’t have a deal. I will continue to look for homes for my buyer. This obviously makes no sense. The contract is between the buyer and the seller – the bank is a third party approver only. Most banks won’t even look at a file unless all documents are correct and signed/dated and still within timeframes.
2) Why would you obligate your seller to sell his/her property 4 times? Again, I’m going to find my customer something else. This is a waste of time. I get what the agent is trying to do. For lack of better terms, ‘have their cake and eat it too’. If one buyer gets tired of waiting, they’ll have possibly 3 more in line. I get that but it is not done correctly. You can have one offer you are working on and 3 back up offers but not 4 contracts on the same house. That’s utterly ridiculous.
3) Really, then WHY is it not marked pending or active contingent short sale (that’s our MLS’s new rules for short sales that have been agreed on (under contract) but are waiting on bank approval)?
Listing agents: If you want to play the multiple offer game that is fine. I realize you want your seller to go with the most likely offer to get accepted and be able to close. That’s a no-brainer. But you have to disclosure what you are doing. Like many bank owned listings, they’ll say “We will be accepting offers for 5 days before we’ll get an answer from the bank. At that point the bank will most likely ask for everyone’s ‘highest and best offer’.” My response: GREAT, here’s my buyers offer. It expires in 6 days. At least they know what they are doing. That makes sense!
Submit That Offer
Ok, now back to the seller’s bank. You should have already spoken to the bank(s) to know exactly what to send and to where. Create a nice coversheet detailing the borrowers (that’s your seller) Property Address, Name and Loan #. Include page #s like a table of contents. Include the contact for the BPO/Appraisal. Include a preliminary Hud1 (get from your title company), updated financial if out-dated, comparables and property history of the property. Send this and call the following day to verify. (Some banks say it takes up to 72 hours to receive so you may have to call back again) DO NOT STOP CALLING UNTIL YOU HAVE VERIFIED THAT THEY HAVE RECEIVED THE PACKAGE AND THAT THEY HAVE EVERYTHING THEY NEED. Most of the time if you are NICE they will look through the package while you are on the phone and let you know. Also find out who the negotiator is and when the bpo/appraisal will be ordered. Get the negotiators Full Name, #, Extension and Email address if at all possible.
From today on, call at LEAST once a week. Some banks may have an answer within a week; others may not for 2-3 months. All banks work differently. Always ask them what their timeline is. Do not leave multiple messages in the same day. You will irritate the negotiator. They are very busy people. Most have 100-300 files on their desk. Make sure you acknowledge that and make their job easier by having everything ready for them. If they prefer email, shoot them over a quick email for an update. They appreciate the non-intrusiveness of email.
Also each week, call your seller to let them know what the bank said. Call the buyer’s agent to tell them what is going on. Tell them to call their buyers to advise. Call the title company to keep them in the loop. Communication is key. If you keep everyone in the loop your chances of a successful closing go WAY up!
Now you have an approval. Make sure the closing date will work for everyone. Send the approval over to the buyer’s agent and the title company. The buyer may need to get financing so make sure they have enough time for that. They’ll also want to have an inspection completed. Make sure to have the electricity and water turned on for that. If your seller cannot afford to have it turned on then turn it on for them! You took the listing knowing the financial situation of the seller. Don’t stop helping them out now.
You know the rest of this, now it is just like any other transaction.
Close on the property
The sellers have now SOLD their house. The buyers have now BOUGHT the house they wanted at a good price. Everyone wins.
Good luck out there.
Buyers, don’t be intimidated by short sales. Just make sure you have an agent working for you that understands the process. They’ll be able to inform you right away if something doesn’t add up or seem right.
Sellers, please do not make the mistake of listing your home as a short sale with just any agent. Make sure they fully understand the short sale process. This is a very important transaction in your life and not everyone is cut out to handle this for you.
We look forward to working with the other professional real estate agencies on short sales and the many buyers and sellers as well.
© Susan Milner 2008-2013
Yours in Success,
The Florida Future Realty Team
Ask for our information packet to be emailed directly to you or call our broker, Susan Milner, to have your specific questions answered!
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~ Before you decide to sell your house as a short sale we recommend you contact BOTH a CPA/tax professional & an experienced Attorney to discuss YOUR specific situation. Laws & guidelines change frequently and you want to be sure a short sale is in YOUR best interest! ~