Hi folks. Today I’m going to talk a little bit about short sales. As way of disclosure, I want to mention, that I am NOT an expert on short sales. However, I am an experienced Broker in Florida and do have short sale knowledge. I just prefer to not handle many of them.
But….I want to see if I can help when it comes to working with Sellers of short sales. How to price the property properly and how to negotiate the deal.
First, if you are a Seller facing foreclosure, a short sale could be a viable solution for you and the Lender. Seek the advice of an Attorney and an experienced REALTOR®.
My market, Poinciana FL, is saturated with short sale listings. Some will be successful but many more will not.
The key to being successful is pricing and negotiating.
When meeting with a Seller, who may be a candidate for a short sale, it is imperative that the property is priced right. When I say “priced right” I mean as close to market value as possible at a price that will get the property under contract quickly.
One of the problems I see in my market is that short sales are priced way to low. It seems like listing brokers are just picking a number out of the clear blue sky and placing the property on the market. While they may generate a lot of activity, these deals, more than likely, will not close. Plus they are doing the Sellers a major injustice. The Seller will either be foreclosed on or end up with a huge deficiency judgment against them. Not to mention the possibility of owing good ole’ Uncle Sam some money.
Pricing a short sale should be just like pricing any other property. You are looking for a price that will sell the property in a reasonable amount of time and at a reasonable price. The fact that the property is a short sale, requiring 3rd party approval, is nothing more than a negative market condition.
If the true market value of the property, if not a short sale, is $200,000, then what you should be doing is taking this figure and making an “adjustment” for the “negative market condition(short sale)”. Depending on your market it could be a 10% to 20% downward adjustment. Let’s say that your market is showing you that short sells are selling for 20% below a normal sale of similar properties. That means that this property should sell for $160,000. So maybe you price at $165,000 or $169,000 depending on your area’s sales price to list price ratio.
Now you have a property that is priced right AND you have a very good chance of getting the Lender to agree to the short sale if you bring them a CONTRACT at $160,000.
OK so here’s the second step. Negotiating the deal. Notice up there where I bolded CONTRACT. This is important. Many REALTORS® are submitting OFFERS to the Lenders for approval. This is wrong and will limit your ability to get the short sale accepted.
A short sale requires 3rd party approval of the CONTRACT not the offer. What this means is the Buyer and the Seller should be negotiating the deal as they normally would. Once they have agreed on a price, hopefully as close to the $160,000 possible, they sign the contract and the deal goes pending, subject to 3rd party approval. The 3rd party approval is nothing more than a contingency and should have an end date on it. It’s no different than inspections, loan approval etc., except that it is a Seller contingency. It is a contingency that needs to be removed or it will expire with time.
Once the deal is signed, by all parties, you are now in a position to submit the short sale package to the Lender. Then the wait begins.
It’s important to remember that, if you are working for the Seller, your goal is to get them as much as you can for the property in a reasonable amount of time. By doing this you are limiting their liability created by the “short” and you are giving them a good chance to avoid a foreclosure by presenting a fair contract to the Lender.
So, if you are inclined to handle some sort sales. Do it right. I know short sale is the “buzz” word right now but as professionals we need to understand what we are doing. There’s a lot more to it than just throwing it out there and hoping it sticks. If that is what you are doing then you are harming the consumer and need to stop. I hope this post helps. If there are any short sale experts out there that feel this info is incorrect please let me know. I’m trying to learn as much as I can. Thanks.
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Licensed Florida Real Estate Broker
***The content of this blog is solely my opinion***