Hi Folks. Brian Brady wrote a featured post yesterday and my comments started going off on a rant about short sales so I decided I best write a post to voice my opinion.
Let me say that whether you like short sales, want to do short sales or want to avoid short sales, they are here to stay. Short sales are a major part of the market and in my opinion will become even more so. Lenders WANT to do short sales. A successful short sale cuts losses and keeps the lender from owning a declining asset.
This post is about taking control of the short sale situation from the get go, knowing what we are doing, preparing the Seller in advance of what to expect and being strong enough in our negotiation skills so we do not have to accept whatever bone the banks want to throw us.
Here are a few of my thoughts:
- With a short sale we are submitting CONTRACTS, not offers, to the lenders. We are not asking them to accept an offer we are asking them to accept a “short” payoff so a contingency can be removed from the CONTRACT and the deal can close. Anyone who submits an offer to the lender to see if they will accept it does not know how to handle short sales and is wasting time and clogging up the system.
- The lender is NOT a party to the contract(s)(listing or purchase). They do not control the purchase price and the commission. They do have control over how much they are willing, or able, to accept as a payoff. If this payoff figure is too high then a solution needs to be found. The solution may be to have the seller sign a promissory note, raise the purchase price or lower the expenses of the deal(commission etc…). However, lowering the commission in the deal does not mean the seller is off the hook for paying the FULL commission as agreed in the listing agreement. They can bring cash to closing to pay the difference and/or they can sign a note to the Broker.
- If the lender, investor or PMI company ask the Seller to sign a promissory note, a good short sale negotiator, will be able to negotiate the amount of this note downward or may even be able to make it go away. The PMI companies almost always ask for a promissory note to be signed when the seller can afford to make payments. Be prepared for it. If the Seller has funds in the bank, IRA, mutual fund and/or decent income chances are they will be asked to pay a promissory note. This should be ascertained at time of listing. Get a complete financial package from the Seller prior to listing the property.
Our job is to do the best job we can to help qualified short sale sellers salvage their credit. It is the Sellers sole decision on whether or not to sign a promissory note. Their willingness to sign a note needs to be established at time of listing so we don’t waste our time trying to help Sellers who are not willing to help us.
When a PMI company comes back requesting the seller sign a note I take it as an acceptance of my short sale request. Now all I have to do is negotiate the note. I have had a note request of $135,000 negotiated down to ZERO and one for $50,000 settled for $1,500 at closing. BUT the reason I was able to negotiate is because the Sellers truly could not afford to pay. Remember we are helping folks with a legitimate hardship not people that just want to avoid paying a debt.
Commission should not be an issue in a short sale. A Broker/agent should know before listing the property what lender is being negotiated with and how much commission they will “allow” almost all are 5% to 6% if there are two Brokers…and 4% if there is only one Broker. Fannie Mae will allow 5%. Countrywide will allow 6% as will Wells Fargo and Washington Mutual. I just closed a on Countrywide short sale and in addition to the commission I was paid 1% as reimbursement of costs to maintain the property for a total of 7%. We need to know these things.
Folks, agents are getting screwed on short sales because they don’t know what they are doing. Sellers are getting screwed because they are hiring these agents.
Short sales are serious business and need to be treated as such. Sellers need to seek legal and tax advice and then hire a Broker/agent that understands the process.
My biggest frustration is the lack of education of folks trying to handle these transactions. The public is being harmed and that goes against every thing being a REALTOR(R) stands for. Let’s take the time, to learn what we need to know, so we can help folks get on with their lives. Let’s all step up to the plate. Not only can we help people but we can get paid for doing so!!! Are you ready to get serious?
DISCLAIMER: I am a Florida Licensed Real Estate Broker. This article is my opinion based on years of experience and the laws of my State. All Sellers are urged to seek competent legal and tax advice. I am NOT qualified to give advice in those areas.
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