I constantly hear from agents that the hardest part of a short sale is getting lender approval. Fortunately, I don’t share this problem. Our approval ratio is well over 97%. Does that mean we close 97% of our short sales? No it does not, because in today’s market, the hardest part of closing a short sale is getting the buyer to the closing table. Our closing ratio is around 95% due to our new escalation procedures on foreclosure sale date postponements that I will get into next week.
Start at the beginning
A successful short sale closing actually starts at the time you accept an offer. Let’s assume that the property is priced correctly. How do we know this? Because we have received multiple offers. You heard right. Even in this market, a correctly priced property should receive multiple offers. We do not have the seller execute an offer until we are certain that there are no additional offers coming in within a set period of time, such as 5 or 10 days. Once we have a few offers to review, we can start the screening process.
What to look for
1.The first thing I look for is the Closing Date. The buyer must allow adequate time for us to negotiate the short sale. I require the following verbiage on the contract: “Closing within 30 days of lender/seller approval or 90 days from seller acceptance.” Why closing within 30 days? Because most short sale approvals are only good for 30 days. This puts the buyer on alert that they must not wait until lender approval to start their financing process. This is a HUGE deal killer. This leads to the mortgage contingency, which must state that the buyer will obtain a conditional loan approval within 45 days of seller acceptance.
2.Contract Commitment. This means earnest money due upon seller acceptance. All inspections and attorney review upon seller acceptance. This is important, because if you agree to accept a contract with these contingencies due upon lender acceptance, as so many agents do, you basically have no contract. Why? Because there is no commitment. The buyer can walk away at any time, there is nothing holding them to the deal.
3.As-Is. Buyers will be responsible for all inspections or repairs at their cost.
4.For those of you who will say that buyers won’t possibly agree to these terms, I can tell you that you are wrong. ALL off my buyers agree, or we will reject their contract. Gone is the time for real estate “order takers.” You have to be a salesperson now. How do we give the buyer an incentive to cooperate with these terms? LOWER THE OFFER!
Offer Structure:
If we receive an offer for $200,000, my first step is to determine how much more the buyer is willing to pay. This is where you need to be a salesperson and communicate the strategy to the buyer’s agent. This is critical because we never want to submit a buyer’s best and final offer to a lender to start. Why? Because then you have no negotiating room. So, if I determine that the buyer’s offer of $200,000 is as high as they will go, then I will ask for the offer to be lowered to $190,000, with the understanding that there may be counter offers that can raise the price. This is critical because buyer flexibility is necessary when dealing with lender counter offers.
If the seller has a second lien, particularly a HELOC, I will require the buyer to agree to bring extra cash to close to buy out any deficiency for the seller. Typically, you can buy out deficiency for 1%-10% of the HELOC balance. If the buyer hesitates, again, tell them to lower their offer to compensate. This is an important step for you to fulfill your Fiduciary Duty to the seller.
Fiduciary Duty
Now, I know that many of you are shaking your heads at my suggestion to withhold highest and best offers or consider lower offers, but remember, you do not work for the lender and you owe them no duty. Your duty is to the seller only. The goal for you is to put the seller in the best possible financial outcome, not get the lender more money. Therefore, a lower offer that settles deficiency for the seller is a better deal for the seller. A short sale is not an “us against them” transaction. Both sides, seller and buyer, have to work together to make the transaction a success, so open and honest communication with the buyer’s side is a must.
Conclusion
By following this strategy, you will greatly increase your closing percentage by accepting contracts only from buyers who are willing to commit to the deal. This reduces the chance that they will walk away when the going gets tough, because they have some “skin in the game,” and they are getting a great deal. In the end, closing the deal for your seller and hopefully putting them in a better financial position means a successful short sale transaction.
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