The most important step in the short sale process is finding the right Buyer for our transaction and to negotiate the offer. Short Sales are different than normal sales. We are not looking for the highest offer. We are looking for a reasonable market value offer with as few Buyer contingencies as possible.
The ideal short sale: Cash transaction priced at market value with all contingencies removed prior to submitting the contract for short sale approval. Every added contingency is added risk that can lead to the loss of our Seller’s short sale opportunity.
Because short sales can take anywhere from three to five months, we are looking for a Buyer who is willing to wait that long. Because most Short Sellers do not have funds to bring to the transaction, we must also find a Buyer who is willing to complete inspections prior to closing and negotiate price accordingly.
Consider the following guidelines:
Buyer must inspect during the offer period: In a short sale the only thing we have to negotiate is price. Once short sale is approved, we cannot negotiate the price. Because Seller sometimes gets one shot at a short sale before foreclosure it is against the Seller’s best interest to leave subjective contingencies outstanding while obtaining short sale approval.
From the Buyer’s perspective it is a small gamble to pay for inspections prior to short sale approval Buyer’s opportunity costs are greater than the costs of the inspections. However, Short Sales are usually a bargain; (I have never had one fail to appraise), interest rates are going up and a Buyer can miss the entire season waiting for short sale approval.
If the Buyer waits, inspects and is not satisfied, that inspection report functions as an on/off switch instead of as a bargaining tool. If ultimately the deal is off, Buyer may have missed the Spring/Summer market and these wonderfully low interest rates while waiting for the short sale approval and starting over with their home search months later than they would have if they had completed inspections up front. In short it is worth the risk.
Avoid Closing Cost Credits: Closing cost credits are often reduced or denied at the short sale approval stage. If the entire deal is contingent upon the credits we may lose the deal. Also, the Buyer will often expect that if the bank will not allow the credits they will at least allow a price reduction in place of the credit – NOT SO – In this situation the bank will likely insist that the price remain unchanged and deny the credit.
Avoid “Subject to Buyer Selling their current home contingencies”: Seller sometimes gets one shot at a short sale before foreclosure. It is against the Seller’s best interest to leave subjective contingencies outstanding while obtaining short sale approval.
Avoid complicated financing relying on multiple sources: Seller cannot wait for the planets to align for a marginal Buyer. In a multiple offer situation the type of financing would trump the price Buyer is willing to pay; for example: take conventional financing over FHA or VA even if one offer is thousands better than another. We need to make the best deal for the Seller which is the least risky deal.
Remove all of the contingencies that are in your Seller’s control such as TitleV: Sales can fall through or become unnecessarily complicated because Seller is unwilling to pay for the title V tests prior to obtaining short sale approval. It is vital that we understand exactly what we are dealing with before we enter into a contract. In short sales and regular sales, the Seller vacates months before the actual sale. MANY cities and Towns will give “conditional passes” if the property is vacant for 30+ days. This means holdbacks are necessary if Buyer’s Lender allows a holdback – this can be the end of the short sale even if the system passes! The Title V report is good for 2 years!!!! Have it checked immediately!
***PLEASE USE OUR OFFER ADDENDUM***
The offer addendum is for use with the standard Realtor form binding offer used in Western Massachusetts, produced by the Realtor Association of Pioneer Valley. It removes the automatic $1,000 termite treatment and repair provision and calls for inspections priot to purchase and sale agreement.