So you are a Seller, considering shorting your condos and you wonder if that agent you kinda know, or your Uncle Fuzzy who has a Realtor license is cut out to be your agent. Well read on. You either specialize in this “hard” part of the business or you don’t. There is not alot of success for the newbies that say they are experts but haven’t closed 90 million in overall (short sale and non short sale) transactions like I have.
One of the third party negotiators we use is Joe Alfe. I think he hits it on the head. I checked in with Joe on this point of why he GETS 95% OF HIS SHORT SALES APPROVED BUT ONLY 50% OR LESS ACTUALLY ARE SUCCESSFUL IN CLOSING IN THE MARKETPLACE.
You can read his blog here.. he has been closing short sales since 2005. As one of Illinois largest short sale negotiators, he has had the opportunity to work on hundreds of short sales.
I asked, so Joe over the last 12 months, how many short sales have you closed?
He said he averaged an approval rate of close to 95%.
But Is he closing 9 out of ten short sales?
Not even close.
What’s the problem?
He says the gap from APPROVAL (where he did his work) to lack of closing is , “Inept agents top the list, and the number one trouble spot is improperly executed short sale purchase contracts. Now, I could go on and on about how poorly trained and indifferent many agents are, but I’ll spare you at this time. ”
We just started up with Joe as he pairs down the number of agents he aligns with we closed ranks with him. We are experienced at getting short sales closed as a Brokerage and he is a great third party negotiator.
The way that we insure we have done our job on the short sale is to make sure we find a good buyer and we manage certain elements of the transaction. Here are some of the highlights.
Seller hasn’t signed offer:
Honestly, this blows my mind. I have heard all kinds of excuses such as “I don’t want to have to collect earnest money” (What?!?) “I want to continue to market the property,” “It doesn’t matter until the lender accepts.”
Seriously. Why would you not want to lock up a contract by not accepting earnest money and having a seller accept an offer? First of all, the lender will require the offer to be signed-that’s just common sense. Second, if your seller doesn’t execute the contract, you have no contract! Buyers can and will walk from the deal at any time! Why tie up a property, put the extra 110% into getting lender approval, then have a buyer bail because they bought something else, got tired of waiting, etc. Same thing with earnest money. The purpose of earnest is to show buyer commitment! The issues we have with buyers pulling out of contracts is because they are not, and were never committed to the contract. Why waste our client’s (seller’s) time? What’s that have to do with your seller properly executing their contract? Nothing. The lender is not the seller!
Joe said on this point, “I remember one deal that we worked long and hard to get an approval (The contract hadn’t expired) I called the listing agent with the good news, a written lender approval. She informed me after calling the buyer’s agent that the buyer had offered on another property. I quickly called the buyer’s agent and he simply told me that I could go pound sand because we never had a binding contract, because the seller had never accepted. Guess what, he was right.”
Now this is surely a beginner mistake.
Closing date too soon
This is setting expectations wrong. Beginner mistake. If I see a purchase contract on a short sale with a closing date any less than 60 days, I immediately reject the contract. Why even bother. Now, we are really good at short sales, and we have closed several in less than 30 days, but 60 and preferably 90 days are more realistic. By agreeing to short closing dates, you are giving the buyer an “out.” If I am a listing agent, I always make sure the contract reads “Closing less than 30 days after lender acceptance or (a date at least 120 days in the future.)” This is important on two levels. First, this locks the buyer in to whatever time it takes to get an approval, and sends a message that the buyers should expect a long wait. Second, the reason why I demand the less than 30 days after lender acceptance is because most lenders will only issue an approval good for 30 days. These can be extended, but it is not guaranteed and some lenders are charging extension fees. A good number of deals die because the buyers wait until the seller gets a lender approval to start their mortgage application process. BIG MISTAKE! Many buyer’s agents and attorney advise their buyers to wait, but this is a deal killer because in today’s lending market, it will take longer than 30 days, on average, to get a clear to close. If our approval is good for 30 days, and it takes 45 days to close, and the lender charges a $600 per diem to extend, and the buyers refuse to pay…see where this is going? Now, I understand that buyers may be reluctant to pay for an inspection or appraisal before lender acceptance, but they absolutely should have their mortgage in processing with the lender. The goal is to get a conditional loan approval. Not a “Pre Approval.” A conditional loan approval means that the buyers entire loan application has been underwritten and is approved subject to…(conditions, such as appraisal) In other words, once we get a short sale approval, all the buyer has to do is order an appraisal and they should be ready to close in 10 days tops. Make sense? Making sure that this is done will greatly up your short sale closing percentage.
Seller Concessions
I am all for them. If I can sweeten the deal for a buyer, great! There are limits though. 3% is about the maximum you can get. On FHA/VA short sales, HUD has reduced this to 1%, only if the buyer is using a government loan to finance the purchase. Whenever I get a contract that has a seller concession, I immediately call the buyer’s agent and ask if the buyers need the seller concession to close. If the answer is yes, immediately reject the contract because while we can ask for a seller concession, we cannot guarantee one.
Short Sale Addendums
Many MLS and Realtor Boards have developed short sale riders, but I go beyond this and employ a Short Sale Purchase Contract Addendum. I retained a highly regarded attorney to craft this addendum, and it’s purpose is twofold: One, to bluntly and repetitively disclose to the buyer of what to expect when purchasing a short sale property, and two, to commit the buyer to the possibility that they may need to bring cash to the table to cover any seller closing costs that the lender may not cover. Screeech! I see a lot of agents gasping at the very thought! Asking buyers for money! It can’t be done! Please… The sad and sorry truth about short sales is that while lenders are starting to approve these transactions faster and more regularly, they are cutting corners. More and more lenders are not allowing:
* Attorneys fees
* Third party negotiator fees
* Tax proration’s over 100%
* Survey
* Water Bills
* HOA Liens
* Tax redemptions
* Second liens over 1% of balance
* Whatever else the lender does not feel like paying
Quite simply, if a buyer does not want to commit to the possibility that they may have to cover something like this, then they have no business offering on a short sale! Period. Full stop. End of story. Why would you waste your sellers and your time jumping through hoops only to have a buyer walk because the lender won’t pay survey and water and the seller is short $700? As an agent, you should be educating buyers that short sales are AS IS, WHERE IS, the seller is not paying for ANYTHING, the short sale can take a long time, the end closing price may bear little or no relation to the listing price or offer, there may be lender counter offers, etc. ECT, ECT! Seriously, it’s OK to tell a buyer that maybe this property isn’t for them in the beginning, and finding another buyer rather than accepting an offer where the buyers will never close. The reward for the seller for putting up with all of this is a GREAT DEAL! We ask that the buyers agree to pay up to 2% of the purchase price for sellers costs not covered by the lender. If they do not agree, we simply reject their offer. Period, because if you do not get this commitment and the sellers end up being $1,200 short at close, who is going to pay it? The seller? Good luck they are probably broke. The agent ends up giving away their commission, and then I read the sob stories on Activerain complaining about the horrors of short sales and the bad banks. It’s not the banks fault, IT’S YOUR FAULT. So do something about it and properly prepare your buyer for the rigors of buying a short sale. Speaking of second liens, the number one deal killer on short sales are second liens. Look at this scenario and tell me if it sounds familiar:
