By Peter Ricci
Short sales have become increasingly common in the post-bubble economy, and indeed, the list of agents who have successfully adapted their businesses to short sales is long and varied.
Though some have found quite a bit of success in short sales, their success does not change the fact that short sales are incredibly complex transactions with numerous moving parts, and to help assist agents in navigating through them, we put together a “short” list of four essential steps for agents on the short sale process.
- Reality Check – It’s a sad, indisputable fact that many short sale contracts do not close, so it’s useful acknowledging that truth with your clients at the start of the process. Currently, roughly half of the properties sold as short sales ultimately close in that manner, and they can take a really long time; it’s not uncommon for a short sale to take five, six, seven months or much, much longer to get from the purchase contract to the closing.
- Don’t Believe the Hype – Short sales typically sell for a discount of 20 percent or so (the last existing-home sales report from NAR reported a 25 percent average), so don’t believe short sale listings that boast enormous cuts in price; if it seems too good to be true, it absolutely is, and the reason is one of publicity. Lenders will not discuss short sales until contracts are in place, and because of that, listing agents will put the property on the market for an absurdly low price to hype up interest and get the ball rolling, even though they know the lender will never accept such a low price.
- Skepticism is the Name of the Game – Never take anything for granted when going through a short sale, as a number of things could happen to sabotage the sale. A foreclosure sale could take place at any time and kill the process, even when an approval has been issued by the lender; the lender’s rules could change during the process, killing the transaction or re-setting the process’ timeline; the lender could make decisions in complete contradiction to the local real estate market, considering lenders are not bound by the terms of the real estate purchase contract; and during negotiations, the lender and seller may agree on a loan modification, rendering the short sale meaningless. All of these things could happen, so try to be as in-tune as possible with what is happening in the process.
- There Will Be Costs – Short sales may sell at a discount, but they can carry significant, complementary costs with them, including repairs (defects, safety issues, violations of building codes) that must be paid for prior to closing, lender application fees, inspection fees, legal fees, and, worst of all, appraisal fees, which the buyer can sometimes pay two or three times based on the conditions of the lender.
Of course, this list is far from all-inclusive. When the National Association of Exclusive Buyer Agents set out to list 10 critical components of the short sale process, they overshot their initial goal by 41, and ended up with a list of 51. Short sales demand quite a bit from agents, so make sure you’re clear on the many ins and outs before taking one on.