One of the most neglected, and yet, most important part of a successful short sale is getting both buyer and seller on the same page. This may stem from the traditional way of thinking on a traditional “retail” sale: it’s “us against them.”
This does not apply to short sales, and if you can over come this mentality, your closing success will skyrocket. Getting the short sale approval is only part of your responsibility; the other part is getting your buyer to the closing table.
This is how I do it:
Locking the Buyer Down: The Stick
Locking the buyer down into an airtight commitment is part of my “Rules of the short sale.” We do not allow a buyer to have any “outs.” To recap, here are the rules:
- Ninety-day contract close date-We need enough time to get approval.
- Ernest money up front.
- Inspection time normal 10 days (NO “upon lender acceptance” allowed).
- Attorney review normal 5 days (NO “upon lender acceptance” allowed).
- Proof of funds for cash buyer.
- Mortgage Pre Approval (NO Pre-Grades from loan officers-only banks).
- Buyer agreement on use of professional negotiator.
These rules are non negotiable. If they are refused, we recommend to our seller that this is not a legitimate buyer and we get another offer. Period. Trust me, a buyer that refuses is a buyer that will find some excuse down the road to walk away or not close. Don’t waste your or your seller’s time with these tire kickers.
Sounds like a tall order? I hear it all the time, ”Joe, out here in (pick an area) my buyers will NEVER go for these rules….” WRONG! They WILL go for it, because you are going to DEMAND IT! It’s just that you are going to do it in a way that brings the buyer over to your side and gets them involved and excited about the process. Remember, the time where agents could make money by being order-takers is long gone! You need to put on your big boy (or girl) pants and go out and be a salesperson. We accomplish this by giving them incentives to play by our rules.
We get our buyer on board by offering them incentives. The most obvious one is price. Remember, no matter what the objection, price cures all ills. Sounds simple, and it is, but like anything there is an art to it.
First, as a listing agent, it is your responsibility to do a detailed CMA on your listing. We need to know what the true comparable properties are selling for, both distressed and non distressed. As discussed before, we have set out price aggressively at the very low end of the comp range. This attracted buyers. Now once an offer has been tendered, we set about to find the most important key to our strategy, the buyer’s “all in” price. This is where you have to get the buyer and their agent on your side.
How I do this is simple. I tell them that I have a duty to my seller to get this deal closed, and that if we work together, not only can I help my seller, but we can help your buyer as well. We know that it is in our best interest to make your buyer happy, and to get a great deal for them. This is why they need to be committed and honest with us. Remember, we help our sellers when we help the buyers buy.
This puts the deal in perspective, and softens the edge a little so we get a more honest answer when we ask for the all in price. As explained before, no matter what offer was tendered, we need to know the buyer’s absolute, top dollar, price, fees, extra costs, everything price. This is the all in price. Once that is established, I then like to ask the buyers to reduce their offer by 5 to 7 percent. You heard that right. I said drop the offer. This accomplishes two things:
- It gives us negotiating room with the seller’s lender.
- It gives the buyer and incentive to stick in the deal.
The possibility of a discount is a powerful motivator for buyers, and once you show them that you are allowing them this opportunity, most buyer objections melt away quite rapidly. In fact, they become your new best friends.
Now, I know many of you are telling to “Hold on, how is this benefiting our seller.” Well, again, we help our seller when we help our buyer buy. What the seller owes is irrelevant. Our objective in a short sale is not to get the highest price, but rather, to put the seller in the best position to close.
Of course, we have to be quite clear to the buyer that by lowering their offer, they must be willing to bump it back upwards should the lender counter. This also means the buyer should be ready to bring a little extra cash to the table to buy out a seller deficiency on a second, pay ancillary fees, or cover any seller cost not paid for by the seller’s lender. As long as our total amount stays below the all in price, we should be good to go.
If you do this right, you will close at a number somewhere between the low offer and the all in price, and everyone will think you are a hero. If, by chance, we end up beyond the all in price, most of the time it’s close enough that you can negotiate some sort of settlement. For those of you who can’t believe that the seller’s lender will go for this – they can and they do everyday. What some of you don’t realize is that most investor guidelines allow for up to a 20 percent variance from appraised value if you know how to work the short sale right; hence, the insistence of using a professional negotiator.
Remember, short sales are a strategy. You should plan ahead because if you don’t, you will be doomed to react to lender actions and that, my friends, is why most agents fail at short sales. Get the buyer on board and the rest of the deal will follow.
Joseph C. Alfe has worked as a mortgage lending executive with a leading mortgage lender before starting his short sale negotiation company, Short Sale Processors, in 2005. Since then, he has stayed at the forefront of this constantly changing industry as one of the only truly independent, third-party negotiation firms, and has consistently innovated and developed cutting edge negotiation techniques and best practices.
Joseph and his associates have closed nearly 1,000 short sales, and he continues to be active as a short sale coach, consultant, and speaker. SSP is based in Chicago, Illinois, and negotiates short sales throughout the country. Joseph resides in the northwest suburbs of Chicago with his wife and 5 children.