Short Sales Are "Fake Listings." Only 5% Close!
Update 3-19-09: This post is OLD. See new Post from 2-09 Short sales are closing, if done correctly. They can be the best “deal” (I hate saying “deal”). The post below is still great background info.
Update 1-22-09: Still reading this #1 blog post on short sales for a background on the process? Well it was written over a year ago. Short Sales are now closing MUCH more frequently in SOME areas (an 0 in areas like McLean). Subscribe to this blog for I plan to run some numbers on the % that are closing. My guess is the range is 1 in 3 (vs 1 in 20) before. However closing rates can be as high as 80% if your buyer agent asks the listing agent these questions: Top 10 Short Sale Questions.
(Update 6-16-08: This post was written on 2/08, this marketplace is changing ever month. Make sure to subscribe to the blog to get updated on the marketplace, like an upcoming post on more Short Sales starting to close.)
As of 2-08, most Short Sales in Northern Virginia are what I call “FAKE Listings.” (note that this is Virginia, every area is drastically different)
Only 1 in 20 sells.
In Arlington only 3 have sold out of 65 attempts.
I briefly went over Short Sales when I defined all SOL Homes including REOs, Bank Owned Etc. But Short Sales need more attention, as they are very tricky and misleading.
A Short Sale is a listing for sale that requires “Third Party Approval.” That means that 1, or 2!!, banks are owed MORE than the list price.
For Example:
- Home is bought for $500,000 with 5%, or $25k down.
- Home has a $475,000 mortgage.
- Value dropped below $475,000
- If the seller is facing foreclosure, they slash their price for a quick sale
- A Short Sale is attempted at $450,000
- If the bank accepts it, the BANK eats $25,000 (see Phantom tax for Seller)
The Theory Behind Short Sales: Banks would be better off to accept a loss now, versus going through the legal expense of a foreclosure, just to end up selling it for less later. Win win, right? Wrong. Read on.
Bank Trick 1: “Sure, we will consider a Short Sale, IF YOU KEEP PAYING US.”
Yep, a bank sees a desperate seller, and a potential $50,000 loss. They then mislead them into thinking that they might consider taking a bath on the deal IF the owner keeps paying their mortgage. The bank then ignores offers for 2-4 months in order to squeeze out another $2,000 x 4 or $8,000 profit. Brilliant. The bank then takes it over after foreclosure and sells it for $10,000 OVER the Short Sale List price. $18,000 better off, NOT doing a Short Sale.
Bank Trick 2: Sometimes the bank has mortgage insurance and it is CHEAPER for them to let it foreclose versus allowing a Short Sale, which is NOT insured.
For example, I was at an NVAR short sale class and a Realtor asked the speaker, “Why after 60 days, calling 2 times a day (120 calls) with a full price Short Sale offer, did the bank not call us back?” The speaker claimed it was due to an overworked staff.
I asked:
- Did they tell you they would consider a Short Sale IF you kept paying $3,000 a month? The answer was Yes.
- Was the home bought with Mortgage insurance? The answer was Yes.
- Bingo! Why eat $50,000, by accepting the low offer, if the bank a) gets $3,000 a month and b) is insured against a foreclosure and NOT a Short Sale.
She was pissed. She realized that she had been “had.” But this goes on ALL THE TIME. It can take MONTHS to hear back.
Another example:
- A seller in Clarendon 1021 tries to sell his property and profit $30,000 at $600k. (Yeah right!)
- Then he drops it to $570,000. No bites, but the foreclosure is pending!
- They SLASH it to $530,000
(sidenote, I get flooded with calls from friend that want to pick it up for a steal at $470,000! I said that it was impossible… since I’d buy if that price was a possibility.) - It sits for another month, then the listing disappears after 100 days!
- A month later it is “bank owned” and listed for $560,000
- It sells for $540,000 in 26 days.
The moral here is banks are not dumb and the market isn’t so horrible that they will take all these lowball offers. They sold it for $10,000 OVER the previous list price (which probably had lower offers).
Reston homes from $300k to $400k.
– 20 Active “Short Sales” in Reston (watch out for “Not a Short Sale” listings)
– 73 were Withdrawn, or Expired.
– 3 Under Contract (1 under contract since Nov 2007! Many UC do not close.)
Only 3 sold in the last 24 months. 3 closed sales in 100 attempts!
- Dropped From $480k to $400k, sold at $400k (Full list)
- Dropped from $430k to $400k sold for $380k (5% under list)
- Dropped from $380k to $350k sold for $345k (2% under list)
Arlington Short sales.
– 25 Actives
– 37 Withdrawn
Only 3 have sold in ALL price ranges in all of Arlington in the last 2 years.
- Listed at $335k, sold for $335
- Listed at 700k dropped to $620, sold for $600k
- Listed at 480k dropped to $420k sold for $420.
In Alexandria, only 8 have closed in 2 years out of 80 attempts.
(most were at list, or 2% under list, some were $20k over list)
I show this, so you don’t think “Wow, they are desperate, we can now lowball. These 3 were the ONLY successful ones. Probably because they gave the bank a real offer.
Ok, so enough already with the War N Peace, what should I do?
Advice for Regular Sellers
- Do NOT blindly compete with a Short Sale. If you get an inexperienced agent, and they see 3 Short Sales in your neighborhood, and they have you compete against these “fake” listings, you can lose $25,000. Hope you “saved a ton” on that agent. (see Realtor Rebates)
Advice for Sellers Facing Foreclosure
- Watch out for the bank tricks to “keep paying.” Talk to a lawyer that specializes in bankruptcy to help guide you. They MIGHT recommend stopping payments immediately and saving it up for a rental.
- Use an agent that has completed (as in CLOSED, not listed) at least 1 Short Sale.
- If you have mortgage insurance, be extra careful, the bank might prefer that you foreclose.
- Get bank approval for your list price before listing it. Put in the listing remarks “List Price approved.” Otherwise you will get lumped into all the other Fake Listings and ignored by smart buyer agents.
Advice for Buyers looking for a “steal” (see “deals” post)
- Avoid Short Sales, or expect to wait 2-3 months and expect to put in 5-10 offers on Short Sales before one is accepted. A Short Sale in my building now has 4 offers. He says he is expecting a reply any day now… sorry, but yeah right!
- Look for Approved Short Sales. Ask if the bank has been contacted and if a price has been approved. Multiply time estimates by 4. Ie. 3 days= 12 days.
- Consider offering near, full or OVER list. What! Over list! Are you nuts! CNN says this is a BUYER’s Market! I know it sounds crazy, but if you and your agent see the price is well under your other options… I’ve said time and time again, I’d rather you pay $10,000 OVER list on a house that is $50,000 under the competition versus “saving” $50,000 on a home that is overpriced by $100,000. Ignore list price, focus on VALUE.
- Focus on Bank Owned. These units get replies in a day or two. (See video of Realtor buying a Bank Owned property)
Advice for Buyer agents & Listing agents
If you get one to close, change the remarks to SHORT SALE, NOT TO BE USED AS A COMP in hopes that the appraiser will take that into consideration and not trash the neighborhood (buyer agents, demand it of the listing agent to try to help your client’s “deal” not turn into destroying his own investment).
Sidenote: A home should NOT go under contract until the BANK signs it, but many agents will make this mistake. The seller signing it means nothing, and it should stay on the market as Active.
- Updated Correction 2-29-08 I’d like to thank DAAR CEO Jeanette Newton for this correction. I’m excited that she is participating in blogging!
- My above sidenote about when to go Under Contract is 100% wrong. So let me explain… IF a seller signs the offer, as written, it is to be listed by default on the MLS as Under Contract with No Kick Out. The problem for the seller is that most MLS websites will remove the listing, so the chance of a better offer (and a higher chance for the bank to accept) is slim to none.
Here are a sellers’ options (please comment if you know of more options) :
- 1) A seller can counter the contract and add in a “Kick Out” so further offers can be reviewed. The listing then can be set to Under Contract with Kick Out (this was suggested by Loudoun Realtor Tony Arko). But only a buyer agent looking on the back end MLS can find UC/KO. (A Kick Out means “there is still a major contingency here, feel free to submit another offer, it still can be considered and the first contract might be kicked out.”)
- 2) Another way to keep it active (like the unit in my building with 4 offers) is for the seller to send the “offers” unsigned to the bank. Why not try and keep your home as “Active” for as long as possible? Some banks will require the seller to sign, so try #3.
- 3) Or lastly, the seller might add “acceptance of the contract is contingent on lender approval.” or “contingent upon review and approval of the lender.” That one line can keep it “Active.” I am not a lawyer, so please verify any additions you make to a contract with a lawyer.
- As a buyer agent I would prefer it to be “Under Contract” if I was the listing agent, I would want it to be Active. So it depends whose side I am on, it is part of the negotiations. You can even counter with “Increase your price $2,000 and we will place it UC/KO.”
New Trick: Now that Short Sales are getting a bad wrap, some listing agents are NOT disclosing that it is a Short Sale.
Conclusion as of 2-2008: Short Sales in Northern Virginia suck.
Question: Realtors, should you have a “No Show” policy for Short Sales that aren’t approved by the bank? Are they really “for sale” if the owner (the bank) doesn’t even know about it? Feel free to just tell your clients “read this blog.”
Please report typos.
p.s. See Washington Post Article on Short Sales
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Top 10 Questions Before Showing Virginia Short Sales
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FranklyMLS.com, 1st to Scrub for Short Sales & Post Article
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Feb 2009 Short sales are closing!
- 20
- February
- 2008
This is an informative and impressive dissertation. Thank you… frankly, I appreciate your time and generosity.
This is an incredibly good snapshot of what we’re all facing. Here’s my question, if there is no chance of selling the house, why are so many agents flocking to list them? REO’s are usually a better deal for the buyer and an easier transaction, but even those have risks with lingering liens and truly as-is in most situations. It’s just a big mess all the way around.
Matt,
They take the deals because many agents are starving and they HOPE that they might get a deal out of it. Even if there is only a 1 in 20 chance.
Very interesting. My experience with short sales has been that a lot of agents don’t know how to deal with them. They don’t understand the process and don’t allow adequate time for the bank to examine the offer. The other thing is the banks take so long in processing the offers that the seller has no hope in selling the property before it forecloses.
Lot of great info Frank. 1 in 20 is pitiful. My market is saturated with short sales right now. I guess I need to do little research to see how they are faring.
Interesting stats – and I think you might even be light on the 1 in 20. I think the banks are overwhelmed, and have no idea how to manage the situation. I think they have a problem – they need more people, but how do you justify to your stockholders the hiring of more people for an enterprise that you know is going to lose money?
YAY! Someone said it! We have the same dismal statistics (last time I pulled it was something like 1/17). Even if you have a contract on one you have a 1 in 8 chance of it selling. I am dabbling in short sales as listings and can’t stand it. Going back to referring it out to those that deal with them in volume!
Frank, in my broker’s class that I just finished, an agent that specializes in foreclosure properties stated that the statistics are that only about 7% of short sales ever reach the settlement table in Virginia. Not a promising statistic for working with short sales.
This is heartening–there’s so many short sales in our neighborhood–not a good sign. Thanks for this helpful post–
Frank,
Why should a short sale not be used for a comp by an appraiser? The sale price reflects the value to the buyer and the “short” status only reflects the amount of equity (or lack thereof) the seller has.
-b
Hey B,
Great question!
I have asked an appraiser to chime in on how they view Short Sales.
I believe, but I am not an appraiser, that distressed sales are not indicative of a normal supply and demand sale, or the going price.
I believe they make adjustments for Short Sales, Foreclosures and Auctions.
Also if a home is sold AS-IS, there is an additional $5,000 to $15,000 risk that the buyer is taking, and that might be put back into the equation when comparing it to another home with a normal home inspection.
Thanks for commenting. I’m open for debate on that.
My boss is all gung ho on short sales now (wants us to go to classes, etc.) but when I talked to a short sale “expert” in my area and found out how much work they are I said “forget it!” I could stay home and clean out my messy garage and feel more productive.
Doesn’t this amount to deceptive advertising? Should the FTC look into it?
Hey Harriet,
I never really thought about that. I don’t know who you would go after.
The seller and agent is disclosing that the listing is a “Short Sale,” but the problem is people don’t know that means “Fake Listing.” So part of the problem is the consumers haven’t been taught yet what it means.
Hence spending 4 or 5 hours putting together this post so more people do understand it.
Thanks
Frank
Frank,
I have learned a lot by reading your blog, especially the info on short sales. You are the first person who has explained why the banks drag their feet on these sales. Really appreciate the great info and the fun way you present it. Thanks!
Frank,
Just a clarification on your side note, Bank never signs the contract. They just agree to a short payoff in a statement that specifies the conditions of short sale that seller signs. I just closed one last thursday & next one is closing on wednesday next week we just got the statement today. Our office has closed at least 8-10 properties in last 6-8 months that were short sales.The key is to price the property with in 5-10% below the most recent comps. If you get an offer whcih is below that chances are bank will go ahead with the foreclosure.
I had done short sales in early 90’s too. The key is if you have PMI then you are better off working with the insurance company than with the lender because they are the ones losing money bank will be covered for upto 25% of the loss any way ( It all depends on the numbers). The agent should also be prepared to ask the right questions and get all the details before accepting the listing. Listing agent should also order the title work ahead of time so that unexpected liens don’t show up right before the settlement (HOA dues,Tax liens etc.)
It is a tedious work but it pays off. Short sales could be better buys than foreclosures if you do home work ahead of time. In this market I will take any property which has a chance of sellimg than over priced listings.
Wow, lots of info here, Frank. BUt I have to agree with a lot of what you say based on my experience. I feel badly for the sellers who ultimately never are able to get their home short sold and end in with a worse credit record due to foreclosure.
The thing is, we have been saying the banks are overwhelmed for a VERY long time, so when are they going to either hire more staff, or get their act together to deal with these issues – it won’t get any easier if they move slowly as the list will just get longer. It’s very hard to understand why a bank will only review 1 offer at a time when they have multiple offers on 1 property. Look at all the offers, pick the best one and move on.
Jeff
We increasingly encourage our home buyers looking for value to look at bank-owned rather than short sale. The banks may have delays, but nothing like the delays that you see when you need lender approval of a short sale.
John H.
Thanks Sanjeev for the clarification!
This is purely speculation, but I wonder if the banks are dragging their feet on dumping non-performing loans/properties to spread losses over time (quarters, years). They might fear Wall Street more than anything else.
Frank..you are so right….I thought it would be a major faux pau to mention this outloud..but you are only saying what many agents, I have talked to have thought for a long time. I have been asked to list a couple of homes for short sale…but I have declined, would love the buyer traffic, but not enough to take the plunge…..
Konnie “MAC” McKee
This is what happens when real estate agents decide one day they are “short sale experts” after taking a 3 hr class.
We have had NO problem getting our deals accepted. We routinely buy property at 30%-45% below current market value and we’re making a killing.
Our hardest task is getting the inexperienced agent out of our way.
Your post has merit in regards to agents I guess, but we NEVER let an agent handle our short sales and we ALWAYS make sure we have a signed contract.
In order to get the big discounts you have to have two things:
1. You MUST control the BPO and substantiate your value
2.Prepare and support a comprehensive short sale package
Otherwise your deal is dead.
What you wroite is a snapshot of short sales trying to be executed by people who have no business trying to execute them.
We have been doing shorts for 5 years…before they became cool and yes, we executed them even in a Seller’s market.
I would starve on a 5% closing ratio.
No BS..we close over 80% of the shorts we take on as deals and that’s 4-8 closings per month.
Why…because we are the principals in the transaction and the banks we deal with already know we are going to close and we give them the information they need to allow them to accept the short sale.
It would be so much easier if real estate agents would simply get out of the short sale business.
Just got a review on BusinessWeek:
http://www.businessweek.com/the_thread/hotproperty/archives/2008/02/short_sales_why.html
Or
http://tinyurl.com/yunmwr
You are correct Frank. There is a lot of deception taking place with these transactions. However, knowing this, buyers continue to flock to them thinking they will “get lucky.” Hopefully, most of these will be finished with by the end of this year.
Good for you Frank on getting a mention in Business Week. Nice!!
Frank, I’ve done 2 short sales–one representing the seller and one the buyer. They really aren’t that difficult, just long-drawn out processes. I’m in Georgia, but I really don’t think location is what is important. It’s asking the right questions with Loss Mitigation. And Sanjeev is right, the bank signs nothing. You just get this little approval letter outlining what amount must be wired when and to whom for the sale to be approved.
They both took about 65 days.
But, your question was about showing them. Show them only to investors. Only they have the stomach for the waiting game.
Very informative. I just finally closed on my new home that was listed as a short sale on Monday. I originally put an offer in on the place in September. It is now the end of February, so it took almost FIVE months of back-and-forth. Luckily I had 6 months left on my lease at my apartment when I started this process or there is NO WAY I ever could have waited that long. It basically came down to the seller hadn’t made a payment in over a year by then and the bank extended the foreclosure date three times before they finally gave up and realized it was their only chance to sell it in this market (Northern CA).
Frank:
This is a great write up.
THANKS,
Billy Burke
I have seen similar comments from realtors in our area, but never explained this well. Nice job!
How about properties for sale that are being advertised as “short sales” but no evidence can be found in deeds etc that shows the loan is actually more than the sales price.
Is the term “short sale” also being used to trick buyers into thinking they are getting a deal just to sell the house?
You know Frank, this comment goes against everything that I thought you stood for:
“If you get one to close, change the remarks to SHORT SALE, NOT TO BE USED AS A COMP in hopes that the appraiser will take that into consideration and not trash the neighborhood (buyer agents, demand it of the listing agent to try to help your client’s “deal” not turn into destroying his own investment).”
Neighborhoods and deals should be controlled by true market forces, not manipulation. This is no better than fudging the days on the market stat. Plus isn’t trying to manipulate an appraiser illegal?
Hey Blogger:
Not sure if I got your question, so I will answer it a couple of ways.
There is not going to be evidence of a “Short Sale” on the deed, as far as I know.
A Short Sale is when
1)a seller knows they can’t pay the mortgage and
2) they know it won’t sell for the loan amount.
Neither of those get recorded on the deed.
But are you saying that you looked up the deed and it said the loan was for $300k but the “Short Sale” is for $350k? And it doesn’t compute?
I don’t know. Maybe there is another trust that isn’t easy to find in the court records?
But I would see no benefit as a marketing tool calling something a Short Sale when it is not. If anything, the opposite is occuring. Agents are NOT disclosing that they are short sales. They get offers and then they say “we are going to show this to the bank”
So I don’t see trickery in pretending to be a short sale.
Hey Anonymous!
Great catch! I’m flattered that you keep track of the blog to get that central theme. Maybe you can help me with a blog slogan.
Also I was going to address your point when I wrote it, but heck, the damn thing was getting kinda long!
You wrote:
You know Frank, this comment goes against everything that I thought you stood for:
“If you get one to close, change the remarks to SHORT SALE, NOT TO BE USED AS A COMP in hopes that the appraiser will take that into consideration and not trash the neighborhood (buyer agents, demand it of the listing agent to try to help your client’s “deal” not turn into destroying his own investment).”
Neighborhoods and deals should be controlled by true market forces, not manipulation. This is no better than fudging the days on the market stat. Plus isn’t trying to manipulate an appraiser illegal?”
End quote.
I have tried to get an appraiser to chime in about Short Sales and Foreclosures. I have asked them “Do you make adjustments for a distressed sale.”
I am pretty sure the answer is yes.
Even some tax records say if a transaction was not normal.
My job is to do everything possible to save my client money and value (now and in the future). If I help somebody buy a place for $25,000 under “market,” I want to make SURE that the appraiser sees that it is a short sale.
I’m for Full Disclosure and I want to fully make sure the appraiser knows it was a distress sale. I HOPE they will take that into account, but I can’t promise anything.
It is up to them to decide. My job is to make sure they see it with an ALL CAPS alert. And no, I don’t think a $400k Short Sale (as-as, no electricity, a flooded basement, with 6 months of hassle and 4 higher offers that fell out of contract) should be seen equally to a $450k similar home.
Therefore, not a TRUE comp, but maybe a comp… with adjustments.
Also not only do appraisers look at it, other BUYER AGENTS look at it. And again buying something with NO ELECTRICITY (which is sometimes the case) will result in a lower price to account for the “what if the HVAC is broken” and therefore not a true comp.
Thanks for the catch! Hope you will continue to post comments. Please let me know if this answer was insufficient.
Wow, lots of great info here Frank. Unfortunately much of it is FranklyInaccurate. Case in point: “Bank trick # 2”. MI companies will pay a claim on a short sale but they must approve the terms.
That’s a good explanation Frank, but I still don’t agree with this part of the statement: “NOT TO BE USED AS A COMP.”
Why? During the run up when people were adding closing costs to the price of houses as a new list price when the contracts were written was anybody marking the MLS with statements such as “NOT TO BE USED AS A COMP”? No, they were using these 100% financed number games as comps, which helped send prices into orbit.
What’s good for the ride up is good for the ride down too Frank.
Hey Anonymous #2,
Pretty funny.
Never thought of it that way. In 2005 (when I gave out tshirts saying “I just bought a house during the 05 Housing bubble)
I did get a place bid up from $499,000 to $600,000. Yes $101,000! So maybe I should have put “NOT TO USE AS COMP, BUYER WAS CRAZY AND BID UP DURING ESCALATION DAYS”
But the difference is who I represent. I don’t represent the buyer in that above example.
But if I was about to help a buyer across the street, I might change MY bid up listing to say “Attn: Appraisers and Agents, this property was bid up by 8 agents by a great listing agent, do not expect this run up again.”
Or at least a “Call Listing Agent for details on this unusual sale.”
Anything to help my client, not other people’s clients. As long as it is legal and in my opinion ethical.
As for disclosing the run up, who else gave their clients “I bought in the bubble tshirts” and they were fine with it. They bought the home to live in for 10 years.
Also some of these people locked in at 5%. The difference between that and 6.5% today is HUGE. Yes their $700k home may now be worth $650k but they pay $10,000 less per year in mortgage, so that helps some. Not 100%, but some.
Dear FranklyIncorrect,
Why post anonymously? Can’t we all be friends? At least give me a fake name… like Rex. When I was 15, a friend of mine was an employee at an Ice Cream store and used Rex as his fake name.
Too much info?
Anyhow, thank you for your decent opinion.
Yes of course a Mortgage Insurance company might agree to a settlement. I had never thought of that!
But, and correct me if I am wrong, the default insurance contract does not cover Short Sale sales.
By default, if a Short Sale occurs, they will not pay out.
I guess if you are smart enough to ALSO contact the MI company (how you would know that one exists is beyond me)… I guess I hadn’t thought about that. I guess they could be pursuaded.
“Dear MI, you will lose $100,000 if this goes to foreclosure. Will you take a $80k loss now”
Yes? Ok, let me now go ask the bank.
Pretty smart! If you have months and months at your leisure.
Still, I believe the post is true that the MI might be why the bank doesn’t care to deal with you. They get insured on that deal, so why not answer the other 382 calls first for other Short Sales?
Thank you for contributing. I hope you will sign up and keep tabs on me!
I am going through a short sale now. I’m a buyer. OLP of the house 200k when it was reduced to 170k I put a contract on this property for 165k. This was ***Nov 7th 2007***. And as of today still no word from the bank. oh yah..when they wanted to void out the home warranty and reduce the agents commission..they got in touch with us. I’ve had 3 closing dates 12/28/07, 1/15/08 and 2/25/08. Now i found out the offer will be sent to the BPO ???? The only problem i have with this experience is the lack of communication and in my case lack of knowledge on what i was getting into. I think if the banks take a more professional attitude and have a definite process and an occasional update maybe the transaction will go smoother. If the offer is to low they should inform you within 2 weeks not 2 months. I cant imagine having money (an offer)on my desk for 3 to 4 months and complain that I’m not making any money. The kids and i are being strong and patient and i hope the sale goes…4 months and counting.
Great reading, Frank! Thanks for putting it together.
NEW RECOMMENDATION
I have an idea.
How about some suggestions for reducing Fake Listings, which don’t help anybody.
Something that NVAR, the Northern Virginia Association of Realtors, can do is pressure MRIS (which hosts the local MLS).
While MRIS recently posted a new rule requiring you to disclose that it is a Fake Listing (I mean Short Sale), why not take it a step further?
Why not require the listing agent to obtain something from the bank. Something that at least proves that the bank has been notified. I’m not talking about getting bank approval , just NOTICE would be a great start.
Otherwise you get listing agents that wait first for the contract and then they say “ok, let me start approaching the Bank.” Give me a break.
NVAR should lobby for this.
Frank
Updated Correction 2-29-08 I’d like to thank DAAR CEO Janet Newton for this correction. I’m excited that she is participating in blogging!
My sidenote about when to go Under Contract is 100% wrong.
So let me explain… IF a seller signs the offer, as written, it is to be listed by default on the MLS as Under Contract with No Kick Out. The problem for the seller is that most MLS websites will remove the listing, so the chance of a better offer (and a higher chance for the bank to accept) is slim to none.
Here are a sellers’ options (please comment if you know of more options) :
1) A seller can counter the contract and add in a “Kick Out” so further offers can be reviewed. The listing then can be set to Under Contract with Kick Out (this was suggested by Loudoun Realtor Tony Arko). But only a buyer agent looking on the back end MLS can find UC/KO. (A Kick Out means “there is still a major contingency here, feel free to submit another offer, it still can be considered and the first contract might be kicked out.”)
2) Another way to keep it active (like the unit in my building with 4 offers) is for the seller to send the “offers” unsigned to the bank. Why not try and keep your home as “Active” for as long as possible? Some banks will require the seller to sign, so try #3.
3) Or lastly, the seller might add “acceptance of the contract is contingent on lender approval.” or “contingent upon review and approval of the lender.” That one line can keep it “Active.” I am not a lawyer, so please verify any additions you make to a contract with a lawyer.
As a buyer agent I would prefer it to be “Under Contract” if I was the listing agent, I would want it to be Active. So it depends whose side I am on, it is part of the negotiations. You can even counter with “Increase your price $2,000 and we will place it UC/KO.”
What terrific information to share with my buyer clients! I’ve always given them information from my perspective but never had statistical information with how often these supposed “short sales” actually close. I love your updated suggestion to have MRIS bear the responsibility of setting standards by which listing agents must provide evidence (perhaps to their brokers?) that the listing is an ACTUAL APPROVED short sale. There are so many listing agents who haven’t got a clue and haven’t even taken step one to contact the bank to begin the process. Pathetic!
Hey Frank…there is no future in short sales…there is money to be made in dealing with the homes early in the process. But if the home is too far upside down..then the only way to deal in this market is wait till the bank takes it..At least then you know you can make a deal…I was working with investors, all cash, and the closing rate was not happening..we find better deals on distressed up to date properties, short sales are a waste of time..Our statistics that I can find show that less than 80% of the short sales are closing prior to auction…and most of these have to extend the auction date while the lenders drag it out..
I have stated this before….why waste a good ready to go buyer, or investor on a short sale..With the amount of inventory out there, go make a good offer on something that will close now.
Good post..looks like a lot of work,, good for you
Very good post, thanks for the info.
That was a VERY good post! Quite a few of the SS we list never close. Our success rate is only 42%. But the time put into them is worth it to get it done for the Sellers we are successful for!
>>> Our success rate is only 42%.
Matt if you are closing 42% that is doing pretty well.
The problem what I have seen with most short sales is that the agent never gets bank approval before advertising it as a short sale! It has to be done before they start advertising it!
Jim,
Most of the banks never approve a short sale prior to having a contract. They start working on it only after you have a contract and they look only one contract at a time. Some banks are very cooperative and will work with you from the beginning, We have closed quite a few as long,as the buyer agent understands the process & explains it to buyer the time frame and everyone is kept in the loop. The main criteria is the list price & offer should not be a a ridiculous low, that some newby investors are looking with out working the numbers.
Good info, you are right there are few that will ever make it to closing but the more pressure and statistics that come out the more pressure the investor markets will put on improving these numbers.
But 1 small FYI, Short Sales in excess of 10% of value are more costly to a lender than foreclosure. It also effects their write off. Short Sale is a loss, a foreclosure is a devaluation of earnings that is written off as a pre-tax loss and does not effect Earnings Per Share…
Frank,
Look at it like this.
If you are the second mortgage bank and an agent comes to you asking the 2nd mortgage holder
to write off $40,000 of the 2nd and the first mortgage (me) to write off $20,000 for a total of $60,000 on a $350,000 house would it make business sense for you?
No if you are in the 2nd position and only maybe for me as the first position Lender.
See the cost of a foreclosure is around $40,000 per unit on average in fees and write downs.
The second mortgage (you) will most likely buy out the first position lender (me) and foreclose taking the PMI payoff and writing off the losses as a pre-tax expense that hits your bank P&L below profits not effecting Earnings Per Share
If you as the second lender simply take the $40,000 loss by choice it hits your Earnings or profit line as reported to your stock holders as it was your choice to take the loss.
Also many PMI companies will not accept a claim from a Short Sale based on a number of criteria making the loss greater.
Loan Modification is the way most Lenders are going. Today I presented a Loan Mod for Countrywide to a homeowner
That went from a 9.75% ARM on the 2nd and a 7.75% First to a 8.25% Fixed Rate on both, that lowered their overall payment by $295.00 per month and keeps them paying their mortgage. After 12 months of on time payments CW will re-fi them
for an even lower rate if available as long as the homeowner continues to pay all their bills on time.
No foreclosure and a new loan that comes out of the non performing portfolio and frees up $225k CW can loan again in 90 days. That is good for ALL of us over the long term.
Paul Moye, Broker, ABR, GRI, e-PRO