You’ve already reviewed the Options, and You’ve Decided to go for a Short Sale
So you’ve gone over all your options - your house is under water, and you can’t afford the payments anymore. You’ve already decided that you don’t want to try to restructure the loan or attempt a workout plan with the lender - you think the best option in your case is a short sale, and so you’ve determined to contact a local real estate agent to help you get a short sale done on your house.
Before you get started signing listing contracts and other documents…
Before you sign any contracts, there are a few things you need to
understand about short sales and common mistakes real estate agents make when handling short sales for their clients.
Know the Oddds and Know the Risks
First of all, understand that there are no guarantees with a short sale listing that the short sale will happen. Even when working with an experience short sale investor who has years of experience negotiating with lenders for short sales, there are never any guarantees. This is because in a short sale the lender is the one making the decision to either accept or reject the short sale package/offer.
No Guarantees When it Comes to a Short Sale
So rule number one is: there are no guarantees. Anyone who promises you that they can get a short sale and attempts to tell you there is no doubt of their success is just plain lying. No one, and we mean no one in this business has a 100 percent success rate. A good success rate for an experienced investor is 7 out of 10 successes. Those are better odds than a poke in the eye with a sharp stick, but they are about the best you can expect.
So what are the odds with a real estate agent who takes a short sale listing? That completely and totally depends on the training, experience and success rate of that specific agent. Period. There is no way around this.
Work with a Strong Team and Ask Them To Tell You Their Strategy for Getting the House Sold
Many agents now work with investors, negotiators and others in a team approach to provide additional options and increase the chances of success. Find an agent who either has experience negotiating or has a professional negotiator with a track record to work for you, if possible.
Ask them to tell you their strategy for selling the house and see if they fall into any of these major traps. If they do, you’ll know to move on and find another agent.
So let’s get into the meat here. What mistakes to real estate agents make consistently in handling short sales?
1. Pricing the Property Too High When you Need a Sale Fast
Perhaps the biggest mistake right out the gate that we see real estate agents make over and over again is pricing the property too high to attract qualified investor buyers to the short sale. This is not only a huge mistake but it is almost certain to guarantee that your house does not sell and instead goes to foreclosure.
We cannot stress this enough. So often we hear agents say “The lender has set the listing price at such and such” Wait a minute! Whose house is it?
Until the house goes to foreclosure auction and is sold to the bank it is the sellers house! The seller should be setting the price, and the seller who wants to get out of a foreclosure should be pricing their house aggressively to attract the maximum possible number of buyers. Do not let any agent tell you that the bank is telling them the price! In the worst case, a low price will attract offers and then the bank can reject the offer price and negotiations can begin but without an attractive price, no negotiations will ever start!
2. Chasing a Falling Market and Running Out of Time
Right in line with this first mistake of letting the lender set the asking price on the house when the house does not yet belong to the lender; is the 2nd biggest mistake agents make: trailing a falling market. When prices are falling, it does no good to “follow them down” and expect a sale. The only way to guarantee that potential buyers will notice your house in a falling market is to get ahead of the decline and stay ahead of it. Set the price BELOW comparable houses in the area and you are more likely to capture the attention of qualified buyers looking for a bargain in this declining market; stay just above ore at the comparable prices of other houses and you’ll succeed in getting little or no attention and the house will never attract any offers in time to avoid a foreclosure sale to the bank.
3. Failing to Continue to Drop the Price if No Offers Are Coming In
And, right in line with mistakes 1 and 2 is the other major mistake most listing agents handling short sales make: failing to continue to reduce the price when they are not getting any offers or attention for the property. This is a crucially important tactic for two very important reasons: 1. By continuing to move the price downward over time when no offers are coming in, the chances of attracting potential buyers goes up, and 2. by consistently and regularly lowering the price (say, every week or every 10 days in the first 30 days) the agent is establishing the true market conditions and value for the house: if no offers come in at the first list price, the market is telling you the price is too high.
Lower the price and see what happens next. If it takes 3 or 4 price deductions to suddenly spark interest the agent has now set a true market value to the house through listing price which can be used not only to attract a qualified buyer but also to demonstrate to the lender through direct market evidence what the range of the fair market price is. In other words, in a declining market it is the sales price, and not listing prices which determine the true market value. Buyer interest and increasing offers indicate a property is within range of what the market is willing to pay.
4. Taking Too Long to Get the Process Moving with the Lender
Taking too long to try to get the lender to go along or to get the
lender to respond with proper information on the short sale criteria or other details. The Notice of Default period in California before the trustee sale date is posted is only 90 days. Don’t let your listing agent waste precious time trying to haggle with the lender over price or paperwork - get the listing out there and start aggressively marketing and lowering that price to attract offers as soon as possible.
On the other hand, don’t be a cause for delay yourself by waiting until half your 90 days have gone by before you take action to get the house sold in a short sale. Time is of the essence as in almost no other transaction when it comes to a short sale. Get moving and keep moving until you have exhausted all your possibilities. Every day lost is a day closer to a foreclosure and unless you simply don’t care about your credit or your future beyond this house, that means you need to get moving and get proactive and do it as soon as possible.
5. Not Understanding the Fundamentals of the Short Sale Numbers or Having a Negotiator Who Does
Failing to understand the numbers, the true bottom line for the lender or the costs and accounts involved in a short sale from the lenders perspective so as to be able to negotiate effectively on behalf of the seller.
Short sales are not “weird” or “uncommon” or even unusual. Short sales are a long standing and recognized way that lenders have an opportunity to mitigate their losses on non performing assets and get on with their business; which is banking, not real estate sales.
Short sales have existed for at least the last 200 years and not a whole heck of a lot has changed in that time: they are a method whereby a lender can cut their losses, expedite a fast liquidation of a non performing asset at a discount to the buyer and get back to the business of making loans that will perform.
There are a great many factors which contribute to a successful short sale: cost of the non performing asset; cost of reserves which must be set aside as a result of the non performing asset, actual daily, weekly, and monthly costs of the loss of the revenues the non performing asset is supposed to be producing, costs of maintenance of insurance, tax payments, and basic utilities for any property the lender ends up having to foreclose on and maintain until such time as they can arrange to have the property cleaned up, listed and sold to a new buyer, and many more.
A well trained agent should know the internal costs, expenses and spread sheets for the lenders side of the transaction well enough to be able to properly discount the property for quick sale to satisfy both the lender and the home owner.
Far too often we see agents listing “short sales” where the price is not only not discounted in any significant way but is actually set in such a way as to discourage offers even from retail buyers looking for a good deal.
Lending institutions have clearly identified and set discount amounts which they apply to any short sale property routinely as a matter of course - if a listing agent does not even price the property to consider these discounts the chances of finding a buyer or getting even minor interest in the market for the property are slim to none. In which case the homeowner has simply wasted the time from the filing for the Notice of Default until the Trustee sale which turns the property over to the lender.
In that case, it would be more logical and sensible for a homeowner to build a strategy around accepting the foreclosure as a foregone conclusion and spending the interim time period working out the details of what they are going to do next in their own lives: finding a rental property to live in, managing their personal belongings and affairs, and doing their best to save up a small cash reserve to handle the costs of these things as they play out.
Tags: avoiding short sale mistakes, Foreclosure Mistakes, Short Sales
[...] these are the top mistakes to avoid if you are facing foreclosure. Be sure to read the < Top 5 Mistakes Real Estate Agents Make when Listing a Home for Short Sale. so that you are well armed if you are intending to sell your property with an agent while [...]