A Successful Short Sale

Lowell MA- Buyers and sellers come to a short sale with very different mindsets.

Sellers want closure. They want to know that when they get approval from their mortgagee, the buyer will close and they will know what their future obligations will be.

Buyers, on the other hand, see the short sale process as an impediment, they want the house now! If the seller cannot close within a short period of time, they want to be able to walk away and buy something else.

The only way to manage this situation is to educate everyone on the realities of a short sale transaction. It is usually in the seller’s best interest to do a short sale, provided they are able to negotiate acceptable terms relating to any deficiency. The buyer will usually get a 10% – 15% discount off of the current fair market value of the house, but they may have to wait a long time to get the property.

If your buyer will not wait to find out whether they have a firm deal, or if they will not invest in an inspection report or loan application until the seller has bank approval, then you have a customer who does not want to buy a short sale. If your buyer has any of these objections, let them know that you can show them non-distressed properties (they do still exist) that they can close on very quickly.
Write the contract so that all buyer contingencies (home inspection, obtaining mortgage, title search, etc.) are to be completed within a short time after the effective date of the contract. Do not make the effective date of the contract the same date as when the seller obtains short sale approval.

If the buyer is given the opportunity to do inspections and apply for a mortgage after approval is received, odds are that buyer will find a reason not to go forward with the transaction (buyer’s remorse is a very real condition). By forcing all inspections to be made early on in the transaction, your buyer is making a commitment to the purchase, and is demonstrating an understanding about the condition of the house that is being sold. It also makes negotiating the short sale easier.

If you get approval first and the inspection report comes back with $10,000 worth of repairs, both the buyer and the bank will balk. The buyer will want a large reduction in the purchase price (usually more than the $10,000 estimate to repair) and the bank will not agree to reduce the approved price. Going to the bank up front, with an inspection report backed up by two or three estimates to repair any noted problems gives you the opportunity to get your price approved, based upon the work to be done.

Make sure the buyer puts down a reasonable deposit, in the very beginning. The general rule is that if a buyer defaults under a contract, the earnest money deposit represents the seller’s damages. If no deposit is made, then it is very easy for a buyer to walk away. Most sellers of distressed homes have neither the time, money nor energy to sue a buyer, and proving the damages that the seller suffered due to the buyer’s default, let alone collecting that money, is very difficult.
Remember, the biggest problem with short sales is getting lender approval before the buyer decides to walk away. This can be addressed simply by writing a contract that keeps everyone in the game until a lender’s approval can reasonably be expected.

With the number of people upside down in their properties…and th job market the way it is…If you or someone you know that may be in trouble …and could use more information on their…options…to keep or sell their home please contact me.

Chris Tryon
Innovative Realty


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