Short Sales - Not the Last Word

I went to another workshop put on by a "Short Sale" expert and investor yesterday. I was invited by AR's resident guru on short sales, Mr John Occhi. This is NOT a picture of John (I think). It got off to a rocky start because our "expert" was stuck in traffic and arrived over 30 minutes late.

I guess it was OK though because nobody left.

He had a slide show prepared, but since he was late arriving the projector wasn't ready to go.

So we started with Q&A.

The first question out of the box was how much will you pay for a short sale?

His answer was very clear: no more than 60-65% of actual value.

A really short short sale. His reasoning on this price made sense. The lender sets the rules. They might give you an answer this week or they might take months to get back to you. And when they do accept the short sale, they want to close within 10-14 days. Now who is going to wait around with their money "ready" for an indeterminate period of time, maybe up to six months, and be willing to pay more than 60-65%?

A regular buyer cannot do this unless they have "all cash" to put down. If they intend to finance the purchase, what lender is going to keep a commitment open that long?

I was convinced on the value. He made the point that is the lender/seller was willing to give the buyer 45 days to close they could probably get a much higher price for their short sale. So it's their own fault if they take a beating.

Then he got into the price negotiation techniques he uses with the lender. After the offer is presented to the bank they will come back with a counter-offer. All counters and new offers will be "verbal" from this point on until a final price is agreed upon, at which time they (the bank) will prepare the contract. During negotiations if the buyer accepts the counter-offer, the bank wil simply ask for more. Until the buyer is willing to just walk away. If you don't ask "are we done yet?" when you get a counter, you can bet that you're not done.

I don't think I would want to "endure" this negotiation process in as much as less than 7% of pre-foreclosures are resolved by short sale.

Some banks just won't "play ball" with a short sale buyer at all. Their attitude is that since 2/3 of all NODs resolve themselves, they are "money ahead" to go to sale in the hopes that the borrower will be able to pull it out at the last minute. Who knows? Maybe they are right since these ones that don't play are among the nation's largest banks.

A discussion of "equity stripping" and other fraudulent activities filled up most of the remaining time.

I drove over 100 miles each way for this workshop. The presenter was late. But I'm still glad I went.

My recommendation is to avoid short sales if you possibly can. Most of the buyers for short sales are going to be "investors" by necessity. You will not be able to represent them without having a surety bond. The bank will beat you up on your commission. You won't know if you'll be able to do the deal at all until the very last minute, and then you won't get paid what you think that you should.

Add to this all the risks and costs to your seller of participating in a short sale and I don't see how you (the agent) can win. Besides you may have liability to your seller if anything untoward happens to him as a result of the short sale.

See also "Short Sales Revisited," "Short Sales Revisited Again"