Karen Parsons-Fiddler Broker/Realtor

Short Sales are so frustrating for everyone, but none so much as for the buyers.

When a home buyer writes an offer on the home, they often spend a sleepless night wondering, hoping, praying...."Will we get this home"? Normally the wait time is about 1-2 days and then they can relax and start planning for the move. Not with Short Sales......the "wondering, hoping, praying" can take months. How can we as agents make this any easier for our buyers?

I'm not sure I know!

The first thing is to know exactly where we stand with the listing agent and the Short Sale Negotiator. Are we the only accepted offer sent to the bank? Are we one of many? Do we have an open escrow? We need to be in touch with the listing agent to be aware of our standing. Based on the listing agent's approach, we can prepare our buyers.

If we are the only accepted offer, and there is an open escrow with a deposit.....we can be very comfortable that the bank is going to act on our offer and not see multiple offers. This is how I proceed with my listings and what I push for with my buyers. To me this just makes sense. The bank does not own the home, the seller does and it's up to the seller to find the best offer and then send a package to the bank for approval. But this is not the way many agents work. This approach provides some level of confidence for both buyers and sellers. The buyers know that no one is going to outbid them at the last minute, and the seller knows the buyer is committed and they can put the home in back-up and make some decisions.

A variation of this is when the listing agent only sends our offer to the bank and puts all others in back-up, but without an open escrow or deposit. I have a couple of Short Sales in this situation. The disadvantage is my buyers often ask if I BELIEVE the listing agent.....that we are the only offer they are working. It's tough, I am honest and find most agents are honest too.....but it's often hard to reassure the buyer who has waited several months. Over time, I do get emails asking what if the agent is "lying" to us.

In this situation we have to do more hounding of the listing agent for information and more reassuring to the buyer. It creates more anxiety! In preparing the buyer for this type of situation, we have to be honest and clear. The process takes a long time. The good news is that we are most likely the first, or close to first offer they have. That's why we are lucky enough to be the ONE accepted offer....but since the process is just beginning, we will also be in for a long wait. It can easily be 2+ months.

Helping our buyers understand what happens during this time is critical. The misconception is that a completed file sits on an overworked and under-interested bank representative who has no urgency to act on the case. Overworked? Probably....but certainly motivated to make decisions.

The Short Sale process is time intensive and it seems all the steps take 1-2 weeks. At least that's what we hear when we call to get status. Other posts are available to discuss these steps in detail....but the short is:

1) Short Sale package assembled and submitted

2) File is assigned to a lender negotiator

3) Lender negotiator orders the internal appraisal

4) Appraisal received and lender negotiator approves the offer

5) Package goes to higher levels for approval

6) If there is PMI (Private Mortgage Insurance), file goes to PMI investor to approve

7) If there is a second loan on the property, file goes to the second to approve

If one assumes 1-2 weeks for each step? One can see how this can drag on. As agents, we need to explain this in detail....and over-and-over again! Often!! Our buyers need to hear from us that we are still thinking about them and checking in. I think the black hole of waiting can be brightened by constant communication.

Set the right expectations....and then check in and let our buyers know we are monitoring the process and are still there for them.

Anyone thinking of selling their home as a Short Sale is already facing a stressful time, adding the normal emotions of escrow and these sellers need special care. What we usually find, however, is the opposite. Often these sellers spend months without knowing what's going on and dreading the threatening notices in the mailbox. These fragile home owners are listed and then get on the short sale roller coaster.

Finding the right listing agent for a Short Sale is critical to avoid the emotional and financial hazards of a Short Sale. Unfortunately there are no specific rules yet on how to list and handle the Short Sale. So you must ask questions of the agent and find one who is going to handle this for you in a manner which fits with your lifestyle.

Short Sales can take a very long time. Understanding that process is the first step. When you first meet with your agent, make sure they have experience in closing Short Sales and understand the process. You should not be the training ground. Many agents hire a Short Sale Negotiator to work with the lenders and negotiate the sale. This can be very helpful, but make sure that you....as the seller.....do not pay anything out-of-pocket for this service. The agent is making this decision and this fee comes out of the commission. If you are considering a Short Sale and anyone asks you for money, time to keep looking.

Some listing agents don't understand the unique needs of a Short Sale.....and let's face it...we often make significantly less commission on these deals because all fees are determined by the bank. Add to this the fact that close of escrow can be months away, it's human nature to put these sales on the back burner.

So does this mean that you must find a very hungry agent.....one who has nothing better to do...and then hope for the best? No! It means that you need an agent who will run the entire process correctly.

The first step is listing your home. This is going to consist of a listing agreement and a Short Sale Addendum. In the Short Sale Addendum, the local Association of Realtors is going to outline the terms of the sale for you. It will tell you that this is not a guarantee and that we are going to pursue this sale and negotiation for you. That you are not obligated to accept any settlement. It is also going to outline that you, as the seller, will have no out-of-pocket fees.

Does this mean that the bank isn't going to ask you for money? No.....in fact often your lender is going to ask you for money. We simply say "NO."

Every state is different, but in California we are a non-recourse state. What this means is that if your home eventually is sold in a Trustee's Sale, the proceeds from that sale is all the lenders can use to satisfy the liens on the home. This is our bargaining power in the Short Sale....if they don't accept our offer, we will simply let them foreclose and they will get less.

Once you have listed your home, we treat this as a "normal" sale. Present your home as you like to live....neat, clean and pleasant. We put a sign in your yard and give you a lockbox for the keys. The MLS listings will specify the details and show pictures of your home. If a listing has no pictures....does this mean the listing agent doesn't care enough to take them? Your agent needs to treat this listing with respect.

Respect is also shown in the way we handle the offers. The pricing is going to be aggressive.....the sellers will get no proceeds, so the only goal in pricing is to get solid buyer offers. This is where there is the greatest difference in approaches. Some agents will send all offers to the bank, as if they already own the home. In reality....the seller owns the home. We need to look at the offers, counter for the best price and terms, and then send one accepted offer to the bank for APPROVAL.

The right buyer for a short sale is similar to one we would want for a non-Short Sale. We check on their credit, we verify funds and counter for the best price and terms. Then we make sure they are going to be there through the Short Sale process. This involves opening escrow and getting a deposit. I ask for $5000 for financed offers and $10,000 for cash offers.

Does this seem unreasonable? Why? Is the buyer serious about buying this home?

Then we put the home in Back-up and discourage showings so the seller can go back to their lives. What we present to the bank is a solid buyer, solid offer and the Short Sale Package. We ask that they review and approve the offer as given. And we all wait. For the sellers....having the home in back-up will allow them to go back to more normal lives.

Are all Short Sales approved as presented? No....so then what?

Once the bank has the package they will approve it or not based on their internal appraisal and loss mitigation policies. This can take months, but many banks are moving quicker now. The response might include a financial contribution from the seller. NO!!!

Since California is a non-recourse state....we never agree to a seller contribution. I often find that other agents advise their sellers to pay this, or accept a note for the requested money. As a buyer's agent....I'm not going to complain. But as a seller's agent, we refuse!

The right agent will work with you and the bank to the conclusion. That might be a Loan Modification or a Short Sale or a Foreclosure. It's a financial, business decision. But sellers need caring for....they need an agent who is there every step of the way and will handle what comes up. This is not a "numbers game"....it's one of the most important decisions a family will make, and needs special expertise and care.

We've seen lots of blog posts regarding the activity of our market. Every phone call made to short sale listings is met with "we have many offers." For the past few months, it seems all the listings are either short sales or bank owned properties and they all have had multiple offers. With so few sellers with equity listings....have we all assumed they were getting the same degree of activity? I'm not sure that they are!

I took a couple out to look for homes on Sunday and for the first time in years, most of the listings were sellers with equity. Of the 13 houses we went to see, 7 had equity! Surprising! What was more surprising was the response to the offers we wrote. As I often do in this market...I encouraged them to write offers on all the homes they liked, rather than wait for an answer on any one home. So we did write quite a few.

The response to the short sales and bank owned homes was predictable....."thank you for your offer, it's been sent to the bank and when we hear something, we'll let you know."

The response from the equity sellers was surprising! We wrote offers on 5 homes where the sellers had equity. The price range we looked at was from $550-599,000 and the homes were listed in that range. On average, we offered $15-20,000 below the asking price......and all 5 took our price without countering back.

They didn't ask for another dime.....which really surprised me. Once we chose one, I even heard back from a couple of the other listing agents offering to go lower or give credits for closing costs. I had assumed that the sellers with equity would be getting the most offers...they can close quickly, do termite reports and make repairs.

What I'm wondering is how firm are all these offers on short sales? Are these short sale buyers afraid to offer on the equity sellers because they might have an offer accepted?

From the title of my post....I sound ungrateful, but I'm not. I'm thrilled!!! CALHFA is a program which helps first time home buyers of California with a 3% deferred loan to be used for the down payment. When used in combination with the FHA loans.....a first time buyer can now qualify to buy a home with only 1/2 % of the purchase price.

(FHA requires a 3.5% down payment......3% of that can be from the CALHFA program)

The mortgage industry calls this a silent second. This is a lien on the property, but the borrower makes no payments on this loan until they refinance or sell the property. So it just sits "silently." Because the FHA allows closing costs to be paid by the seller....this gives an opportunity to many more first time home buyers.

http://www.calhfa.ca.gov/whatsnew.htm

This is a bond-funded program....and there are several others too. Take a look at the link above for more information. Let's get this market hopping!

Mold is a huge issue in home inspections right now. Buyers are educated on the danger of toxic mold and I use a home inspector who is a certified mold expert. If the home has mold, this can be a very expensive problem...but not time to panic.

i realize that we are often writing about bank asset managers as if they have horns and a tail....no sense and no feelings. But this is still a business and they do realize this, they have guidelines and mountains of files to go through. We have to give them a reason to change the way they do things. Mold is a good one.

I have had 4 different homes in the last year which have had toxic, black mold discovered during the home inspection. The remediation costs have varied from $2500-16,000. 3 of these were Short Sales and 1 was a Bank-owned. All 4 buyers received compensation which allowed the sales to go forth.

The bank-owned was an FHA which required the mold work be done prior to the close and it was a $16,000 out-of-pocket cost to the bank...on a $199,000 sales price. The other 3 were credits based on a couple of estimates to get the work done after the close.

What needs to be remembered is that this is a disclosure item. Just because the bank tells us a property is "as-is" and the disclosures tell us not to expect any disclosures (huh?), if the bank/agent has knowledge of a mold problem, they still have to disclose it to all future buyers....

Might as well close the deal they have!