Part 2 of Distressed Properties are NOT Black Holes!, a six part series based on the experience of a real estate agent serving Sussex County, NJ.
Not all Short Sales, also known as pre-foreclosures, are nightmares. The right real estate agent makes all the difference. Yes they are more complicated because it is not just a transaction between a seller and a buyer. A third party (bank, mortgage company or debt collector - I'm going to use the term "bank") has to be consulted every step of the way. Many people have heard of or been involved in a Short Sale that drags on forever; banks take forever to respond, if they respond at all. This does happen, but it should NOT.
Timeframe with Short Sales
First, the bank needs to be informed that a Short Sale is being attempted. Banks handle delinquent mortgage loans in many ways but the loan information will NOT be shifted into the correct Short Sale department until the bank is notified that a property is listed for sale. "Transferring" the loan from one section to another can take several business days.
Personally, I get written seller authorization to work with the bank along with the listing agreement. That is also when I get the other important pieces of a complete Short Sale package. My first contact with the bank is the day I list the property. I have worked with excellent agents who don't know the ins-and-outs of the process, so they wait until there is an offer on the table and then learn they need written authorization. Meanwhile, the loan isn't even in the right section of the bank.
Second, many banks will order a BPO (Broker Price Opinion) once they know the distressed property is listed for sale. Because a seller is cooperating with the sale, the BPO will usually include the interior of the home. This will be the first assessment by the bank of the current, local market value of the home and its actual condition. Depending on the length of time, the bank might order a second BPO once it has an offer in hand. On average, it will take 5 - 7 business days from the BPO request date until the finished report with photos gets back to the Short Sale Department.
Because I immediately establish a good working relationship with the bank's Short Sale department, I'm often successful in getting reluctant banks to do a BPO right away. Banks pay for the BPOs, so some wish to hold off. By broaching it as a WIN-WIN proposition, "this way we'll all know the reasonable value," most banks order the BPO. And then share those amounts with me, so I can work with the sellers to tweak the list price... (Remember - The bank does not own the property, so it cannot dictate list price. Only the seller may do that.) When an offer does materialize, the bank already has at least 1 objective opinion to compare to the offer.
I've listed many where I've gotten third-party approval very rapidly - 2 different deals with 2 different banks, I got the buyer's agent a counteroffer in less than 2 hours. On one Short Sale I listed, we closed 20 days from the date I got the offer.
Third, with Short Sales, it depends greatly on the listing agent's interaction with the bank and that bank itself. There is a "third party" involved, so they will always take longer than "two party" deals. If there is more than 1 bank, as with a second mortgage, you're adding to the timeframe.
Lowballs: Serious Offers Get Serious Consideration
Sellers really don't care what the sale price is because they're not going to be walking away with cash in their pockets. The banks, however, do care. Even if the offer is for full list price, the bank probably is taking a serious loss - and the buyer is probably getting a good deal. Whether I'm working for a buyer or a seller, my job is to process all WRITTEN offers.
So what happens when the offer is for 55% of the list price? I do my job.
What does the bank do? It puts that lowball offer on the "not even worth the time of day" stack to be looked at way down the line. Seriously, I have never even had the bank provide a counteroffer to a real lowball, although I have been successful in at least getting them to reject the offer - and thus provide a rapid response. Based on my experience, an offer of 75% of the list price is necessary to even begin negotiations with a bank.
My perspective on Short Sales? I'm delighted to do the extra work they involve, so keep ‘em coming.
to the transaction process. Banks already have the comps in hand and are WAITING to make a decision on an offer - they particularly favor offers where the closing is scheduled within 30 days. From offer to ratification is pretty quick; 3 - 4 business days in my Sussex County NJ REO experience. Lengthy back-and-force negotiations would increase that but it does not take long at all to get an answer on an REO. Once I had to wait over 24 hours for a counteroffer on an REO; my personal contact was sick and I opted not to hit the "for immediate help" key.
