When I teach a class on short sales, the first words out of my mouth are,
Throw logic out the window when you are working with the banks.
Listing History is a Vital Tool in Working Your Short Sale
There are many, many problems with today’s short sale process. One that is inherent to the system is value determination. Value is an art not a science, but there are ways to determine value. For instance, if a property has been on the market for 90 days listed at $400,000 and it finally receives an offer at $375,000, market value has been established. I understand that there may be “comparable” homes within 1/2 to 1 mile that have sold for $425,000 3-6 months ago, but this specific house is not selling for whatever the reason and the best and only offer it has received is $375,000. The banks need to accept this as reality, approve the sale, clear their books and move on. Logically, this would be the best financial decision for the bank. The alternative would be to not approve the sale, continue to not receive any mortgage payments for another 6 months and finally put it up for auction on the courthouse steps for an amount significantly less than what they would have received in the short sale. This makes no sense, but it happens every day. Specifically, let the market determine value.
Utilizing listing history can be powerful evidence for demonstrating to the bank what the “true” value of the property is, but is not generally used in determining value by the banks. The banks determine value based on an appraisal or broker’s price opinion. My thought, banks may actually appreciate receiving the listing history to assist them in determining value for the properties under short sale consideration.
Listing Your Short Sale Too Low May Kill The Transaction
Keep in mind the current methodology used by banks in determining value before deciding on a listing price for your client’s property. Generally, the bank(s) will send a real estate agent and/or an appraiser to the property to take some pictures, walk through and around the property and provide some comparable sales in the area. Sounds like a reasonable way to determine value, but the bank is forgetting one thing. This property now has a stigma. It’s a short sale. The buyer pool for a short sale is significantly smaller. There is no mechanism to capture what this does to the value of the property except listing history. You can’t compare this house to the identical one next door that sold for $400,000 but wasn’t a short sale. But you have to because the banks do. If the bank determines that the value is $400,000 they will take less, but not a whole lot less. Listing the property at $325,000 because you are trying to attract interest will only get you a low offer that the bank will reject and you have wasted your time and more importantly your client’s time which is running out.
Right now, as a listing agent, you need to work within the “realities” as they exist within the banks. Identify market value without taking into consideration the material fact that this is a short sale and list the property accordingly. If after 3-4 weeks you are not getting any offers or traffic then reduce the price. Maybe the banks will come to their senses and look at the listing history once you do get an offer. It is up to the person(s) negotiating the transaction to help the banks come to the appropriate conclusion.
Loan Modification Track Can Lengthen Short Sale Process
Keeping people in their homes is critical. Banks that can modify loans should, but the banks are too focused on loan modifications. So much so that if the homeowner mentions loan modification in a conversation with the bank they are put on a loan modification track that is almost impossible to alter. Okay I may be exaggerating a little bit, but the banks need to quickly determine if a homeowner can afford their home or not. If not, the banks need to be upfront and let the homeowner know their other options. If the homeowner determines that a short sale is their best, or only, alternative, then the banks need to put them on the short sale path. Currently the banks keep the homeowners on the loan modification path for weeks and months even after a homeowner has clearly indicated that they would like to move forward with a short sale instead.
Word to the wise, homeowners need to decide what they want to do, loan modification or short sale before entering into a purchase and sale agreement. Ideally, it is best if the homeowner decides before the property is listed. Unfortunately banks can’t consider a short sale and a loan modification simultaneously. Homeowners should make their decision to sell or hold up front.
If you have questions about how to best proceed with a short sale, call Richard Eastern at 206-612-5541 or email us.