4 Common Questions About Short Sales

by July 22, 2009 • 5 comments

Not only have I gotten phone calls about short sales this week but I find myself struggling over interpretation of short sale protocol. So many questions and so many varying answers it is hard to determine what the exact course of action should be. A customer called me tonight concerned that her short sale offer was going to be bumped by a higher offer, but according to all that I am reading and studying her offer should be the only offer on the table at the time. Any other offers that come in should be considered back up offers and will only be addressed when the first signed offer is disposed of. This week I am going to answer some pressing questions that I have been presented with and will do so with the help of our good ole FAR guidelines and MLS rules which I need to add are still our benchmark.

Q. What is the short sale addendum and what is the ruling force? And, furthermore, this form or our MLS and FAR guidelines?
A. If you have done a short sale or if you know someone who has then you know you will be asked to sign a FAR Short Sale Addendum that says the seller may “accept other offers and submit them to the lender.” This does not mean that all offers are presented at the same time and the bank chooses the best one. According to FAR the addendum is designed so that the seller may continue to solicit offers and hold them in a a back-up position. The contract on the table is considered complete other than the contingency of lender approval with seller acceptance. Another important protection in the addendum is the pronouncement that the sale is contingent on the seller agreeing to the lenders conditions.

Q. Why does a potential sale show up as contingent instead of pending in the MLS?
A. Although the contract has been signed by the seller and the buyer it is considered contingent upon lender approval. It will become pending once the bank has accepted the short sale and the usual closing procedures such as appraisals and inspections begin. Our MLS rules and not the addendum give us Realtors our direction in this matter. There is still debate among Realtor sometimes on how to apply this rule.

Q. What is the purpose of a back up offer and are they worthwhile?
A. There was a time in the market that people would fight over a property so back up offers were used quite frequently and now they are used again but with a different end in mind. Because of the precarious nature of short sales a back up is a great idea because many times the buyer gets leery of waiting and decides to move on to something more reliable. I have had more sales fall out in the last 2 months than I have had in all my years of being a realtor. For this reason I love a back up offer and so does your seller and the new buyer is delighted as well.

Q. How reliable are the Realtor Remarks in determining what a lender will take for a short sale?
A. I will say a big hardy NO to that one. Keep in mind that Realtor remarks are put in when the listing was taken and many things can change in the course of a listing especially a short sale listing. It is almost impossible to know up front what a bank will take until they have already gone through the process with another offer. Your best bet is to call the Realtor and ask her questions about her ideas of what a reasonable offer would be based on offers turned down and her assessment of the market value. Many times you do not have a handle on the price that a bank will take until they do their own BPO (brokers price opinion). Many times prices on Short sales are really abstract in that no one really knows what the “loss mitigation “department will take.

I love how real life keeps throwing me curve balls and challenges to be met each week. Please be patient with your Realtor as she helps you wade these waters for they are uncharted for all of us and we are learning as we GROW!!! I am grateful that I am surrounded by some really smart Realtors that keep me on my toes so know that we are NO experts….. just hard working folks looking for the best way to serve our community and each other.

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1 Jeff July 24, 2009 at 7:39 pm

Karen, of course you know I will chime in and give my 2 cents worth.
Q1. Yes the seller can take other offers and submit to the bank; however, it is my opinion that the seller can only accept one offer and all others should be back up offers. Some agents do not agree and they are the reason the lenders are so far backed up. For what it is worth, we removed the verbage on the addendum so the seller CAN NOT accept other AND submit to lender.
Q2 Again, I believe that once the seller signs, the offer is now pending UNLESS the seller is marketing for back up offers. All of mine go pending.
Q3 I do believe that back up offers are great since most of the time, the second or third buyer end up buying due to long wait periods.
Q4 These remarks are worth ZERO, we can never guarantee what the banks will take. When pricing and submitting an offer, I try to imagine what an appraiser would value the house at and try to imagine what a BPO agent would value the house at. That is the key.
Depending on the type of loan, Fannie, Freddie, FHA, USDA, if we know the appraisal amount, we will know exactly what the bank will accept.
Good post!


2 Skip Stoltz July 28, 2009 at 10:57 am

i am working on about 53 shortsales at the same time and non of them are just alike — they all are different and none of them go the same — it is crazy and can be very frustrating — remind buyers to have patients and allow the realtors to work for them and help them. we are still getting 100 shortsale offers per day.


3 Scott July 28, 2009 at 12:04 pm

Jeff, You should never change a listing to PENDING until there is Lender Approval. It is still contingent until it is accepted by the Lender regardless of how you may see it. Also, it would not be in the Seller’s favor for you to change this to PENDING until Lender Approval. Why? because if your contract fails due to the Buyer, or their Lender maybe didn’t get all the info they needed (even if you had a pre-approval doesn’t always mean approved), The buyer dies during the process, whatever, you would hope that you had another offer waiting. Also, the sellers could go into foreclosure before you get the next offer. I would think this over before jumping the gun. It also is an MLS violation to change a listing to PENDING when it is not. Furthermore, All Realtors should make Buyers aware and follow these simple rules. When listing a Short Sale, List the property real close to the BPO if even a $1000 less.If you don’t, you could have a problem with getting a good appraisal. Let Buyers know that they should present an offer at full listing price (when first on the market) in order to have a better chance of getting the sale approved.WHy? because most Buyers have this idea of making such low offers,full price will win out.If you don’t, you will not get anywhere probably. AS time goes along, the mitigation company will reevaluate the BPO and if they don’t, ask them to based on your knowldge of sales from our MLS.They will reevaluate after a while.Then lower the price as needed. I have recently had several people to offer several low offers thinking they would get it only to find out it won’t happen. It is a lot of paperwork for Realtors (just to waste a lot of valuable time) and it also waste the Sellers time and aggravation. Remember, you are selling the Sellers property and they are the ones to decide on what offers they will take. Don’t get caught up in a lawsuit with the Sellers for not doing your job correctly. When doing a SHORT SALE, be aggressive, because most of these Mitigation Companies won’t jump to call you or email you. they will mostly take there time and act as if you don’t really matter. They will tell you that they have too many short sales to deal with. I tell them..It is your job to stay in touch with me…THAT IS WHAT MITIGATING A SALE IS ABOUT!
The reason Buyers make such low offers, is because they have had a friend or know or heard of someone that bought a property for $50,000 or $100,000 less and they want to do the same. A buyer really doesn’t know what a property is worth in this market. They only know what it is worth to them. Comps don’t seem to matter much anymore to a Buyer. Buyers have an idea in their head as to what it is worth and that is the offer they make. The difference in a sale is THE SMART BUYER and A DREAMER!


4 Jeff July 28, 2009 at 1:21 pm

Sorry Scott, hopefully we can agree to disagree. MLS rules vary and our MLS allows us to make the sale pending or contingent. It is my belief and my brokers belief that we have a legal and binding contract between the buyer and the seller and when they sign, it is a pending contract. For what it is worth, you seem to know your stuff, so do I. I understand the short sale process very well and have a very high success rate. As a matter of fact, in the last 2 years, only one of my short sales failed and that was after the buyer did not perform and the bank went ahead and foreclosed. I had that one approved and the buyer walked, the back up offer that we had also walked. There are alot of variables working a short sale but the basic premise is to get an offer at market value, submit a clean and completed short sale package and follow up regularly with the lender. I never make myself party to any contract, that is the sellers decision to accept, reject or counter an offer, I am a transaction broker.


5 maria galvan October 27, 2009 at 11:05 am

what can you say about sellers putting property on a short sale and using family members to offer all cash on their own property on amuch lower price?