A “Short Sale” transaction is very different than a traditional real estate transaction. PRICE is the biggest confusion amongst agents and buyers. Many agents and buyers do not understand this process. They are always asking why the house is listed at a certain price but the short sale lender countered at another price. Hopefully, this article I can clear up some of the confusion.
Short Sale Price NOT Approved by the Bank:
If the short sale agent is handling the short sale correctly, he/she is listing the home right away in their Multiple Listing System (MLS). This is the beginning of the short sale process, and most likely he/she has just submitted the short sale paperwork. Now, the agent needs an offer to start the next step of the short sale process. The offer will eventually result in the lender stating what price they are going to accept.
Before the agent can list the property in MLS, he/she has done a comparative market analysis to determine what the value is (in his/her opinion). Factoring in any repairs and the condition of the house is a key component of the analysis. This is where the confusing part comes into play. This price that the agent has chosen is NOT approved by the lender. What does this mean? The agent could list a home based on what he/she determines as fair value of $200,000. The lender’s determination of price (which is completed later) could be $230,000. Once the lender gives their value, the agent must use this new value of $230,000 and you as a buyer will have to come close to that value in order to purchase the property. The originally $200,000 value no longer applies. So it does not matter what the agent originally list the house for in MLS if that price is not approved by the lender.
If your agent has experience with short sales, he/she will know this process and know that everything is subject to the lender’s approval. If it is your first short sale as an agent or buyer, this is where you need to understand that the lender will dictate everything just like a foreclosure. At Oyezz Real Estate, our short sale experts work very closely with the lender to ensure that a fair value is determined. We always advocate for our clients because we know that it will not sell if it is priced wrong.
Short Sale WITH an Approved Price:
If a short sale has been approved by the lender, this typically means that the lender has determined how much they will accept for the short sale. Once the agent received that approved price, he/she should advertise the price as “approved”. Not all agents will specify whether or not the listing price is approved or not. This is where you can refer to our previous blog post “What to ask when buying a short sale?”.
If you are making an offer on a short sale property, and you believe the price is too high due to repairs, get bids for the repairs. Ask the listing agent if the lender would be willing to consider a lower price if you can justify why that value is too high. If the repairs were missed when the lender made the price evaluation, it is definitely worth submitting bids to get the price you need.
If the house is already priced aggressively, it is not worth your time to submit a lower offer. Most likely, the listing agent has already submitted an offer that was lower and the lender has set this lowest amount they will take. Once you submit your offer at the approved price, it should take about 3-4 weeks to get a short sale approval letter.
Stay informed with the process and work with your clients to get them the best deal, run your own comps to make sure that it is a good deal. If you’re a buyer, ask your agent to run comparables to the property you are wanting so you know if this is a good deal or not.
If you have any questions about this post feel free to give us a call. If you are here locally in the DFW area and want to know more about a short sales, our number is 972-342-0011.