Tag Archives: Distressed homeowner

Evaluation of the Short Sale Offer, Do We Accept or Reject?

It is a happy day when you get the telephone call from your broker saying the buyers that have come to visit one or two or more times have finally put an offer on paper.

Before the High Five rejoicing begins you and your broker need to critique the offer.  This is what we as listing brokers do as part of our “due diligence” in determining the strength of the buyer and their ability to close.

Let’s evaluate the short sale offer,

  • Is the buyer paying cash or  financing?
  • If the offer is a cash sale, can the funds be confirmed? Or is the sale “contingent” upon the closing of another home?

Obviously cash in the bank that can be validated is the best.  A contingent offer on the sale of another home just adds one more hurdle to the mix.

  • If it was not provided, you need to request a copy of the contract for the buyer’s property.
  • Your listing broker needs to call the listing broker to inquire of the status of the contract.
  • Are the other buyers finished with inspections?
  • Has the property been appraised?
  • Have the buyers passes their loan conditions yet?

All these questions need to be answered to determine how strong the buyer is.  They may be wonderful buyers, but if their buyers back out for any of the above reasons they will not be able to perform on your contract.

This doesn’t mean you shouldn’t accept a contract that is contingent upon the sale of another home, it must means you have to weigh the chances of that other home closing or not.

Critically Examine the Short Sale Contract Dates

Colorado Purchase Contracts have a date grid where the purchaser (must likely their broker) adds deadlines for specific items that need to be completed.  This grid is instrumental in providing time for the various items that need to be completed in the sale of a home.

Generally speaking, each date needs to be met in a timely manner or the contract can be voided.  We principles in the contract the buyer and the seller need to watch those dates, if they can’t be met then an extension needs to be requested providing additional time for the specific item to be completed.

Most of the time the parties agree to extending the dates, but it is advised to look them over when the offer first comes in. Be sure the dates are actually doable, because if they aren’t now is the easiest time to change them.

The 5 items Buyers and Sellers Negotiate Over

Colorado Contracts are very long,  full of dates and deadlines, but really there are only a few items that buyers and sellers tend to focus on, they are:

  1. The Price
  2. The Terms
  3. The Possession Date
  4. Personal Property
  5. Additional Provisions

Upon reviewing these items often it is very clear as to how best negotiate.  Buyer and seller top priorities are often at different ends of this list.  If so, use it to your advantage.

Multiple Offers

When a short sale is listed at an attractive price, it is not uncommon to receive multiple offers on it.  Recently I represented a client who was one of 17 offers on a property.  Yes, it became a bidding war.  We were not the winning bidder, but I often wonder if the frenzy pushed the price up to remove it from short sale status!

Oddly enough short sales of traditional style homes that need tremendous work attract a lot of buyers.  If you home is in this category, get ready for multiple bids.

Selecting the Best Offer from Multiple Offers

Obviously this is the kind of problem every seller, short seller or not would like to have.  When it does occur, it is important to have a game plan in place.  Each bidder should be notified and given instructions as to how and when you will be selecting the “winning” bid.

Typically your listing agent will notify everyone with the deadline for them to put forth their “highest and best bid.”

Now don’t sit back and get smug about your success, this is a very sensitive time when many buyers decide to walk away because they don’t trust the game, so they won’t play.  From the buyer’s perspective they have no way to know if there are in fact multiple offers.  As far as they know the broker is lying and they are bidding against themselves.

This strategy needs to be improved to give it more transparency, at the same time providing trust to the buyers that it isn’t a false strategy.

Do the math

The best offer may have the best bottom line (net to the seller). Or maybe the offer with the best bottom line has been made by the least qualified buyer.  There’s no set rule here other than to do the research, require approved buyers who back up their offers with earnest funds.

Go with your intuition here.  Consider the bottom line, the strength of the buyer’s credit, lender letter, the buyer’s current living situation (no upcoming leases ending, contingent upon the sale (but no offer yet) and most important of all their willingness to work with you, waiting for the bank’s approval.

Use a Counter Proposal to Work Out Contract Details

Remember any offer can be countered if the price, dates and other details are not acceptable. If the buyer agrees then you have a contract and can move forward.  If they don’t agree they are free to walk away from purchasing your house.  Depending upon the circumstances, sometimes it better the buyer walks away sooner than later.  At least very little time is wasted when you disagree early on.

Monday I will continue with the next installment of the Short Selling Working with the Bank.  Next week I’ll be reviewing upcoming changes coming from the U.S. Treasury Dept. and how they will effect the current Short Sale Process.

Selling as a Short Sale? Your Attitude and Actions Can Help You Find Success

Selling your home as a short sale is not the optimum situation for a homeowner, but when compared to the alternative (foreclosure) it is a much better solution.

My previous post Short Sales, Are the Risks Worth the Effort? I wrote about the potential credit score damage that occurs with a short sale vs. foreclosure.  Financial experts agree, the impact of a foreclosure is far greater and longer lasting than a short sale. That fact alone should make it worth the risk, despite the odds.

In the past the odds have been against the homeowner achieving a successful short sale.  The problems come from the “hurdles” as Mary Pope Handy referred to in her “Short Sales Sell But Don’t Often Close, Why?” post.

Denver Short Sales are very much like short sales around the country.  We have buyers who need to purchase a home and need to be assured they can close within a certain time.  Prospects with specific time frames are NOT good candidates for the purchase of your short sale home.

Why? We cannot guarantee an approval or a closing date.  Even if we try the buyer often gets very nervous and ends up “walking away from the contract.”  In the State of Colorado any parties to a Colorado Short Sale Contract have the legal right to quit at anytime.

Keeping a buyer tied to an offer that is not moving along quick enough for them is difficult and not legally possible.

Another common practice I see with Denver Short Sales are investors faxing in contracts.  There’s nothing wrong with this practice, but the type of offer I am referring to is one that is not the only one the “investor” is doing.  Many agents are instructed to put an offer on “every good deal that comes along.”  They have no intention of purchasing all the homes they present offers on, they are fishing for a great deal.  Their focus is not on a successful closing but rather a “steal of a deal.”  We call them faux buyers.

This practice serves only one cause, it gives you the short sale seller the opportunity to present an offer to the bank.  In a manner it gets the ball rolling, the problem arises when that faux buyer bails out.

Other issues arise with these faux buyers because Brokers are required to update the status of the listing with Metrolist.  When a property goes “under contract” we are required (and fined if we don’t) change the status to accurately represent if the property is pending or not.

Faux buyers may get the approval process started but they foul up the process when it comes to marketing the property to a Real buyer.

Here’s where a Short Sale Seller needs to stand firm on their actions.  Do not accept faux offers.  Insist the property is marketed to find the right buyer that will stick with you until your closing.

Finding the Right Buyer for a Short Sale

Grandma had a saying, “If you don’t do it right the first time, when will you have time to do it right again?”

These words ring true when marketing a short sale. Both the seller and the listing broker have to play their A Game. You are a team, you need to act and work as one unit to get the job done.  One doing his job without the compliment of the other will not work.  You will both fail.

The listing broker is in charge of Marketing and the seller is in charge of Marketability

A seller with the right Attitude will make the house so nice, so clean, so well kept it will be irresistible.  The right Attitude means the home will be showing ready everyday.  Yes, this is tough.  We all know the way you live in a home and the way you sell it are TWO DIFFERENT things.  But if it is to get sold it has to show well, no excuses.

The listing broker will research and advise on the proper pricing for the market after reviewing the condition, recent sales in the neighborhood, and the absorption rate.  It’s not unusual for a listing broker to build automatic price reductions into the property at certain stages.

Managing the Short Sale Expectations

The field of buyers that will be ready, willing and able to purchase your home is a narrow one.  There are REAL investors in the market, as well as qualified buyers who are willing to wait the time it will take for your bank to approve the process.  All you need is ONE qualified, informed and confident buyer that is savvy enough and understands the system.  Not every buyer fits that description, but luckily all you need is ONE.

Short Sale Sellers find this process extremely heartbreaking.  Leaving a treasured home is gut wrenching, but it is the first step in the right direction, if that direction is a Fresh New Start.

Keep that goal in mind, stay on the right path and the rest won’t be so difficult.

Tomorrow the discussion will take us to Evaluation of the Short Sale Offer, Do We Accept or Reject?