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:
- The Price
- The Terms
- The Possession Date
- Personal Property
- 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.
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.