another great post from my friend Cari Drolet at The Lotus Group Realty I know you'll enjoy...
Financial Institutions Expectations in a
Short Sale Transaction
REALTORS, there have been a lot of frequently asked questions in regards to some of the requested documentation that the financial institutions are asking for when submitting a short sale package. We are all experiencing changes in the industry constantly, from the rules and guidelines to the paperwork. Experience has taught me that if these expectations are not met up front it will only hold up the process in the end when we are trying to push these through.
Let’s start with one of the biggest challenges we are facing today in short sales.
Submitting the right offer.
What we are seeing with some of the major financial institutions this year is that they are paying close attention to low ball offers. A rule of thumb to keep in mind is they generally want to see 90-95% of the balance owed. Is that realistic? NO. So how do we remedy that and show the financial institutions we are bringing them the highest and best? We simply create a listing history. Hopefully REALTORS, you are not taking on listings with sale dates less than 3 weeks away, 12 months of delinquencies and excessive HOA balances. These types of deals will be nearly impossible to push through. But if you have a qualified seller who fits the parameters for a successful short sale transaction then you have time to create a realistic picture for the bank.
1. Price the property close to what is owed on the loan for 30 days.
2. Set 3 price reductions on the 1st and 15th of the month moving forward. By the time you get to the 3rd price reduction you will have created a listing history for the financial institution to show them that you actively and aggressively marketed this property for a substantial amount of time and you will have all your data to support the value of the offer you submit.
I can share with you from experience that moving forward the financial institutions wants the homeowner to call and inform them that the home will be listed as a short sale. Bank of America will now send an appraiser out to the property before the home is listed and tell the listing agent what to list the property at based on their value. You will be asked to give them a weekly update and price reductions will occur every 21 days. If you have not experienced this yet, you will. We at Lotus Realty Group have been educating you for over 2 years to follow this system. Now the financial institutions are starting to implement this. I had a Bank of America representative call me on one of my listings in Carlsbad that I actually listed quite high to start my listing history. I was told to raise the price by nearly $25,000 and schedule a price reduction in 21 days even after I told him that it was listed at my price for 3 weeks and I had not received one phone call from a buyer.
The financial institutions are really going to start cracking down on this so it is my suggestion that we all work smart:
a) Prequalify the seller and do not take on a listing that does not make sense.
b) Have an addendum that has the listing price and the dates and prices of your reductions signed by your seller so you do not have to keep going back to your seller to modify the terms of your listing.
c) Mark all price reductions on your calendar as reminders to stay on task.
d) In the mean time, make sure you are gathering all documents and have a solid short sale package ready to go so that by the time you get the right offer you can submit it right away. I would tell your sellers to automatically send updated financial s every month.
e) Use counters and addendum’s to set expectation with buyers. They need to understand short sales are sold as is. There are fees a bank may or may not cover. I would also make sure buyers are DU approved, not just pre qualified through a letter through their lender.
f) Submit the short sale package with your listing history, 3 active, 3pending and 3sold MLS listings and a comparative market analysis with a nice cover letter to explain your circumstances.
g) Set expectations with all parities in regards to time lines to keep everyone on board.
h) Follow up tenaciously.
Here are some other requirements that will save you time if you request them up front:
1. Financial institutions are requiring 4506 T’ s to be completed. I have made this part of my short sale package.
2. There have been a lot of inquiries on whether or not the Equator system requires buyer information. Social security numbers, date of birth, phone numbers and addresses. YES. There may have been occasions where you can get by with generic information but a majority of the time it is required so I would get into the habit of requesting it up front.
3. We have seen a lot of offers come in without proof of funds and pre-quall letters. Equator will not accept an offer without it so make sure you request it up front. We receive a lot of incomplete packages and it really does slow the process.
REALTORS, we at Lotus Realty Group have worked hard to tighten up our systems and keep all of you up to date with all the changes in this ever changing industry. It's my hope to help you move through this frustrating and tedious process in an effective and efficient manner to help get you what you want in the time you want.
(Quote) We must use time wisely and forever realize that the time is always ripe to do right.
- Nelson Mandela
REALTORS, what is in your business plan this year? What are you doing to create a system that will allow you to build your short sale business? How often are you out there prospecting and how do you know if you are taking the listings that are going to be successful and not a waste of your time?
Call us today and let us show you a system that works to help you expand your business and effectively and efficiently close short sale transactions. LOTUS REALTY GROUP
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