The Sophie’s Choice for the Short Sale Seller (My apologies to Meryl Streep)

Elizabeth Weintraub, Short Sale Guru, wrote an amazing blog about the short sale process from the seller’s perspective.  

She discusses the issue that when the buyer walks they do not lose anything and can go on and buy another house, but the seller potentially loses everything. They can try to get another buyer and another stab at selling the home, or they could get foreclosed. Getting fore-closed is getting to be the more likely scenario as many banks are refusing to postpone the foreclosure trustee sale or auction once the date is set.  Since so many sellers wait to initiate a short sale until they are really unable to make their payments and are close to foreclosure it does not give them unlimited time to go through the short sale process. Some banks are getting the sales through quickly, but others are still taking many months, especially if there are multiple investors on the loan.

There are two different groups of buyers who are interested in short sales. One is the all cash investor looking for a good deal for future appreciation or current rental cash flow. The other is the end user buyer who is going to live in the home.  There is a lot of debate over which one makes a better buyer.  Some of the pros and cons  for the seller are:

Investor Pro: 

• All cash so can close faster once short sale is approved
• Do not have to worry about buyer not qualifying for loan
• Not going to live in the home so can usually wait for approval

Investor Cons:

• Sometimes the all cash does materialize (they lose it in the stock market or their investor partner says no)
• They find a better deal and walk
• They have no emotional attachment to the home and will only buy if the numbers work for them so if the bank says no they may not budge even a few thousand dollars

End user buyer Pros:

• They want to live in the house so may be more committed to paying what the bank demands if they qualify
• They picked this home out of many others so there is probably something about this home that they want and it is not just a numbers game. This could possibly make them more committed to stick out the waiting period.

End User buyer cons:

• They may need a place to live and not be able to wait for the bank’s answer
• They may not understand the nature of a short sale and have only agreed to buy because they thought it was a good price for what they want.
• They may not get the loan

So what is the seller to do when faced with choices as to whose offer to sign and send to the bank?

There are no guarantees in this business, but there are some things that can help a seller keep a sale together.

Things to do before putting the home on the market that help:

• GET INSPECTIONS.  I know this is difficult financially but someone should put up the money to have a property and termite inspection.   Since the buyer needs to buy the house as is, and many are unwilling to do the inspections before the bank gives approval if the seller or the agent get them done a head of time it is to everyone’s advantage. That way after the bank does give approval there is not another battle of what has to be fixed and how that factors into the price offered and accepted.
• If your home has problems that could make it difficult to get a loan then tell the potential up front .

Things to do after the seller gets an offer:

• Have an open escrow. If the potential buyer will not put money into escrow for a deposit they are unlikely to stick around if the process is delayed.
• Ask for the property contingency to be removed 2 weeks after the offer is signed by the seller.  Make sure that the buyer is ok with the property so that the transaction does not fall apart after the  bank approval due to dry rot, a broken heater, or some other problem. If the buyer is not willing to do that they may not be the right one for the property.
• If there is a loan make sure the agent speaks with the buyer’s lender and that they produce an approval from the bank that is actually making the loan. Unfortunately too many people have been burned by some mortgage brokers issuing pre-approval letters that were not worth the paper they were written on.  If the buyer wants to use a mortgage broker who is unfamiliar with the agent then ask for an approval from a direct lender as well.

None of these things will guarantee that the buyer never walks but these steps do help weed out the buyers who are not great candidates for short sale purchases.

So back to who is better, an investor or an end user.  My personal experience is that a well qualified end user buyer is more likely to stick it out, but when these steps are followed, the difference is not that great.