Pricing a short sale is an art. Although I try to explain to sellers how I arrived at the suggested sales price, most of them don't really care. As one seller put it, she's just the Monopoly piece. Because it's the bank that decides on the short sale price. The bank makes the decision based on the BPO. So logic would have it that if a Sacramento short sale agent would examine the comparable sales the same way a BPO agent does it, the acceptable sales price should be near the list price.
Earlier in the year, a list price could be under market and buyers would bid it up. In our Autumn real estate market, after the first-time home buyer tax credit has vanished, my list prices are inching up because offers are coming in lower. It's a always a juggling game, trying to stay one step ahead of the market in Sacramento. Sellers may now need to leave a little bit of room for negotiation.
I mention this because buyer's agents often help their buyers figure out how much to offer. Because buyers don't know. Some of them know beyond a shadow of a doubt that if a home is listed at $300,000, the seller will take $200,000 and so will the bank. It's a buyer's market. Everything is in foreclosure or it's a short sale. However, they are wrong. And here is how they find out they are wrong:
The home goes to foreclosure just when the buyer was expecting a short sale approval letter.
If the listing agent tells you how much the bank will take -- because either the agent figured it out or the bank shared its BPO results -- and a buyer decides to pluck some other number from thin air, that short sale is probably not going to close.
Sometimes, buyer's agents are astounded when my seller counters their offer. They can't believe it. Even though I try to explain that our goal is to close escrow, the words seem to fall on deaf ears. Maybe their real estate practice is based on throwing offers at the bank to see if any of them stick but my practice is based on closing escrow. Call me silly, but it just seems to make financial sense to close.
If your short sale goes to foreclosure, it's probably because your offer was too low and unacceptable. I hate to say this, but you weren't buying a short sale. You were waiting for foreclosure. There is a difference.
Photo: Big Stock Photo
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Certified HAFA Specialist
My Sacramento Real Estate Listings
Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available at Amazon.com.
Lyon Real Estate is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.
Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.
The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.
Disclaimer: If this post contains a listing, information is deemed reliable as of the date it was written. After that date, the listing may be sold, listed by another brokerage, canceled, pending or taken temporarily off the market, and the price could change without notice. It could blow up, explode or vanish. To find out the present status of any listing, please go to elizabethweintraub.com.
The media does a great diservice to buyers. Buyers in turn do a great disservice to themselves by not listening to the professional. And so it goes
You are so right. We sell A LOT OF SHORT SALES. Our buyers' offers are based on sound CMA analysis and if they are serious, they're going to see that the list price is not only a good price, but lower than market.
That's sensible advice to give a serious buyer. Rediculous offers are, for the most part, a waste of everyone's time.
"Suggested"
We had a situation in our office where a short sale was accepted and it took 6 months to get there, one week before closing they foreclosed and sold. No deal for the folks who waited, and the agent who spent 6 months getting it to within a week of closing nothing. Go figure.
"You weren't buying a short sale. You were waiting for foreclosure." That is a great line of reasoning. I am going to remember that. Thanks for this post!
Greed is not a pretty thing. The incompetence of bankers is amazing.
Featured @ Club Chaos
Over my time here I've learned enough to know that your buyers make offers that will be accepted and your sellers make counters the bank will approve. Why don't the other agents in your area know this too?
The trend has changed "again". And, as you know, the banks are not rolling for low priced offers. Right now it is a balancing act between the short sale lenders countering at higher prices and buyer appraisals coming in lower. A smart buyer (and small buyer agent) needs to focus on both concerns and have wiggle room to respond. You are point on as there is no time to waste.
Great post. I, too, sell short sales and know that it's numbers to the bank and the process. You can't get a home because you graciously offered to take it off everyone's hands - you have to follow the market and make it work.
Hi Elizabeth -- Your post so aptly illustrates why there is no substitute for professional competencies, on both the LA and BA side and both need to counsel their clients in how to create success.
Listening to some of the rationalizations of buyers is an exercise in self control as well. "Well, if the bank wants their money..." Look, fella, the bank will get their money, now or later, from you are someone else. You aren't special. At least, not to the bank.
Congrats on the feature. This is one I'll be reblogging this weekend. I loe your paragraph about counter offers from sellers. It's so true. Our goal is to SELL the house and not have it go to foreclosure.
Hear Hear! As distressed sales become a major portion of the MLS, those uninformed buyer's agents who instruct their clients to low ball all short sales, will come to the realization very quickly that offer have to be rational and within the boundaries of the going market price.
The banks are not interested in giving away homes at low ball prices which are significantly below market price, unless there is something seriously wrong with the property. The sooner the buyer's agents realize that the listing agents are not the enemy - that they both have the same goal of closing escrow - then perhaps they will take some good advice and work towards a mutually beneficial goal.
Great post! I was optimistic awhile back that banks would start policies that would set a higher level of their involvement with shor sales from the time the home is listed. It's a shame that this confusion continues, even as we enter at least a third year of short sale-mania.
short sales- love em or leave em. HAHA
You hit the nail on the head with this post.
An offer must be reasonable to market price. I also include the condition of the home at the same time. I have been able to purchase some of the short sales at the trustee sales. Another option for the buyer who is very serious about the property.
Elizabeth,
Good advice, as usual. But sometimes even the BPO price is irrevelevant. If an investor for the bank says they do not care about the BPO or offer and wil only take X for the house, then sometimes even the right price and offer do not work,
I had a listing that was pending short-sale approval at full market value, and the bank sold the loan to another lender in mid-stream. Funny thing... when the new lender got this loan, their records indicated it was paid in full. Soon after, the buyer walked and now we have a new much lower-priced contract. I get the impression that neither the first nor second lender has ever seriously considered accepting a short sale.
Another great post about short sales. thank you so much for your time and help.
On the other side of the coin there are many listing agents who have the seller sign a contract that will never get accepted by the lender. Knowing market value is an art but it is something a great realtor will have a handle on.
Education is so much a part of being in the Short Sale Listing business. I tell the sellers and the buyers that, "hey they have the same comps that you and I do", they are not going to accept this.
It is a waste of time.
Elizabeth, I received an offer last week on a short sale listing that was 50 percent of the list price. No, I'm not kidding.
It was the only offer that I have received. Still, the offer was flat-out rejected because there is no way on the planet that the short sale lender would have accepted it. (my list price is close to FMV). We didn't feel that down the road, when the counter came from the bank, the seller would be a serious buyer. So we kicked him to the curb. He was surprised.
We have to be smart these days. The days of banks issuing extension after extension after extension are fading. You better have a solid buyer in place from the jump.
So true! I had a buyers agent get raving mad because seller countered their offer. "Just submit and see what the bank says"...yeah, right....NOT! I will not take this home off the market for 2 months while we wait for the bank to say "NO" to your offer. I have a responsibility to my client, the seller!
The banks won't allow a short sale if their BPOs or multiple BPOs come back higher than the buyer's offer. Whether or not the BPOs are accurate doesn't matter. The buyer needs to understand this.
What a great article. Although one would almost never get a 100,00 price reduction in our area as our prices have always been held down by the appraisers and never ballooned like other areas of the country. Some still think because is a Short Sale, they can simply steal the home. As a REALTOR® we need to help the buyer understand the market.
Number #5 is exactly how I feel. I guess its always good to ask the listing real estate agent if the short sale has been approved and for how much so you can know how much you are going to offer. I am not messing with short sales that hasn't been approved by the bank yet. Thanks for sharing. Great post.
Elizabeth - an excellent post. It is complicated. We do our own BPO and try to get the price as close as we can. And then we would get an offer from certified Short sale specialist, which is such a low-ball. And then they are surprised the offer is not accepted.
But how you deal with situations when you have second, and they would reject, let's say, $3K offer and want another $5K, and the Seller would not come up with a penny, What is your strategy?
Thanks
In our neck of the woods, Lanre, there aren't very many approved short sales. They don't get approved until we present an offer, unless they were previously approved and fell out.
Hi Jon: Well, here is an article I wrote about dealing with two loans on a short sale:
http://homebuying.about.com/od/4closureshortsales/f/031308_SSloans.htm
One strategy is to get the first to pay more toward the second. Sometimes, it's getting the seller to bring in more cash or lowering the price so the buyer can pay it or splitting the extra cash between the two lenders as sometimes the first doesn't want the second to get more than the first has offered. Or perhaps escalating it to a supervisor. Worst case the agents can kick in. You can also try raising the price, providing the buyer's appraisal will justify it. Just go back and forth like a ping pong ball.
We have seen more of the situations where there was a good short sale offer and the bank didn't take it only to foreclose and the home eventually brought several thousand dollars less than the short sale offer. No rhyme or reason to anything coming from the banks these days.
Whether pricing short sales is an art or a science, the base assumptions change all the time and therefore pricing strategies need to change all the time.
The listing agent or the buyer's agent may be using a strategy that worked in the past. However, last year's strategies may not work today.
A year ago the banks would counteroffer almost any offer and the negotiation would continue from there. Today the banks are more inclined to (a) reject with no counter or, (b) simply ignore the offer and close the file without notifying us, or (c) the banks or the MI companies are making unrealistic counteroffers 10% or 20% higher than market value.
In this declining market we set the initial list price at or below the lowest recent Sold comp, and at or below any other Active comp. If the market doesn't respond - we adjust the list price until the market steps up!
Good morning Elizabeth,
This is an excellent post - you are right on the money. Ginny re-blogged so I caught it!