If you are a buyer looking for a short sale, don't take the listing price as gospel. That's the advice from Michael Vrielink, a Chicago Realtor at ZipRealty. In short sales, a home with a market value of, say, $300,000, could be listed at $150,000. But that list price may not be tied to any kind of reality, Vrielink says.
"I counsel my buyer clients that the listing agent can seemingly pick a price out of the blue," he says. "They're trying to elicit a lot of offers, in order to support the highest offer. But most people on the buyer side have a hard time stepping away from the list price. Buyers really have to do their homework, to come up with a figure at which they believe the home should be priced."
This is one of many examples of why short sale buyers and sellers should enlist the help of real estate agents experienced in short sales. Such experience is crucial in helping clients understand the "dos" and "don'ts" of the process.Among the "dos" in short sales are the following:
Do stay in close contact with your lender and attorney if you are bidding on a short sale property, Vrielink says. If lenders haven't heard from buyers for a while, they may assume the buyer has purchased elsewhere or is no longer interested in the home. And often interest rate locks extend for only 30 or 60 days. "If the buyer is in good communication with the lender, he can get extensions on those interest rate locks before they expire," Vrielink says. "But allow them to expire, and interest rates could wind up much higher."
Communication with attorneys is also critical in each step in the process. Consider the mortgage contingency period, which usually extends a month after the contract signing. If a short sale hasn't won approval, a buyer's attorney can ask for an extension on the mortgage contingency period, Vrielink says.
If you're a seller, do stay in touch with your agent, attorney and lender. In addition, sellers should stay in touch with their association, says Naomi Campbell, Realtor at Coldwell Banker Residential Brokerage in Libertyville.
"The seller needs to keep current with the association, because the sale will not go through without those association fees being paid," she says. "The association won't release the seller if there are association fees past due. And the bank is taking such a hit that if it allows a credit to the association, it's not going to allow more than one month. In fact, it may not allow any."
Another "do" for buyers and sellers is do locate and hire agents who can lay out the entire process in advance, dispassionately informing them about what they can and can't expect from the experience, Campbell says.
A calming influence is very important in a short sale, because it can be a highly emotional experience. "The seller in a short sale is emotional because it's their home, they owe more than it's worth and don't have the ability to pay back the full amount," Campbell says. "And the buyer is emotional because they've become attached to this home."
Janice Corley, founder and owner of Sudler Southeby's International Realty in Chicago, agrees.
"Have a complete understanding of the process and manage your expectations accordingly," she says.
Among the "don'ts" are the following:
As a buyer, don't submit unrealistic bids. Just as listing agents often list unrealistically low prices to attract bidders, prospective buyers are often tempted to attempt ridiculously low bids. That's a mistake, says Campbell. Consider a home listed at $150,000, on which some would-be buyers may be tempted to bid $100,000, thinking their offer legitimate because, after all, this is a short sale.
"The bank isn't going to approve your bid," Campbell says. "And the seller isn't going to sign this. It is unrealistic expectations of what you're going to be able to get. You must have realistic expectations to get something done."
Also, as a would-be buyer, don't overlook the possibility of jumping into a sale that another prospective buyer attempted but failed to make, Vrielink says. In many cases, a bank will take a short sale file, counter the buyer's bid, or come back to the buyer and report that the price needs to be "x" number of dollars. At this point, the deal may fall through. But another buyer can jump in, and take advantage of a short sale process that's already partially completed, he adds.
"That short sale process becomes a lot shorter," Vrielink says. "Whenever I do a showing for any short sale, I'm asking the listing agent if the bank has accepted the list price, had any offers they've negotiated and where we are in the short sale process."