Original Source: Why Short Sales Fail And How To Avoid Short Sale Denial
The fact that it takes so long makes it that much more difficult to find a buyer who is willing to wait months before they know if they can even buy the home. In 2009, it was believed that only 20% of short sales were approved and finalized. That stat tells you, getting a short sale approved is not easy for anyone, let alone someone who is inexperienced. Plain and simple, many short sales fail to be finalized, and here are the common reasons why. Why Short Sales Fail And How You Can Avoid Short Sale Denial If it is not complete, it could delay the process. Many of the lenders out there won’t even call and tell you what’s missing. They will set the package aside and it will be handled later when they have the time, which will end up delaying the process, and you could end up in foreclosure because of it. All information in your short sale package better be true or you can kiss your short sale approval goodbye. One example would be to lie about your financial situation. Hiding money in different accounts, pulling out cash to hide it from the bank, or giving money to relatives to hold onto during the short sale could end up costing you big time. Banks do not have to approve your short sale. If they find out you’re not telling the whole truth, you will be denied. Short Sale Package Not Submitted Properly – All lenders are different and they each have their own protocols when dealing with short sales. Your agent must submit the package exactly how your lender requires it. If they want it faxed, it better be faxed. If they want it scanned and emailed, it better be emailed. If they want 10 copies, they better get 10 copies! How a short sale package is submitted isn’t you or your agents decision. It’s the lenders, and it better be followed to the T! It is the job of your short sale agent to give you an accurate analysis of the market and the value of your property. It is their job to counsel you to counter any offer to establish the best price and terms possible prior to accepting it. Buyer Not Financially Strong Enough – Lenders want to see contracts that have a strong chance of closing. A pre-qualified buyer is not as strong as a pre-approved buyer. It is your agents duty to follow up with the buyers lender, or even better, you may want to have a lender you trust qualify the buyer as well. If it’s a cash buyer, you will need proof of funds and proof of the ability of the buyer to access those funds in the time needed to close. Any contingency in the contract could end up costing you the deal. It is best to remove as many contingencies during contract negotiations as possible before submitting to the bank. This can be avoided by asking for a substantial earnest money deposit prior to acceptance of the contract. If the buyer has more skin in the game with say a $5,000 earnest money check, they will be more reluctant to give that up. Your agent should counsel the buyers agent, or the buyer themselves, on how long short sales typically take to close. Keeping the lines of communication open on a weekly basis between your listing agent and the buyers agent can help keep the deal together. Buyers tend to stick around longer, at least in my experience, if they know what’s going on at all times. Inaccurate Market Analysis/Appraisal/BPO – If the BPO (Broker Price Opinion) was inaccurate, it could delay the closing. Lenders request BPO’s on short sales that are completed by third parties, whether it’s another real estate agent or an appraiser. Inaccuracies could give the lender a distorted view of what fair market value of the property is, this could influence the lender’s approval. It’s important for your short sale agent to to ask the negotiator how the BPO compares to their market analysis. If your agent believes there are discrepancies with the BPO, it’s important for them to prove their point of view. Adding photos, better comparable properties, and any other information to support their claims. Some sellers end up facing foreclosure due to the lack of effort from their agent, and it’s a terrible situation for all parties involved. Research real estate agents thoroughly before hiring them. Do not use a friend because they are your friend. You could end up going into foreclosure do to the lack of experience of a new short sale agent. Don’t Let Your Short Sale Fail! Educate Yourself And Choose An Experienced Short Sale Agent! When short sales fail, it’s the homeowner left holding the bag. Most likely, the homeowner will go into foreclosure, which is the last thing anybody wants. Foreclosures devalue neighboring properties, cost banks tens of thousands of dollars, but most of all; a failed short sale will ruin your credit for 7-10 years, will cause you to lose your home, and will severely limit your access to credit for many years to come. Please research short sale agents, put together a full and accurate short sale package, and follow all lender protocols when trying to short sale your home. If you do everything you can to avoid these common mistakes, you have a great chance for a short sale approval! Related Articles: Short Sale Investors Committing Fraud? Common Short Sale Questions Answered The Short Sale Process – Approval Time Frame – Withdrawal Period – Writing A Short Sale Offer
Short sales are complicated, time consuming, and stressful to all parties involved. Depending on the bank you’re dealing with, it could take up to a year for a final approval on a short sale.
Incomplete Or Fraudulent Short Sale Package – A short sale package is submitted to the lender when you receive an offer and accept it. The short sale package must be complete with everything the bank requires.
Offer Too Low – It is the job of your agent and you to secure the best possible offer on your property when submitting it to the bank. Each lender has their own formula for accepting offers, but one thing they all agree on is getting the most money possible.
Buyer Backs Out – This is probably the number one reason short sales fail. Buyers get tired of waiting, or they find a better house and back out of the deal.
Incompetent Short Sale Agent – To avoid having your short sale denied, it’s extremely important to hire a Realtor that knows what they’re doing. Inexperienced and incompetent short sale agents should be avoided with one of the most important financial decisions you will ever make.
Lisa Udy
Platinum Real Estate Group
View My Other Blog @ Homes For Sale Logan UT
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Hi Lisa -- You aptly point out how high the stakes are and not being thorough, responsive and knowledgeable is a recipe for failure.
Lisa, great list there, and the LENDER can back out of the deal too and not accept ANY offer....
Lisa - Good list. My most unfavorite reason for failure is a poor valuation from the lender....
Lisa, this is a great post and very informative. .I'm re blogging it!
Very good article Lisa. Hopefully sellers will heed yor advice and pick agents based on experience with short sales. Working short sales requires a lot of special skills that some agents just don't have or don't want to have. Those of us that do short sales...LOVE them!! We may very well be disturbed :)
PERFECT summary piece. I will be forwarding this to a few people in about 10 minutes...first I'm going to re-blog. Thank you.
All true. I would also include that sellers do not always tell us about other liens, or do not properly cooperate to get us information in a timely manner. We just closed one today with a motivated and cooperative buyer in 45 days from submission of contract, and will do a Fannie backed HAFA is about 45 days in two weeks. It is getting better.
You hit all the high points. Short Sales are hard and everyone has to go into one knowing the positives and negatives.
Great blog. very helpful. it seems the pitfalls of short sales change and are increase daily. the inconsistencies across the board are mind boggling.
Great summary! You nailed it! The listing agent does make ALL the difference!
This is a great summary. Last year I closed triple digits in short sale transactions, and I can tell you that you are right on the money! (I'm sure you knew that already.)
Hi Lisa. Nice post.
Well written and educational...
Thanks for writing,
Ken
Great Blog and very well written - I'm going to reblog - Thanks!
Lisa excellent post for short sellers. The biggest problem we see are inacurate BPO's done by inexperienced agents and or agents in a big hurry to get a bunch done cause that's how they're making a few bucks. We've got one now where the 2nd is accurate but the 1st is about 60K high. But there is hope on this one too wiht patience and a great deal of time and attention.
Very good psot! I am going to recommend this for a feature! Thank you!
Lisa, great list. I always tell the buyer agent involved that if the buyer does not have patience this is not the sale for them. Short Sales take patience and some more patience.
Lisa, great list. As short sale listing agents we have to make sure that a hundred things outside of our domain get done right, but only one derailment can cause the short sale to fail.
Lisa, thank you for the awesome post. The agents involved have so much control and impact on the success or failure of a short sale. Properly preparing clients, locking in buyers to avoid cancellations, effective negotiating and escalation skills. More often than not, the agents make the difference ... in closing percentage and protecting distressed homeowners.
Hi Lisa,
This is all so true. The success rate is very low. And one thing is very, very true- an impatient buyer is NOT going to last through the tribulations of a short sale.
I agree with BB, those of those who love short sales are probably disturbed.
However, if you're going to do a short sale, it's important to find a good agent.
I see that I am not the only one who thinks this is a good and accurate representation of the facts.
"Short sales are complicated, time consuming, and stressful"
In 26 years of dealing with banks & foreclosure, I find the above to be true only because banks cause it to be true. The amount of ineptitude evolving from banks on a daily basis is almost incomprehensible. Incomprehensible in the sense that it often makes you wonder how a business with as little sense as bank employees seem to have, can operate the way they do and still be in business. Of course, I don't have the government offering me a teat every time I make a business ending mistake either. Makes all the difference doesn't it? The alternative to accepting a short sale is foreclosure. Almost universally for less money than the bank would receive from the short sale were it not for the government artificially propping them up. Therefore, it should be a no brainier on the banks part. No documentation necessary. Since in almost every case, they've already been paid on the loan they're trying to collect on, they should be jumping on every short sale they get. Have you ever noticed that even idiots on television can buy real estate out of foreclosure or short and make lots of money (If they have access to credit) but somehow when it comes to banks resorting to utilizing their own collateral, that they insist on at origination to mitigate losses, they can only LOSE money on the whole process? What's wrong with this picture?
I'm going with stupid . . .
Carl S
The two big reasons I have encountered are: The buyers walking, and the BPO not being good. Too many out of area agents doing them, who don't know my market.
Lisa, this is an excellent post on what it takes to get it done.
Lisa,
Clear and concise. You hit all the important points!
There are many reasons why short sales fail. Unfortunately on many occasions it can be traced back to the Realtor handling the sale.
Lisa, this is a great summary on the dismal success rate of short sales. I closed one a couple of months ago that took 7 months. Unbelieveably, the buyer hung in there for the long haul. I kept hearing from the lender that they were too backed up to process request in a timely manner. It didn't help that the first negotiator quit part-way through the process.
Excellent post Lisa - and bookmarked! This is timeless and a great read for anyone considering or working in short sales. Very concise and well written!
Hi Everyone!
Thanks for all the great comments. One thing that has been echoed here is the closing percentage of agents. Even though an agent may be experienced with short sales, they may not be closing a high percentage. I agree with this. Sellers need to be aware that not all agents are closing short sales at a reasonable percentage, and they need to do their diligence in finding the right agent for their situation.
Thanks for the comments everyone! :)
Lisa, this is an excellent, well-written blog post about short sales...I'm going to re-blog it! :)
Leilani
P.S. 20% of short sales in 2009 were actually closed? That's actually a little higher percentage than I would have guessed!
What it really gets down to is the competency of the listing agent.
Well sometimes i dont know what to think of short sales. They are getting better and then they are not!