How many low-ball offers have you written for the same buyer for the last 6-8 months? Are you working with a Buyer who feels the need to submit a low-ball offer every single time? Chances are you may be wasting your time and money on this Buyer. The best way to avoid this is to educate your Buyer right from the start.
In an effort to minimize transaction fall-outs, we recommend that you discuss the following with your Buyer(s) before writing an offer especially when submitting an offer for a short sale property.
1.) Short Sale properties’ asking prices are anywhere from 5% -15% below market right from the very start. (Heck! A few are even marked down 25% below market.) While the legitimate Seller is the current owner on record, the underlying lienholder is the one who has to approve the sales price of the property. REMEMBER THIS!
2.) The lienholder(s) reviews the price reduction history. Henceforth, a buyer should take note that making a low-ball offer right after a price reduction is likened to double-dipping; and it does NOT work almost every single time. This has always been true with ANY property be it an REO (bank-owned), short sale or a bona fide seller.
3.) Never low-ball a bargain. Greed causes some Buyers to miss out on superb deals. If you know how to do a Broker Price Opinion (BPO), prepare one for your Buyer. If not, at least prepare a Comparative Market Analysis (CMA) for the property that your buyer is interested in. Make sure that the comparable properties you choose are acceptable per BPO guidelines. Hint: Do a Google Search on “BPO Guidelines.”
4.) Be sure to explain to your Buyer that the lienholder will send their own appraiser/BPO Agent to determine the actual property value; and that if your buyer’s offer is way too low, the lienholder will counter with a higher price.
5.) While the lienholder may be inclined to give a discount on a property in order to get it sold, the lienholder does NOT give away properties for pennies to the dollar without due cause. FORGET WHAT YOU’VE SEEN ON TV OR WHAT YOU’VE HEARD FROM YOUR FRIENDS AND CO-WORKERS. Real Estate market is localized so you need to tell your Buyer to stop comparing our local market with other states or the national average(s). Lienholders are looking for a REASONABLE sales price.
6.) If your buyer feels the need to low ball because of repairs or deferred maintenance, please advise them to obtain 3rd party DETAILED estimate of repairs (NOT estimates of upgrades that they desire) to include with their offer. Your goal is teach your buyer to think from the lienholder’s perspective. Remember that the lienholder’s representative has not physically seen the property. So the ONLY way to convince them to accept a low offer is to support their offer with cold, hard facts, i. e., comparable sold properties, repair estimates, functional and economic obsolescence and the likes.
7.) 3rd Party repair estimates are usually exaggerated, but it would NOT be UN-reasonable if you deducted the estimate totals from the price value that you derived from your BPO or CMA. You’ll notice that the listing price is usually right at or below the resulting price value. If you do this, you can be rest assured that your buyer’s offer will most likely be accepted by the lienholder without a counter offer. Or if there is a counter-offer, it would not be too far apart from your buyer’s offer which makes it easier to convince your buyer to accept the counter offer and proceed with the purchase anyways.
8.) Short sales are sold 'AS-IS' and, in most cases, repairs have already been priced-in on the asking price. Lienholder(s) will NOT do work orders but they may agree to a discount based on the repairs and overall property condition.
9.) UTILITIES. Lienholders do NOT allow utility ‘hold-backs’ in a short sale. It is recommended that you do not include NWMLS Form 22K in your offer. Nonetheless, ALL utilities and assessments are paid on a prorated between the Buyer and the Seller down to the very day of closing as stipulated by default in the ‘wordings’ of the NWMLS purchase and sale agreement.
10.) RESALE CERTIFICATE. Since the HOA review is more for Buyer’s own peace of mind and satisfaction, the buyer may be required to pay for the cost of a Resale Certificate. Keep in mind that the Seller is about to lose his/her home and may not have the funds to cover the cost of the Resale Certificate. The same thing is true when it comes to pumping the septic tank. Buyer may be required to pay for the cost of pumping the septic tank.
NWMLS Form 22SS, revised 08/2011, paragraphs 3, 4 and 5, accommodates the scenarios discussed in the following paragraphs 11 thru 15 below.
11.) Advise your buyers that they may be required to conduct the inspection upon acceptance of their offer (by the Seller). More and more short sale sellers are requiring buyers to conduct the inspection before submitting the buyer’s offer to the lienholder (and NOT after procurement of the short sale approval from the lienholder.) A Buyer who is willing to spend the money on the inspection prior to the short sale approval is more likely to go all the way to the closing table. Another point worth mentioning is that if any major repair turns up during the inspection, price reductions arising from the repair estimates are negotiated with the lienholder right from the very start. --- This is the shortest and most efficient way to negotiate a short sale; hence, also the quickest way for you to get paid.
12.) Much like buying an REO (bank-owned) property, your buyer may be required to shoulder the cost of turning on the property’s utilities (in the buyer’s name) for one day just to conduct the inspection. This cost has been estimated to be around $160.00 on average.
13.) Your buyers may be required to deposit the earnest money within 48 hours of the seller’s acceptance of the buyer’s offer (and NOT after procurement of the short sale approval from the lienholder.) --- Get your buyers to agree to this as it will show how motivated and committed they are to the purchase. You’ll notice that your buyers will most likely stop looking at other properties; and you’ll curtail their appetite to having you write several offers on multiple properties while concurrently looking at “other” options.
14.) In exchange for agreeing to the preceding terms, we usually recommend to our buyers to cross out paragraph #3 of the NWMLS Form 22SS in its entirety as this ensures that the buyer’s position is secured.
15.) The short sale contingency period is usually up to 90 days. And the buyer may NOT terminate contract during the short sale contingency period.
16.) The Buyer may be required to pay the cost of the short sale negotiation fee. --- This may not be always true, but this is happening more often than not.
17.) Last but not the least, make sure that your Buyers have been pre-approved NOT just pre-qualified. Know the difference. Expect that the lienholder will require your Buyer to show proof of funds of their down payment, especially if their down payment exceeds 3.5%. Further, your buyer may be required to authorize the Listing Broker to discuss their loan approval in detail. Advise your Buyer to instruct their Loan Originator to run their loan application on an automated underwriting system such as a DU or LP, and be prepared to share a copy of the results with the Listing Broker.
· We all work hard and we all deserve to collect our hard-earned commission at the soonest possible time. The preceding recommendations and suggestions are geared to efficiently navigate through a short sale transaction. You’ll also realize that it will save you a lot of time as you’ll learn to distinguish serious Buyers from the “time-wasters”.
· The preceding recommendations do not cover all pertinent scenarios in a short sale transaction, but are meant to serve as basic guidelines when involved in a short sale transaction.
· WHETHER OR NOT A SHORT SALE TRANSACTION EVER MAKES IT TO THE CLOSING TABLE DEPENDS ON THE DEGREE OF COOPERATION BETWEEN THE BUYER AND THE SELLER IN BRINGING THE LIENHOLDER ON-BOARD WITH THE SITUATION.
HAPPY SELLING!
CARLO DELIZO, Managing Broker
Certified Distressed Property Expert (CDPE)
Accredited Distressed Property Designation
Accredited Short Sale Designation
Luxury Distressed Property Designation
Short Sale & Foreclosure Resource (NAR)
Certified REO Specialist
Direct: (425) 444-1010
Fax: (800) 591-0858
E-mail: RealEstate@CarloDelizo.com
Managing Broker, RE/MAX Metro Realty, Inc.
Posted via email from Rain City Bargain Homes
