Listing A Short Sale
Getting it Right the First Time
Listing a short sale can be broken down into the following three steps: identify, sign, and pursue.
- Identify: Most real estate professionals might say that a short sale will occur when the value of a property is lower than the principle loan balance on a mortgage. This is true in most cases. A short sale can also occur when the net payoff to the first mortgage or other mortgages or liens is less than the total loan payoff amount(s). However, let’s explore a few examples:
- Scenario #1: A potential seller asks an agent to list the property for $200,000. The agent determines that the property is worth approximately $205,000, and that the homeowners owe more than $259,000 on their mortgage. Since the property value is clearly less than the amount owed on the mortgage, the agent properly identifies this transaction as a short sale listing.
- Scenario #2: An agent lists a property at the beginning of the year with an asking price of $100,000, with a loan balance of $85,000. Buyer-interest in the property has been far less than what they originally anticipated, so the agent strategically lowers the asking price every month. The asking price is eventually lowered to $94,500 when a $90,000 offer is received. The agent realizes there will not be enough money to go around at closing to pay commissions, taxes, and other closing costs without shorting the mortgage company. The agent correctly identifies this listing as a short sale and submits the offer and required documents to the bank for review.
- Scenario #3: An agent agrees to list a property for friends who are experiencing some difficult financial circumstances. They have missed two payments on a first and second mortgage and need to sell their home in order to avoid foreclosure. The agent determines their house is worth $350,000 and find out they owe $300,000 on their first mortgage and $100,000 on their second mortgage. Even though the first mortgage is likely to be paid off in full through the sale of the property, the agent correctly identifies it as a short sale since the second mortgage payoff will be short.
- Sign: Once you have identified the listing as a short sale, it is time to have the seller sign your listing agreement and all other disclosures your state requires to list a short sale. Most states will also require you to mention somewhere in your MLS description that the home is being sold “as-is” or is “subject to lender approval.” Full disclosure to both the seller and the buyer is crucial to the success of a short sale. All parties involved must understand the timeframe involved and have appropriate expectations about what will happen and be required from them.
- Pursue: Success in short sales not only requires consistent expectation management, but will also require persistence to get the deal done. Once the listing agreement has been signed, the short sale lender should be contacted immediately to find out if there is an imminent foreclosure sale date, details about the loan and specifics regarding their short sale process. Depending on whether there is a foreclosure sale date, and its proximity, marketing should be aggressive so an offer can be quickly obtained early in the process.
Listing a short sale is as simple as identifying whether or not the property meets short sale requirements, getting all the paperwork completed, and being persistent and involved enough to get the deal done quickly.