Without the knowledge or team to successfully negotiate and close a short sale, the process can quickly turn into a nightmare. The thought of lengthy paperwork and negotiations sends most agents running.
The truth is, you can make money by listing and selling short sales – without losing your mind.
Since many agents shy away from short sales, they are the most underutilized type of listing in residential real estate. By understanding the process of short sale transactions, you can add this to your repertoire and increase your bottom line.
What is a short sale?
A short sale is a real estate transaction in which a property is sold for less than what is still owed on the mortgage. The property owner is often in financial distress, and most of the time, has not paid the mortgage in many months, if not years.
What is the short sale process?
A short sale is very similar to a traditional sale, though there are some key differences:
- Lender Approval: Before listing the property for sale, the mortgage lender must approve of moving forward with a short sale. While certain banks will not entertain a short sale, most will.
- List the Property: You list the property for sale similar to any other type of property. Determine market value for the home, and list if for sale on the MLS.
- Find a Buyer: Buyers will submit offers the same way they would in a traditional sale. Select the most qualified offer and put the property under contract.
- Submit the Offer to the Bank: Once under contract, the bank will send either a BPO agent or appraiser to the property to establish value. If the value is equal to or less than the accepted offer, title is then ordered and you close. If the value comes in higher than the contract price, the listing agent can then open a value dispute. During a value dispute, the agent and purchaser supply the bank with documentation to justify the offer price. Appraisals, mold tests, and damage reports are just a few of the documents used in a value dispute.
- Closing: Once negotiations and any disputes are resolved, a closing can be scheduled.
How much commission can I charge and who’s responsible?
The lender pays the real estate commissions, seller’s legal fees, transfer tax, and more. Most banks will pay a 6% commission. However, in the event the listing agent is representing both the buyer and seller, the bank might reduce the commission to 4% or 5%.
Does the bank request documents from the seller?
Yes. The bank requires the sellers to fill supply the following documents:
- RMA (request for mortgage assistance)
- Tax returns
- Hardship letters
- Listing agreements
- Contract of sale.
Most of the documentation is collected at the beginning of the process, with a few pieces of paperwork being requested during the process.
Who negotiates a short sale?
Real estate agents and attorneys typically negotiate short sales; however, I don’t recommend you as an agent take on the responsibility of processing the short sale. The process can be tedious and is not the highest and best use of your time. It is better to work with an attorney who is familiar with the process, has adequate staff, and will receive their fee from the bank. This will allow you to keep your full commission and stick to what you do best.
Short sales can seem overwhelming, but with a little research and the right team, you will be able to tap into a segment of the market that most agents steer clear of. If you want to increase your bottom line, you must be willing to do things other agents aren’t.