Listing a short sale is a little like venturing into the wild, wild west. There’s only a little order, lots of imposters, and laws are broken without much penalty.
Real estate agents bring a little stability to the transaction, but a short sale’s success depends on a variety of variables. This type of transaction is constantly evolving; however there are a few things that remain the same, and that every agent needs to know when working with short sales.
Market Value Matters
Short sales sell for market value. That’s right. A bank will typically agree to a short sale if the numbers make sense. Banks understand that homes need to appraise. Banks also need to mitigate their loss.
Listing a home for well below market value is not the best strategy for getting a short sale accepted. Sure, you may get plenty of offers, but if the bank won’t accept any of them you end up having wasted a ton of energy, not to mention paper, and facing quite a few angry potential buyers.
Banks are no longer in the business of giving away houses. If you send the bank numbers that make sense, you increase your likelihood of a successful short sale closing by 90%.
Only Real Hardships Get the Help
I’ve lost count of the number of times potential sellers have told me the only reason they are pursuing a short sale is because everyone else is doing it. Purchasing a house during the housing boom is not a legitimate hardship. Purchasing a house during the housing boom and being unable to pay your mortgage is a hardship.
Strategic default is never a good idea! Banks actually analyze short sale sellers’ hardships, and most center on the economy, so the bank is going to make sure that a short sale is in their own best interest. Acceptable hardships include medical issues, divorce, disability, significant loss of income, death, unemployment, and relocation.
Laws are local
It’s important to know your state’s foreclosure laws because there are currently no national short sale laws on the books. There are federal guidelines, but they can be applied when and how a bank wants.
States, however, can either have recourse loans or non-recourse loans. A recourse loan allows the bank to demand a borrower pay the difference between what the property is sold for and what is owed on the lien. Many recourse states allow lien holders (banks) to pursue judgment liens against the borrower for the deficiency amount. This process allows the bank to garnish a borrower’s wages until the debt is paid off. Garnishments can be as much as 25% of non-exempt disposable earnings, and bankruptcy doesn’t always save a defaulted borrower from judgment liens.
Real estate agents are not allowed to practice law, unless they are actually licensed to do so. However, agents do need to be aware of possible penalties for short selling a home and also be able to direct their clients to the right resources to discuss the possible consequences and solutions.
Short sales, just like the once-wild west, can be scary to navigate. That’s why it can pay to learn the lay of the land. If you do, there can be a few successful commission in it for you, and some much-needed relief for your clients.
Sarah Stelmok, ABR, GRI, e-Pro
Sarah Stelmok is an Associate Broker with Champion Realty and a Short Sales Specialist from Fredericksburg, Virginia. She’s the author of SarahiouslySpeaking.com/ and travels the country training agents in the areas of Contracts, Fair Housing, Ethics, Short Sales and Foreclosures, Technology, Agency, and other real estate related courses.
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