How to Successfully Negotiate a Short Sale

If your client has their heart set on purchasing a short sale property, you’re most likely in for a long process. Yes, you’ll be part of a negotiation that involves convincing the lender who holds the mortgage to sell the property for less than the mortgage balance, but that’s only one step in the process.

Before you even begin the process of purchasing a short sale property, you have to make sure your client is prepared and you have a good understanding of the short sale market. Setting expectations for your client in what could be a long process is more likely to make it successful.

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7 steps to easily negotiating the purchase of a short sale property

1. Communicate and Set Expectations

If you plan on showing a short sale home to your clients, help them understand the process before they see the house. If you let them see it and then explain the length of what they could potentially go through, it may only serve to disappoint them. Instead, be upfront so they can make a good, informed decision before emotions get involved.

2. Gauge the Market

Once you determine the market value of the short sale property as compared to the price the lender has set, you will better be able to help your client make an offer. Help them understand the length of time on the market as it applies to a short sale. Find out if the seller is severely behind on mortgage payments. If so, that may signal a foreclosure is imminent, which will be more costly for the lender and benefit your client.

It is important to note that if you start the process while it’s a short sale and the bank forecloses during that time, you will be forced to begin all over again. Even viable interest in a short sale does not stop the foreclosure clock.

3. Advise About Lowball Offers

Most clients overestimate and assume bank desperation. They figure they can offer half of what the home is worth because the bank just wants to get rid of it. Short sales are usually priced at 17% (on average) lower than what the market dictates. Your client’s first offer is more likely to be accepted if it is no more than 10 percent or so lower than the approved sale price.

While the offer is up to the client, make sure they understand the lender may not respond to a lowball offer, but may agree or counter offer if your offer is reasonable. At this point, you should also find out from the seller’s agent if there are other offers and prepare accordingly. Often lenders will hold offers until they have a few.

4. Know that Short Sales Are More Attractive When You Have a Cash Buyer

Clients with a cash offer will get the quickest response from the lender. If a cash purchase isn’t possible, include the loan pre-approval with the offer and a sizeable deposit, which will be submitted to the seller’s escrow company when the contract is accepted.

Find out the lender’s information that holds the mortgage and ensure your client’s funding is not coming from the same institution. A lender is less likely to approve a sale when the money is coming from itself. Also, advise your client to limit their contingencies and don’t ask for concessions from the seller. The lender is unlikely to give any.

5. Once You Make the Offer, Be Patient

Make sure your client understands that you may not hear back from the lender for 30 days or more. They can take this time to have a home inspection conducted and look into insurance options. If the property will be sold “as is,” which is often the case, determine if any work is needed and if so, if the home is still within budget.

Use this time to check in with your client and the seller’s agent. The better your communication, the more likely your client is to stay on the line. You’ll also need to ensure that the lender approval letter for your client stays in effect. They often expire after 30 days.

6. Remember That You’re Negotiating With the Lender

In a short sale, the proceeds of the home sale go to the lender, not the seller. The mortgage holder is the primary lien holder and will receive the proceeds. Anything left over will be given to the other lien holders, if there are any.

These other lien holders will also want to get paid but there’s rarely anything left over in a short sale. Lien holders have the right to assess the seller or they can request your client make payment, as could be the case with unsettled HOA dues. Make sure you and your client understand the payment responsibilities before agreeing to the sale.

7. Be Resolute

The lender may take at least 60 days to agree to your clients’ terms and a closing date. Make sure your client understands the importance of keeping closing dates open. Often it takes a long time to process a short sale negotiation but once they do, the lender often wants to move quickly on closing.

Communication is one of your most powerful tools in negotiating a successful short sale. Communicate with the seller’s agent and your clients for best results.

If you’re helping a client with a short sale property, you have to be prepared to negotiate and know the ins and outs of the process. If you’d like to know more about short sales, download our free ebook, The Real Estate Agent’s Guide to Successful Short Sales.