Charlotte Real Estate & More: Why Does a Charlotte SHORT SALE Seller Care if You Write a Low-ball Offer?

Debe - Another excellent post!  Education is key when it comes to short sales; buyer's agents need to explain to their clients where a lowball offer will get them and listing agents need to explain to their seller why they shouldn't accept one. 

Debe, 

Great info on short sales.  Crazy low balls are most likely a complete waste of time in the challenging short sale process. I like the way you shared the details of why. 

All the best, Michelle

Great post.  Most buyer, and some agents, simply don't understand the short sale process.  Submitting too low of an offer will very often result in rejection. 

Debbie, When people say that Sellers do not care about the price, they mean the fact that the Seller does not stand to make a penny out of the transaction, so theoretically whether you sell it for $200K or for $300K makes no difference.

In reality it does based on the factors that you have mentioned, PLUS one that is important.

While the Seller is not getting a penny into their pocket (except for small possible incentive from the Lender), the IRS considers the forgiven debt as a difference between what was owed and what it was sold for (it is a bit simplified here). So, if the Seller sells the home for $200K, he may end up owning IRS money from extra $100K.

It is generally a good reason to try to be higher rather than to be lower with the price. So, what is the right whort sale price? The highest you can reasonably get

I won't even do a low-ball short sale . . . unless, hmmm . . . there is not an "unless!"  Just won't do it!!  Some buyers don't understand that short sale sellers are, already, under water in their mortgage.

Debe - thank you for the excellent explanation - which applies to all short sales, not just in Charlotte NC !

Indeed Debe, this is true for short sales ANYWHERE! It's already priced below the loan balance, and hopefully priced to the market, so let's work to make a deal, not mess it up.

Great job on describing this already challenging process!

Debe

You put the short process into the correct prospective.

Good luck and success.

Lou Ludwig

Hi Michelles!  It's so difficult sometimes to get buyers who are searching for a 'steal' to realize that they're just spinning their wheels if they present a low-ball offer and the seller just accepts!  My sellers WON'T!  They've already got that foreclosure dog on their heels!

Rodney, Our problem here is when the buyer's agents don't know that the process is only going to be extended, if even looked at by the bank at all.  

Papa Jon:  Hope you're feeling better!  Been thinking about you!  And, you are the short sale expert in your area so, I know that you know all of this but, it's great to share with the consumer who doesn't and doesn't have the expert guidance that you provide.  Stay well!

Carla:  I don't understand why buyer's agents can't get that point across!  You've had enough experience with it that you know that you have to be firm--or YOU're spinning your wheels too!

Virginia:  That's true--feel free to reblog for Mesquite!  Hope you're doing well!

Lou:  Thanks!  Same to you!

What I cannot figure is why buyer's agents even write these things.  It's such a colossal waste of everyone's valuable time.  Unless an agent has an excess of time on their hands, this does nothing to further the quality of real estate practice.

A lot of investors play the numbers game utilizing unsuspecting agents. .some days I receive low ball offers for 3 or 4 of my listings from the same buyer! . .and dealing with it  takes a lot of my time. They don't even realize I'm the listing agent in all of them.. .

Very good info DEb. The goal as a listing agent shouild always be Fair Market Value. Achieving FMV makes the entire transaction smoother and more likely to be accepted.

Debe...

It's a lot of work with minimal chance of success. Most sellers don't want to go through the agony.

Hi Deb- Good helpful consumer content.  When looking at short sales, comps are very important-the bank uses them and so should buyers.  Armed with good information, making a reasonable, well informed offer improves the probability it will accepted.

Debe,

I've had buyers' agents explode when I've relayed the counteroffer from my short-sale sellers. Even agents overlook the great points you make...

Great info and analysis - very much appreciated!!

Excellent post Debe.  I constantly get 'But the banks are desperate to get these off the books'.  While we, professionals know the truth, it's sometimes hard to convince those that read the inflated tales on the Internet.

Hi Debe, if the offer is within my market value range, I will submit it without a counter.

If they are fishing, and so low I know the bank will not accept, then we counter.

Even when we accept something lower, I always make sure via the buyer agent that her clients are willing to accept what the bank counters at. If they say yes, then we submit the offer, and have a clause that they must wait 90 days to withdraw or loose their EMD.

I get low ball offers all the time on short sales.  Check with your local boards since ours have come up with a special status "Under contract continue showing".  This does allow a realtor to accept an offer and actively market the property for additional back-up offers.

Good luck with your short sales.

I keep telling folks - short sales are not fire sales! Be realistic, perhaps a bit discounted!

Debe, great description of a complicated process. Pulling a short sale property off the market with an offer that is surely not going to be accepted by the lender, even if you can continue to show it,  is always destructive to the seller's long term value when it is returned to the market.

Debe, very good information. Many potential buyers are under the misconception that a short sale is an opportunity to steal a property. Sellers need to be aware of this and evaluate offers they receive with proper due diligence.

Great information Debe; buyers need to realize this and bid accordingly.  Nice post.

Beautiful post about the politics of a short sale Debe!  Time is of the essence depending if the seller is behind on payments or not to receive a good solid offer that can close.

Lenn, AMEN!  If you understand short sales, you will recognize that our list price is market value BOTTOM and coming in 25% or more below that price is not going to do anything but, spin wheels.  

Fernando, and it wastes the buyers' agents time as well!  Why BOTHER?!

Bryant:  You taught me well!  Yes, it's a much smoother process when we're all on the same FMV page.

Richard:  Mine won't, that's for sure!

Allison:  You're right and then we KNOW we're going to battle the BPO so, going in strong initially is imperative.

Irene:  I believe that the understanding from buyers agents is better now than it was a year ago but, we still battle those who have no clue every day.

Renee:  Thanks!  It applies nationwide as well!

Gabe:  I guess that mentality is nationwide as well because I get that argument more than any other!  

Missy:  Countering is a must with lowballs--some will even demand that you present the lowball to the bank--because 'after all, they ARE the seller!'  LOL I like your 90-day form and do not do that but, great idea.  Is this a state form or one that you personally use?

Keith:  We do continue to show with a Contract in place for a short sale--and continue to take back-up Offers.  However, if we're lowballed and counter back to them, they often don't understand the 'why's' to our counteroffers.  They feel that the bank is the seller as in a foreclosure!

Gary:  That's our mantra too!

Howard & Susan:  That is SO true--we need to protect them as best we can by advising NOT to accept the lowball's that are so out of range that they will get nowhere--as their property values continue to drop!

Michael:  They need to understand that they, indeed, ARE getting a great deal--but, they're not going to STEAL it!

Kenneth:  Thanks ang agreed!

Renee:  Yes it is!  That time needs to be spent more wisely by entertaining reasonable Offers and not wasting everyone's time with lowballs that will ultimately get us nowhere.

Great post and this is exactly the reason I have had to fire some of my wife's clients (buyers) as they think they are smarter than the system with their desire to exploit the market trying to get a (DEAL)....

Nice explanation. It used to be Ok to "start the process" with a low offer. Most banks now want to see it once and move on.

Good morning, Debe. Great point and explanation why buyers should offer a fair purchase price instead of a low-ball offer… that will likely be rejected by the lender.

Great post Debe.  Provides all the more reason why distressed sellers and buyers should use an experienced short sale agent.  Thanks for sharing!

Debe,

Great post that sets the record straight. Every buyer's agent in the country should get a copy of your post.

The seller's primary motivating factor is speed and likelihood of closing. Offers that cannot be supported by comps just end up getting denied and getting the seller closer to the foreclosure auction.

Wonderful post.  Many buyers don't often understand that the bank is going to do their part in making sure they they can recover as much money as possible so they can lose as little money as they have to.    There's so much education that needs to take place for the buyer prior to writing an offer on a short sale.

Hi Debe,

I'm seeing that many banks and listing agents want to see a preliminary HUD from buyers and their agents....great tactic for all!

Dick Beals

Debe,

An excellent informative post.  Besides being a waste of time, it's like kicking people when they are down.  But what I've learned is most people don't do anything that isn't directly going to benefit themselves.

Very informative post Debe.  We've been in a buyer's market for so long, that it seems that any offer has a reasonable chance for acceptance.  While this is not true, for the Short Sale seller it's even more disadvantageous for the reasons you've mentioned.

I had an offer come in for a short sale listing which was about 28k below the fair market value. They also only alotted 15 days to get short sale approval from the lender. ????  Can you say counter offer? Haha

Nate--Really!  What on earth was the buyer's agent thinking too?  15 days--only your dad can do that and even then, it's probably not a high percentage of those that he actually CAN do!  

Hi Debe - I agree with your comments, but I'll throw this in for discussion. I wonder why we keep saying that the lender(s) in a short sale is a not "a party to the contract".

Really? Perhaps we need to revise how we say this.

I know they are not on the executed offer but they are "the party" in approving the sale of the contract, the settlement terms of the transaction, what the seller pays or does not pay, what the buyer pays or does not pay, the counters, the final sales price, the terms of the sale, the commissions, the escrow settlements fees, the close of escrow date, and the short sale approval letter... well, you get the idea. In other words, without the lender(s)'s terms and conditions, and approval, there is no contract between the seller and the buyer that can be closed - they carry the greatest amount of authority in the transaction.

So why do we say they are "not a party to the contract" when they actually govern and approve almost every single item in the transaction?

I'd say they are a party to the contract.

I agree with you Richard to some degree--legally, however, they're not a party to the Contract itself.  The reason that we say that is to inform buyers and their agents who are unfamiliar with the short sale Contract, that the bank does not actually sign the Contract.  One of the most common questions that I get is, "Did you present the Offer for the bank to sign?"  That's why we explain it in those terms so that they'll understand why sellers won't sign their Offer and submit it to the bank until it's a 'quality' Contract--one that the banks will ultimately approve (or should approve!).  

And, you're also correct--the sellers cannot perform on the Contract without the bank agreeing to take the agreed upon price between the buyer and the seller/homeowner.  That is another thing that is often a misconception.

How many lower offers are refused before the home ends up in foreclosure?  If sellers are coached to accept only offers at or near full retail price, the inevitable will happen.  I'm sorry, but a distressed property in an already flooded market, with sellers facing foreclosure, needs almost any offer the lender might consider.  Too low of an offer will get rejected immediately.  A ball park offer vs. the cost of foreclosure will get the lenders attention.

The IRS can NOT collect tax on debt forgiveness if the property is the sellers primary residence.  This is part of the Debt Forgiveness Act that was enacted in December of 2007.  Too many sellers are being misinformed and led to believe that they will receive a 1099 on any debt that is forgiven.  This is not at all true, unless it is not a primary residence.  In almost every case, the homeowner is selling their personal residence.

The seller can receive a deficiency judgement, which any skilled negotiator can negotiate out completely or have it largely reduced.  Most lenders will sell any deficiency debts for around 10 cents on the dollar so they can and will negotiate the balance due. 

Buying and selling is about negotiating and not being afraid to ask for some concessions.  So many sellers are being misled about all of this.  Holding out for retail value only gets them closer to the foreclosure.  Ever month that goes by without mortgage payments made only lessens the chances of  a short sale working out for them.

How many homeowners are being told that they need to be behind on their mortgage to qualify for a short sale?  Shame on anyone that has told a client that.  The process may take a little longer, but lenders can and will do short sales on current mortgage payments.

Yes, I am an investor, and yes I do buy short sales.  I do put in lower intial offers, but the bank will counter back  closer to where they need to be.  They will not accept my offer if it isn't the right financial decision for them.  They accept, I buy the property, I sell the property for a profit.  The lender moves on, the seller moves on, and I move on.

Folks like to throw stones at investors for trying to make a profit and can't believe that someone should be able to flip a property.  The next time everyone goes looking out for the lenders best interest, keep in mind that they are the biggest "flippers" out there.  They finance a mortgage and turn around and sell it almost immediately for a profit, do they not?

You would be far better off to let the seller make his/her own decision about what to accept.  Does it come down to doing what's best for the seller or what's best for your comission?

Kyle,

Ten cents on the dollar is not happening in our area AT ALL.  Fair market value--not full retail price is what we're working to achieve for the approval.  I've seen other agents' sellers go into foreclosure because the bank refuses to work with the lowball offer that they have in-hand--they sit and wait and wait until foreclosure takes place.  Full retail price isn't even happening often with resales but, with short sales, we price them at fair market value because ultimately, the bank WILL obtain a BPO and if we don't have what they want, they will counteroffer the buyer who, oftentime walks at that point, costing the seller precious time.

And, I resent your final statement--my commission is not, in any way, my reason for penning this article; it's to help my sellers, hopefully bring in educated buyers who know that lowball offers do NOT get accepted by the banks--especially ones that are offering ten cents on the dollar.

Debe,

I cannot buy any properties at ten cents on the dollar.  What I stated was that the seller cannot receive a 1099 on a primary residence, due to the Debt Forgiveness Act of December 2007, though they may receive a deficiency judgement.  It is the deficiency judgement that can be negotiated with the lender down to ten cents on the dollar or often times waived entirely.  There are times when they won't budge on it, but that is unusual.

Most homes that go into foreclosure in this area is because a seller won't come down on their price.  Too low of an offer is rejected immediately by the lender.  I've yet to see a lender spend days, weeks, or even months to decide that an initial offer is too low, tying the property up and leading to an eventual foreclosure.  It is just the opposite.

My initial offers are discounted but in ballpark range to get the banks attention.  I know that they will want to counter my offer and I know that they will do a BPO, giving the property their own price oppinion.  Not a problem, and we go to work from there.

A lot of folks tend to forget that these are generally distressed properties in an already flooded market and need to be treated as such.  Too often they are treated as a normal sale as if nothing is going to happen when the listing expires.

You wouldn't believe the calls that I get from misinformed sellers that tell me their auction date is just a couple days away.  They stopped making payments because their realtor told them they had to be behind on payments.  They rejected several lower, reasonable offers because they were told that the bank would never accept it.  They were told they would receive a 1099 on the forgiven debt.  By that time, it's too late.  Another one bites the dust.

Lower offers can and do get accepted.  It does provide an alternative for the seller with the right negotiations, such as deficiency waived or extremely reduced, no 1099 on a primary residence, foreclosure avoidance, and peace of mind.

I do apologize if I offended you with my last statement in my last post.  Often times it seems to be the case, though that certainly doesn't apply to everyone.