Article Courtesy of Stephen Wilde of Wilde Law Firm
Carolina Living Real Estate has sold numerous Short Sales and we are huge advocates of using Wilde Law Firm to represent our sellers and assist them with getting their home sold. As Stephen has said, Realtors should not be handling these transactions by themselves due to liability. We know that with regard to banks and short sales in NC, Stephen knows his stuff. Thus, we have chosen to publish an article he wrote in his newsletter.
Enjoy!
If you are an investor in the real estate market looking for steals then you might want to skip short sales and head to the courthouse steps. Short sales require a “market price” offer and have for several years now. Seriously, I am not kidding. Just so you know, the bank/servicer has heard all of the arguments….”Well if you don’t take this offer it will go to foreclosure”…”That is ridiculous. You will never get that for the property”…”Well look at what it will cost to get this property up to livable standards”…”If you don’t give us a discount, my buyer will walk”…etc. None of these arguments will result in an approval below market price.
Bank/Servicer. Remember that we are usually dealing with a loan servicer who does not own the loan but is merely servicing it. The loan servicer must strictly follow the note holder’s guidelines. The loan servicer will be audited and if they have deviated from the guidelines at all, like approving a short sale below market price, they will suffer the consequences monetarily.
Why? The main reason for this strict guideline is that the note holders do not want to establish a ‘sold comp’ in that neighborhood below market price because it negatively affects all the other property values….many of these properties also have loans secured by the property. Prior to Fannie Mae and Freddie Mac establishing this ‘market price offer’ requirement we had a falling market. After this guideline change we finally saw the market become more solid in most areas.
Market Price. “Market price” is usually defined as what other properties have sold for in that neighborhood or in a one-mile radius of the property in the last 3 months. Pull the ‘sold comps’ and you will come up with the range that the short sale offer needs to be in. That is correct, there is no discount for a short sale. Note: If it is an FHA or VA short sale the appraiser assigned to provide the value of the property is not usually allowed to use distressed sale comps (short sale or foreclosures) in the valuation.
“Let’s just see what the bank/servicer says.” This is a strategy that many take when approaching a short sale. In other words, “let’s base our entire short sale strategy on the bank making a mistake.” This strategy usually ends up shooting the Seller in the foot with a valuation at the top end of the ‘sold comps’ range…or even higher.
Property Condition Issue. If there is a major defect or issue such as a roof, foundation, HVAC, water damage, mold or Radon, then we can usually get an approval that takes into account the amount it will take to fix that specific issue. However, a certified home inspection and several estimates will have to be presented at the BPO/appraisal appointment in order to get the market value established lower than the comps. Note: It is important to establish the condition issue and the repair costs prior to the BPO appointment, not after the short sale approval letter is issued. After the Approval Letter has been issued the bank/servicer generally does not reconsider the valuation or renegotiate price.
General Fix up. Please understand that the bank/servicer does not own the property or even the loan, most of the time. They are not going to put in new carpet, paint, refinish floors, upgrade kitchens, buy appliances, mow the lawn or clean the pool so do not think that you are going to get a reduction in market price for these items. The only thing these issues will do is establish market price at the lower end of the ‘sold comp’ range.
I don’t give you this information to be difficult or to cozy up to the bank/servicers. I am just attempting to inject some reality into the market. Our approach is always to try to understand the bank/servicers as much as possible and give them something they can say yes to at every step of the process so that we can get the parties to closing as quickly as possible. Arguing with the driver of the bus is far less successful. We may have to roll up our sleeves and get into a scrap on occasion but I feel that approach should be used sparingly, not as the first and only strategy.
