As an agent you hear of horror stories about short sales and how much of a pain they can be. I have closed several short sales but only recently have I understood what some of the agents were complaining about. Some banks will approve the list price of a short sale. When the bank approves the list price it is a much smoother transaction and the process does not take as long. If the bank does not approve your list price then it can be frustrating.
Why would the bank approve a list price?
- They would order a BPO (broker price opinion) early so that they know the market value of the property and this will attract buyers knowing that the price is approved and the process will not take months after they submit an offer. Some short sale buyers don't want to wait around for months while the bank is making its' decision.
Why wouldn't the bank approve the list price?
- It is possible that the short sale is on the market for several months and the market value will change so many banks don't want to order a BPO (broker price opinion) or start the short sale process until they have an offer.
- If they approve a list price then they have pretty much set a cap on the amount that will be offered and they will more than likely receive low ball offers. It is not uncommon for the buyer to offer more than the list price if the price has not been approved by the bank.
- The unapproved list price will probably be lower than if they approved a list price and this will spark more buyer activity and hopefully they will get multiple offers...this turns into a bidding war until they get the offer at or near market value.
If the bank decides not to approve a list price then they pretty much don't want to talk to the listing agent until there is an offer on the table. At this time the bank will ask to see the offer, a preliminary HUD1 (this is your settlement statement that you receive from the attorney at closing), they want a hardship letter explaining why the sellers are unable to continue paying their mortgage, financial statements and two years of tax returns.
Be prepared to pull your bank statements, income statements and a list of your monthly expenses multiple times during the process. The process will probably take several months and the banks are going to ask for updated information throughout the sale.
Once the bank has an offer, the seller's financial information and the market value of the property then they will begin to negotiate with the buyers. There are a lot of buyers that only want to look at short sales so you need to know what you are doing before diving in to the action.