Coaching
Disputing a property’s value in a short sale: turn a no into a go
During a short sale, there may be various obstacles, with misaligned property values ranking near the top, but it doesn’t have to be a dealbreaker!
It’s about getting your way
Were you on the debate team in high school? Were you really effective at convincing your parent or guardian to let you do things that you shouldn’t have been doing? How are your objection-handling skills? Can you flip a no into a go?
When working on short sales, there is one aspect of the process that may require those excellent negotiation or debate skills: disputing the property value. In a short sale, the short sale lender sends an appraiser or broker to the property and this individual conducts a Broker Price Opinion or an appraisal, using special forms provided by the short sale lender.
After this individual completes the Broker Price Opinion or the appraisal, he or she will return it to the short sale lender. Shortly thereafter, the short sale lender will be ready to talk about the purchase price. Will the lender accept the offer on the table or is the lender looking for more? If the lender is seeking an offer for a lot more than the one on the table, mentally prepare for the fact that you will need to conduct a value dispute.
Value Dispute Process
While each of the different short sale lenders (including Fannie Mae) has their own policies and procedures for value dispute, all these procedures have some things in common. Follow the steps below in order to conduct an effective value dispute.
- Inquire about forms. Ask your short sale lender if there are specific forms that you need to complete in order to conduct a value dispute. Obtain those forms if necessary.
- Gather information. Your goal is to convince the lender to accept the buyer’s offer, so you need to demonstrate that your offer is in line with the value of the property. Collect data that proves this point, such as reports from the MLS, Trulia, Zillow, or your local title company.
- Take photos. If there are parts of the property that are substandard and possibly were not revealed to the lender by the individual conducting the BPO, take photos of those items. Perhaps the kitchen has no flooring, or there is a 40-year old roof. Take photos to demonstrate these defects.
- Obtain bids. For any defects on the property, obtain a minimum of two bids from licensed contractors. For example, obtain two bids from roofers or structural engineers if necessary
- Write a report. Think back to high school English class if necessary. Write a short essay that references your information, photos, and bids, and explains how these items support your buyer’s value. This is not something that you whip up in five minutes. Spend time preparing a compelling appeal.
It is entirely possible that some lenders will not be particularly open-minded when it comes to valuation dispute. However, more times than not, an effective value dispute leads to short sale approval.
Coaching
Short sale standoffs: how to avoid getting hit
The short sale process can feel a lot like a wild west standoff, but there are ways to come out victorious, so let’s talk about those methods:
What is a short sale standoff?
If you are a short sale listing agent, a short sale processor, or a short sale negotiator then you probably already know about the short sale standoff. That’s when you are processing a short sale with more than one lien holder and neither will agree to the terms offered by the other. Or… better yet, each one will not move any further in the short sale process until they see the short sale approval letter from the other lien holder.
Scenario #1 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they will proceed with the short sale, and they will offer Bank 2 a certain amount to release their lien. You call Bank 2 and tell them the good news. Unfortunately, the folks at Bank 2 want more money. If Bank 1 and Bank 2 do not agree, then you are in a standoff.
Scenario #2 – You are processing a short sale with two different mortgage-servicing companies. Bank 1 employees tell you that they cannot generate your approval letter until you present them with the approval letter from Bank 2. Bank 2 employees tell you the exact same thing. Clearly, in this situation, you are in a standoff.
How to Avoid the Standoff
If you are in the middle of a standoff, then you are likely very frustrated. You’ve gotten pretty far in the short sale process and you are likely receiving lots of pressure from all of the parties to the transaction. And, the lenders are not helping much by creating the standoff.
Here are some ideas for how to get out of the situation:
- Go back to the first lien holder and ask them if they are willing to give the second lien holder more money.
- Go to the second lien holder and tell them that the first lien holder has insisted on a maximum amount and see if they will budge.
- If no one will budge, find out why. Is this a Fannie Mae or Freddie Mac loan? If so, they have a maximum that they allow the second. And, if you alert the second of that information, they may become more compliant.
- Worst case: someone will have to pay the difference. Depending on the laws in your state, it could be the buyer, the seller, or the agents (yuck). No matter what, make sure that this contribution is disclosed to all parties and appears on the short sale settlement statement at closing.
- In Scenario #2, someone’s got to give in. Try explaining to both sides where you are and see if one will agree to generate their approval letter. If not, follow the tips provided in this Agent Genius article and take your complaint to the streets.
One thing about short sales is that the problems that arise can be difficult to resolve merely because of the number of parties involved—and all from remote locations. Imagine how much easier this would be if all parties sat at the same table and broke bread? If we all sat at the same table, then we wouldn’t need armor in order to avoid the flying bullets from the short sale standoff.
Coaching
Short sale approval letters don’t arrive in the blink of an eye
Short sale approval letters may look like they’ve been obtained simply by experts, but it takes time and doesn’t just happen with luck.
Short sale approval: getting prepared, making it happen
People always ask me how it is that I obtain short sale approval letters with such ease. The truth is, that while I have more short sale processing and negotiating experience than most agents and brokers, I don’t just blink my eyes like Jeannie and make those short sale approval letters appear. I often sweat it, just like everyone else.
Despite the fact that I do not have magical powers, I do have something else on my side—education. One of the most important things than can lead to short sale success for any and all agents is education.
Experience dictates that agents that learn about the short sale process
have increased short sale closings.
Short sale education opportunities abound
There are many ways to become educated about the short sale process and make getting short sale approval letters look easy to obtain. These include:
- Classes at your local board of Realtors®
- Free short sale webinars and workshops
- The short sale or foreclosure specialist designations
As the distressed property arena grows and changes, it is important to always stay abreast of policy changes that may impact how you do your job and how you process any short sale that lands on your plate.
The most important thing to do is to read, read, read. Follow short sale specialists and those who blog about short sales on AGBeat, Google+, facebook, and twitter. Set up a Google Alert for the term ‘short sale’ and you will receive Google’s top short sale picks daily in your email inbox. Visit mortgagor websites to read up on their specific policies and procedures.
Don’t take on too much
And, when you get a call from a prospective short sale seller, make sure that you don’t bit off more than you can chew. Agents in most of America right now are clamoring for listings since we are in the midst of a listing shortage. But, if you are going to take on a short sale, be sure that it is a deal that you can close. And, if you have your doubts, why not partner up with a local agent that can mentor your and assist you in getting the job done? After all, half a commission check is better than none!
Coaching
Short sale time saver: remove non-institutional liens early
Short sale nightmares are abundant, but with this one smooth move, you can go a long way towards smoothing the path toward a successful closing.
Short Sale Nightmares
If you are a short sale negotiator, a short sale listing or buyer’s agent, or if you are involved in a short sale transaction of any kind, I’m not sure whether you could imagine anything worse than this: five months to receive short sale approval, buyer’s loan documents are finally signed, and then you hear the unfortunate turn of phrase, “There’s a lien on the property (or against the seller) that needs to be removed before we can close.”
While I’m not a title expert, I can still advise that it is vital to order a copy of the preliminary title report on the property listed for short sale as soon as possible. Then, review the title report to be sure that all of the liens that are noted in the report are being removed and/or worked on as part of the short sale transactions.
Say, for example, that there are three mortgage loans and an HOA lien. Check in with whomever is doing the short sale processing to be sure that all of those items are being addressed with the short sale lender and are included in the proceeds of the sale.
What about non-institutional liens?
There are other kinds of liens, however, that are a matter against the individual and may not appear on the preliminary title report. These may include a child support lien, an abstract of judgment (like an unpaid credit card bill), or a federal or state tax lien. These items, if they appear when the title company (or your attorney or your escrow company) is doing their due diligence, may have an unfortunate impact on your short sale.
What short sale lender, for example, is going to be interested in paying off your seller’s unpaid child support bills?
That’s why it is so important to look into all the liens on the property as soon as possible. If you are the listing agent, have a look at the preliminary title report when you take the listing. If you are a buyer’s agent, ask for a copy once you have an offer that has been accepted by the seller.
By adhering to this practice, no party to the transaction is going to spend months and months working to get a short sale lender approval letter on a deal that may never close.
Think that this is tough to remember? Whoever first said “The devil is in the details” was probably referring to short sales.
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Hank Miller
November 6, 2013 at 6:58 am
On the surface the common sense things are pointed out. However, common sense does not apply with lenders and short sales. Similarly, common sense doesn’t apply with most agents and their opinions – and how they approach the appeal process.
FNMA appraisers are completing many short sale appraisals, lenders are moving away from BPOs as they look to maximize the sale price of properties. The appraisers (I have been a FNMA appraiser for over 9 years) are expected to cast the best light on the home with strong regard to rising market prices. In short, lenders are fine foreclosing on homes in rising markets – especially with the insurance and fed handouts helping. The banks will not lose money – remember that and you understand the rules. The mentality of distressed homes has been “bargains”….that is long gone.
Also, most agents do not provide a solid argument for value disputes. Appraisers require closed sales that meet the requirements for time and distance – and that are comparable. Agents, either through a lack of knowledge or ignorance to the appraisal process, often seem unable to grasp this simple fact. Appraisers have no interest in any property other than to impartially complete the assignment, there is no reason to skew the results in any direction.
The one key are that should be examined is marketability of a home – focus on the days on market, functional or external obsolescence, market reaction to things about the home. I find it better to demonstrate and illustrate the issues AND THEIR IMPACT on marketability than to take a shotgun blast at data. Agents focus on the present, appraisers tend to focus on the past (closed sales). The big but – #5 cannot be overstated. I’ve seen countless “appeals” that look like a third grader wrote them…that undermines the argument the moment the reader gets started.
Ro Reed
November 6, 2013 at 8:44 am
…unless you are working with FNMA. Their values are off the charts ridiculous and have been for some time now. I wrote a compelling case, showing that in fact the offer on the table may very well not even appraise and they actually reconsidered and came back higher. It is rumored that they are using models which take recent history into account, and since we had a booming first half of the year, they project that out for the next year plus (until they foreclose) and somehow reason that is the value to be paid today. There are so many flaws to this plan, not the least being the slowdown experienced in the third quarter vs. the second, the tighter lending restrictions starting in 2014 with Dodd-Frank, and simply the fact that no one is going to lend on the promise of increased value down the line. To give concrete numbers this was a property listed at $72,500, which recent comps bore out at $67,500, and Fannie wanted $80,000 and then $85,000!
I agree that you need to be thorough in your value dispute, however, logic does not always win out in short sales.