It seems that everyone always complains about the mortgage lenders and complains that they are the reason that short sales do not close. You can read blog post after blog post and hear agent after agent complain about the trouble working with the mortgage lenders on short sales. But, the truth is that there are a number of other reasons that short sales do not close—that have nothing to do with the mortgage lenders.
Sellers Change their Mind. Sellers often opt for loan modification, bankruptcy or foreclosure after the short sale has been negotiated with the bank and the approval letter has been obtained. One good way to avoid this is to assure that the seller has ruled out other options for avoiding foreclosure before taking the short sale listing.
Sellers Lose their Patience. Sometimes the short sale process can be lengthy—particularly if buyers walk away and a new buyer is needed to obtain the short sale approval. I’ve heard horror stories of short sales that take over a year and then the seller just gives up and throws in the towel. One good way to avoid this problem is to lay out a worst case scenario for the short sale seller. Explain that sometimes the process can be very lengthy. If you set expectations at the beginning, most folks will stick around until the bittersweet end.
Buyers Walk Away. Some buyers will walk away during the process because they have found another property or because they have lost their patience. There are three great ways to avoid this problem:
- Set expectations and explain your short sale process to the buyers at the beginning so that they understand the time frames.
- Maintain weekly communication with the buyer’s agent and the buyers. Buyers who see incremental progress throughout the transaction are likely stick around until the end.
- Collect an initial deposit check. In the state of California, buyers and sellers can open escrow and collect an initial deposit check when the seller (not the seller’s lender) has accepted the offer. You can take advantage of this technique to assure that the buyer is serious about the property and not just placing offers everywhere in town.
Buyers Don’t Qualify. Sometimes during the short sale process, the buyer suddenly doesn’t qualify for a loan due to issues with credit or changing lender guidelines. While there are times when it is difficult to determine this upfront, obtaining more information about the buyers’ qualifications and/or having the buyer qualified by a second lender may help to assure that the buyer will qualify when it’s time to obtain the loan.
While there many other reasons that short sales do not close, these are some common ones that generally appear after short sale approval has been obtained.
Obtaining short sale approval letters can be a pain in the keister. Agents work hard to obtain them: often spending tens of hundreds of hours working on the approval. It would be nice to assure that the deal was going to close… wouldn’t it?