By Brian Salgado
A Short Sale is Surprisingly a Good Deal
It is easy for buyers, agents and loan officers alike to get discouraged when attempting to make deals in today’s unpredictable and suppressed real estate market – especially when it comes to the time-consuming process that is the short sale and the “X-factors” that come with dealing with distressed properties. However, Susan Brown, a mortgage banker for PHH Home Loans in Chicago, encourages agents to keep selling those troublesome listings and to have patience, because buyers could end up with a better deal than originally anticipated.
In fact, Brown recently closed on a short sale that, despite requiring nine months to complete, ended up saving the buyer $13,000. The property – a condominium in the South Loop – originally was appraised for $150,000 by the buyer’s appraiser. The buyer was set to close at that price, but the short sale took nine months to work its way through the seller’s bank’s system.
During that stretch, the real estate market took another turn for the worse, and the property was reappraised at $137,000. Brown and the buyer’s agent used that as leverage against the bank to bring the selling price down to that price, and the buyer walked away with $13,000 saved.
“Knowing the broker’s point opinion (BPO), we said we would like to renegotiate the offer,” Brown says. “The buyer walked away happy with an even better deal on the property.”
As beneficial as this situation turned out to be for Brown’s client, she admits that there is no standard to follow for short sales. Every bank has different processes in place, so the lead time for closing on a short sale can be between three and 12 months. Also, since most appraisers are not local to the Chicago area, their appraisals might vary significantly when compared to the buyer’s price point.
“A lot of agents’ first reaction when an appraisal comes in short is, ‘Lender is awful and their appraisers are from out of town, so they don’t know the market,’” she says. “But we’re in unchartered times. It is not their fault, and it is not the lender’s fault, either. Markets can slip, so we just took a positive spin on a negative situation.”
Brown also says agents shouldn’t avoid showing short sale properties to their clients because of the potential hassles. Since the seller is usually long gone and the bank wants to get rid of the property, deals like this can be had if the timing is right.
“Interest rates are low and values are at an all-time high, as is the buyer index,” Brown says. “The market is tough, but keep selling. We’re all in this together.”
Helping Close the Deal in the 11th Hour
No one likes to be told they must leave their home, but during the downturn, it happens more frequently than anyone wants. If there is too much tension between a willing buyer and a reluctant seller, a deal can fall through even on the day of a closing. But as these times have proven, the ability to work through these situations can make the deal happen – through situations however messy and lengthy.
Tim Perry, vice president and branch manager for Fifth Third Bank in Park Ridge, put his 19 years of lending experience in Chicago’s northwest suburbs to good use recently to make sure a deal came to fruition, even when faced with a dramatic last stance from out-of-luck owners of a distressed property.
Despite being told to leave the property by their lender, a couple who owned a distressed single family home insisted on living there through the day of the closing. Perry says when the buyers arrived for the final walk-through on the day of the closing, the sellers were not only present, but they were verbally abusive and threatened to remain in the home until they were thrown out.
Perry rounded up the attorneys for the respective parties to push the closing by five hours to give the owners time to move out of the property, and they eventually agreed to be gone by then. However, when the buyers returned to the property, they realized the sellers took the bathroom mirrors off the wall. Fed up, the buyers threatened to pull out of the deal at the 11th hour.
Again, Perry stepped in to make sure this closing went through. He asked the buyers what they felt the mirrors were worth, and they offered $2,000. The sellers, however, said they would only pay $200 for them. As a result of the tension of the day, the buyers replied that they would walk away unless they received at least $1,000 for what was rightfully theirs.
This is where Perry’s experience kicked in. He called his home office to see if various closing fees totaling $800 could be waived. After that was approved and combined with the $200 from the sellers, the buyers received their $1,000, and the $900,000 deal closed without any additional hitches.
“Everybody was happy and nobody had to walk away,” Perry says. “It turned out to be a good deal.”
With so many foreclosures, distresses and short sales on the market today, it is more than likely mortgage brokers will encounter situations like this numerous times in the foreseeable future. Perry recommends researching the situations behind these deals as much as possible so there are no surprises on the day of the closing.
“I would ask a lot of questions so you understand the situation properly,” he adds. “Buyers should find a solution provider vs. a low-rate quote because you have to understand the situation in order to come up with the right solution.”