Short sales are riddled with possible pitfalls for agents, especially at the pricing stage; Joseph C. Alfe explains what agents should do.
From what I’ve seen, not having a pricing strategy, or mis-pricing short sale listings, is a major contributor to short sale delay and failure. Something as simple as getting the price right may be the difference between a successful short sale and a foreclosure. This failure could very well become the basis for a complaint or lawsuit against the listing agent on the basis of negligence or incompetence. My rule of thumb is simple: If you have a short sale listing on the MLS for more than 30 days without an offer, you’ve priced it wrong.
In the last few years, I have noticed something about buyer’s behavior. It used to be if the buyer was willing to pay $95,000, and you were listed at $110,000, they would make an offer. Now, when there may be dozens of listings comparable to yours, and many REO and short sale bargains out there, that same buyer will pass your listing right up and move on to the next one.
Pricing Psychology and the Seller
Many times, when I point out the fact that a listing has been priced out of the market, the excuse I get from the listing agent is that the seller did not want to price according to today’s market value. This is not acceptable. As a listing agent, you must be in control of your seller and your listing at all times. This is especially true in a short sale. We must be very clear in communicating how and why we are pricing a listing the way that we are, and understanding the seller’s psychology is key.
There are three main steps in determining and presenting a short sale listing price strategy. They are:
1. Know The Market – The secret to a successful short sale is being able to justify your offer/list price to the lender using current and relevant market data. In effect, do your own BPO/CMA, and gather true, recent comparables that reflect closely on your price.
As we know, there can be a wide range of values for comps. I suggest picking the low end of the scale and pricing your listing accordingly. In a short sale, amenities and improvements don’t count. No one cares that your property has granite counters and a Jacuzzi. If a buyer looks at three comparable properties, and they are priced at $100,000, and yours is clean and tidy with nice amenities and priced at $135,000, you will lose the sale every time because the buyer will go with the lower price and think that they will improve the property themselves for cheaper. In short, price your listing very aggressively, and at the bottom end of the market scale.
2. Communicate with Seller – This is where most agents fail. Somewhere along the line, we stopped being salespeople and became order takers. This worked through the boom years, but it is a recipe for failure today. Sales are about control, and you must be able to be confident and control your seller. We must explain with confidence that, in your expert market experience, that in order to attract offers, you have determined that this is the price. We do not and can not think of what the property used to be worth, and we can’t pine for what we wish it to be worth. You need to tell your client, “The reality is, according to this market data, the listing price needs to be X in order for us to be successful. What you owe to the bank is irrelevant. The lenders only concern is how much is it worth today and what can you get for it.”
That’s it. We must also explain our strategy to attract quality, legitimate buyers. Unqualified buyers are a huge problem. Remember, we are not necessarily looking for the highest price; we are looking for the strongest buyer. This is critical. Our fiduciary duty to the seller is to put them in the best financial position and to get the property sold, not necessarily get the highest price. Neither the agent or the seller owes any duty of highest disclosure to the lender. If we price a listing correctly, we should attract multiple offers in a short period of time.
For instance, say there are two offers from FHA buyers for $100,000 and $101,000, and one cash offer for $90,000. So long as you can justify the offer with market data, the cash offer is strongest, and therefore the one we recommend to the seller. We can only attract these types of offers by pricing correctly. When I look in the MLS and see short sales that have market times of 90-plus days with no offers, that is clear indication of an agent who is endangering their seller with their inexperience.
3. Make The Seller Understand – A successful short sale listing agent can make a seller release their emotional attachment to a property and view the short sale as a business decision. First, I stop calling it a home. The word “property” is used to distance the emotional aspect of the home and helps the seller view it as an inanimate object. We also need to talk about the seller’s relief after the short sale, and how much not having the uncertainty of the transaction is going to relieve their stress. Help them find alternate housing, which goes a long way to helping sellers let go of their current property.
Finally, just level with them. Many feel bad that they were not able to live up to their obligations. Remind them that you understand, and that you share their concern, but that ultimately, this is a simple business decision, and this short sale will help them “close the books” and allow them to move on to new opportunities. If a big corporation finds one of its brands foundering, they will take the loss, write it off, sell the underperforming asset and move on. There is no reason the average seller can’t do the same.
In a short sale, the successful listing agent knows the market, gathers relevant market comparables, then prices the listing aggressively to attract multiple offers. If done right, offers should come in no more than 10 days listing time. If you are having little to no showing activity, your list price is way out of market. If you have showings but no offers, you are close, but not close enough. Remember, we want to find the “Sell Right Now” price. The market will respond when you find that price, and then you can determine the strongest buyer and accept that contract with confidence. So long as you can justify that price with market data, you shouldn’t have issues getting it approved as a short sale.
Joseph C. Alfe worked as a mortgage lending executive with a leading mortgage lender before starting his short sale negotiation company, Short Sale Processors, in 2005. Since then, he has stayed at the forefront of this constantly changing industry as one of the only truly independent, third-party negotiation firms, and has consistently innovated and developed cutting edge negotiation techniques and best practices.
Joseph and his associates have closed nearly 1,000 short sales, and he continues to be active as a short sale coach, consultant, and speaker. SSP is based in Chicago, and negotiates short sales throughout the country. Joseph resides in the northwest suburbs of Chicago with his wife and 5 children.
For more short sale road rules and information about the author, visit his Facebook fan page and website.