High offer can botch short sale

REThink Real Estate

By Inman News Feed
Add Comment Add Comment | Comments: 1 | Posted Mar. 18, 2010

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REThink Real Estate

Tara-Nicholle Nelson
Inman News

Q: I'm in the process of trying to buy a home. I made an offer on a home that was a short sale and, because there were several other offers and I really liked the place, my offer was above the asking price. The listing agent said I was the highest bidder.

Then, we got a counteroffer from the seller and it was actually for a price lower than the price I'd originally offered! Then, my agent suggested that I make a counteroffer back higher than the seller's counteroffer but lower than my original offer price.

I am totally lost here -- I don't understand what the seller's strategy is or what I should do next.

A: The universe of short sales does boggle the mind! And from the buyer's perspective, it's more than a little crazy-making, because so much of what impacts whether or not the short sale will be approved by the seller's bank(s) (so that you can have your house!) is totally and completely out of your and your agent's control.

Other than your offer price, you have very little or no ability to impact the bank's evaluation of the transaction. Rather, the seller's financials and how they and the offer are presented to and managed by the listing agent are much more critical to the eventual outcome of your short-sale transaction.

Accordingly, one of the factors I look at before showing a short-sale listing to my own buyer clients is the listing agent's track record of successfully closing short sales.

And interestingly enough, it tends to be the listing agents who have done the most short sales that come up with these deceptively wise strategies, because they've learned the hard way what does and doesn't work, and want to maximize the chances that their hard work will culminate in an approved short sale.

Don't hesitate to ask your agent to ask the listing agent what their thought process and strategies are behind a seemingly bizarre counteroffer or anything else. If they can be reached by phone or e-mail, often they'll illuminate you so that you don't have to feel like you're just taking shots in the dark with no rhyme or reason.


I'm not sure how much you know about short sales, so I'll start from the basics: Short sales take a long time. I still hear buyers call them "quick sales," and constantly find myself correcting that extreme misconception. Where an "ordinary" sale is taking around 30-45 days on today's market, it is very common for short sales to take four to six months (or even much longer than that) to close.

A year is not unheard of. The "short" refers to the fact that the purchase price is less than -- or "short" of -- the amount of the seller's required payoff to their lender(s). As a result, the seller's lender(s) must approve of all the terms of the transaction before it can close. And sometimes they do, sometimes they don't. If any lender doesn't approve of the transaction, the deal will not close.

With that basic understanding in place, you'll see why short-sale listing agents are very cognizant of the fact that the buyer they get into contract with is not the buyer they may close the deal with. Because short sales take so long and are so uncertain to close, buyers often continue house hunting while they are in contract to buy a short-sale property.

Many will cancel their short-sale contract if they find another place they like more or have a higher certainty of being able to actually buy.

So, when you walk in and make a really high offer to buy a short-sale property, the listing agent is often very wary of taking that offer.

Here's what they fear: Say, hypothetically, that they accept your offer and submit the contract for approval to the bank(s). One bank approves the terms. The other bank is still considering it. In the meantime, you go off and find another place and back out of the deal.

Now the seller is stuck unable to sell the place at any less than your astronomically high offer price, because the bank has already approved it at that price, and may now believe that any price lower than that is below fair market value and an unacceptable loss for them to take.

Listing agents who have done many short sales have almost always had one experience like this, and know that it might actually be a disservice to their clients to put a super-high offer into contract. It can be the thing that prohibits their seller from being able to sell their home, in the final analysis.

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1. short sale said... on Mar 18, 2010 at 11:40AM

“Thank you for the information post. Appreciate it.”


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