What is a realistic price to the bank? Do they counteroffer?

Typically the banks are looking for a percentage of the BPO value as the realistic price. Fine if the BPO is in line, not so great when you get a bad BPO returned.

As a buyer agent I would think about this especially if the home your buyer is interested in is priced way under market value. If you have an investor that wants to steal a deal as it were and ride it out hoping for positive results then I think that is okay coming in low. But if you have a buyer that would like to occupy and the list price is way off the market value it is best to consider getting the offer in line. I suggest an offer around 92-95% of market value has a better chance of being accepted. The reason is that at a 95% offer and after most concessions and commissions it will bring the NET to the bank in the 86-88% range and that should work well. But even as I post this these numbers a sliding down a bit.

So if your buyer/occupant wants to test the waters with a low offer that is their option. If I were their buyer agent I would like to know they would come up as needed to seal the deal based on any sticking points. After all we are not in the business of writing offers for the mere practice of it.

Often a doesn’t typically counter back the offers on price the way you would think. If the offer is unrealistic they just deny it more often than not. This is another area where the competence of the listing agent or negotiator is important. A decent negotiator/listing agent after getting a ‘no’ will push back trying to get something everyone can work with. At times this might mean escalating the issue past the loss mitigator currently working the file. Too many agents hear ‘No’, ask why to the initial loss mitigator only to hit a wall. They hit the wall because that loss mitigator often has no authority to go beyond the guidelines in front of them. I am seeing this start to change a little now for the better but not across the board yet.

In reference to something like a counter the bank(s) might come back with limitations to the initial offer. For example stating that the most in closing cost fees they will pay is 3%. So if your buyer asked for 3% concessions any additional fees above that the bank is stating they don’t want to pay. This one is scary because if the listing agent doesn’t read that letter correctly and truly understand what they are asking you could go all the way through closing to find out the amount to the bank was wrong based on their paying more than agreed in the approval letter.

Typical counters from the first:
• Commissions (of course)(but don't do it)
• Total closing costs including the seller concession request
• Amount they will give to the 2nd lien, if one exists
• Paying property taxes
• Paying outstanding HOA fees or for resale documents
• Paying recording or other miscellaneous settlement company fees.

Typical counters from the second:
• How much they will accept to release the lien
---Often more than the 1st will pay
• Commissions again
---This one is just stupid to me as is does not affect their bottom line as any reduction in commissions would be paid to the 1st.

In response to these counters the money needed to meet whatever is finally negotiated can come from a few areas
• The buyer
---Increasing the sales price
---Reducing closing cost concession requests
• The seller
---Bringing money to the table to make of the difference
---Selecting to sign a promissory note as needed to appease one or both of the banks. Not typically an attractive options to the seller and sometimes not something the bank might want (strange, I know).
• The Realtors - But hopefully you do not allow this to be an option!

So Who is My Client? The Bank or Home Owner?

For many of us we know the answer to the question who is our client during a short sale. But honestly it is a good question to answer for those who have not stopped to ask the same question.

Simply put the home owner and not the bank is your client during a short sale listing. All things being equal the only difference is the need to get the banks approval for the agreed sales price. Will they accept a lower payoff to release the lien? You will most likely see this noted in other posts but remember this as you stay tuned into your fiduciary responsibilities.

Fannie Mae - No Negotiation of Preforeclosure Sales Commission

Great news shared from our state association today that affects all of us across the U.S. negotiating short sales with Fannie Mae.

Here is the article (abbreviated) sent out to us from VAR (Virginia Association of Realtors). We heard about this 2 weeks ago but seeing it 'in print' as it were is very comforting.

Fannie has now announced that effective March 1, 2009, the approval and closing of short sales will not be conditioned on the willingness of the listing firm to alter its fee arrangement with the borrower, as long as the total commission does not exceed 6%. The official guideline is set out below.

No Negotiation of Preforeclosure Sales Commission

Servicing Guide, Part VII, Section 504.02: Contacting Selected Borrowers
Effective March 1, 2009, closing of preforeclosure sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price of the property in the aggregate. Servicers are reminded that they must continue to obtain any approvals that may be required by interested third parties in connection with preforeclosure sales.

Here is a link to the new Fannie Mae guidelines (18 KB PDF download) and the page at eFannieMae.com which shared this news.

Submitting a Winning HUD-1!

The most important tool in your negotiating arsenal is your HUD-1. Some agents send in a Net Sheet that is 'estimating' the numbers and the dollars the bank will get. There are some problems with this in my opinion.

If you submit a Net Sheet or a loosely calculated estimate of what the bank will net with your short sale it could become an embarrassing situation when the bank approves this after some long negotiations only to find out the number was wrong and low. If you plan on doing short sales on a regular basis then you need a good relationship with a reliable attorney/closing company to pull your title and get you the most accurate HUD-1 from the start.

Here are the keys to a winning HUD-1 for submission to the bank.
- Make certain taxes and fees that may be due are calculated out months down the road to a date you think it will actually close. Often this date is 3 or 4 months out from the creation of the HUD.

- Have the title search run to find any additional liens. Too often a client has told me there were no liens and we find one anyway. Add this to the HUD and estimate the cost to close it 3 or 4 months down the road when the sale might close.

- Include HOA/Condo fees and find out if your client is also behind on these. If they are find out how far behind and again add additional months as needed to match your estimated close date.

- Separate HUD's for a 1st Lien Holder and the 2nd Lien Holder if two loans with separate banks. The HUD to the first shows a larger payoff to the 2nd, while the HUD to the 2nd shows a low offer to them (the 2nd). Both banks will almost always say push the other way. The 1st will say they don't want the 2nd to get that much and the 1st will ask for more. Preparing the separate HUDs sets you up for success and meeting in the middle.

- Get your attorney/title company paid. Know from the start that many banks won't pay recording fees and overnight fees, things of that nature. Suggest from the start that your attorney roll their fees together (where allowed) into their settlement/closing fee on line #1101.

- Also you need to know that it is very hard to get the banks pay for home warranties or inspections. So if they need to be paid either the buyer or the seller will need to pay for these so try to keep them off of the seller side of the HUD if you can.

I hope this will help you get that much closer to easier negotiations. As always if you have questions or concerns talk with YOUR broker. If you are your broker then, umm . . . ? :-)

But the Bank Told Me . . .

The bank negotiators job is to make certain the short sale offer fits their general guidelines for acceptance AND to get as much money as possible for the bank. Just as you are setting expectations for your seller and the buyer agent in your transaction the Bank Negotiator has some tactics as well.

Whether it is at the start of one of your submissions or during it you might hear a negotiator tell you something like 'and remember we won't accept short sales with over X% commission'. They might make a statement about the seller needing to pay 'X-dollars' for the short sale to be reviewed. Don't waiver from your path, send the offer over as you have it without the seller bringing money and without reducing your commission to match their "requirement". If they contact you after stating you need to make changes to the offer to match those requirements I strongly suggest that you do what you can do to get it reviewed as is. Use your negotiating skills and if needed escalate the offer to someone else.

If your offer is strong enough and close to Fair Market Value (FMV) then there is no solid rationale for the bank not approving your offer. The issue here is YOU believing and understanding this.

I guess what I want you to take from this post is that you work for your seller and not the bank. So don't make the mistake of letting the bank 'tell' you anything that could mean money out of your client's pocket.