3. Counseling Buyers In this chapter: Ideal buyers for short sales Questions to ask listing agents Writing the offer Contract acceptance Common results of short sales 49

Not All Buyers Ideal for Short Sales Assess buyers position during counseling Use worksheet and checklist in Figures 3.1 and 3.2 Must understand issues or they are wasting time Sellers Theirs Agents 49

Questions to Ask Listing Agents 1. “Is the short-sale package ready for submission to lender?” 2. “How many liens are on property?” 3. “If more than one lien, what are they?” 4. “What is plan to satisfy all lien holders?” 52

BOTH AGENTS HAVE A DUTY TO Negotiate best price and terms for their clients BEFORE THE CONTRACT GOES TO THE LENDER FOR APPROVAL 52

Timing: Lender Approval No specific time frame for approval 30 days up to 6 months or longer If unrealistic, it weakens buyer’s offer Property could go down in value – update CMA for buyer throughout process One of the things the lender looks at to gauge if this transaction has a “reasonable chance of closing” 52

Timing: Earnest Money Due according to terms of contract At time seller signs in most states If buyer wants it later – must stipulate Issues if not deposited until after lender approval: Broker liability if personal check too near closing Buyer commitment to transaction Must be deposited as state law requires 53

Timing: Home Inspection Inspections to be done within “?” days from acceptance – not from lender approval Little chance for buyer to negotiate repairs if done after lender approval Most short sales are ‘as-is’ and there is NO negotiating repairs – either before or after approval 53

Timing: Home Inspection After Lender Approval Seller will have house tied up for months with buyer’s having ability to back out after lender approves Why would buyer want to be tied into a transaction on a property he or she doesn’t want? Short time between approval by lender and closing date may not allow for due diligence ‘Reasonable chance of closing’ factor 54

Mortgage Application Quick turnaround from lender approval to closing – buyer may not have time to get mortgage if he doesn’t apply until after lender approval Needs to be working with a lender who understands the timing on purchase of a short sale 54

Low Interest Rate in the Offer Seller Concerns If rate goes higher than what is in contract buyer has an out Buyer Concerns Costs money upfront to lock Float may increase the rate Buyer’s lender needs to understand short-sale purchases 54

“Reasonable chance of closing” factor Price Seller Concerns Lender might not approve Possible deficiency pay-back Buyer Concerns Too low – lender might not approve Wasted time and possibly money Definitely a “Reasonable chance of closing” factor 55

Win-Win The Buyer: Offers the seller a fair price Allows for reasonable time for lender approval  Tenders earnest money with the offer Completes all inspections Applies for mortgage after acceptance by seller 55

Win–Win Not unreasonable for buyer to ask seller not to entertain subsequent offers If seller agrees - the appropriate language would be needed in the sales contract addendum Listing agent needs seller’s written direction to suspend his obligation to submit all offers Code requires all offers be presented to sellers Does not require all offers be presented to lender 55

Contract Acceptance • Contract is signed by buyer and seller— lender approves short sale – not contract Either party can back out if not signed • The fact that seller accepts offer contingent on bank approval does NOT guarantee bank approval 56

Subsequent Offers • If contract between buyer and seller allows for subsequent offers listing agent must submit to seller all the way to closing Must disclose existence of accepted contract to brokers seeking cooperation Must report to MLS as required Determine lender’s protocol on subsequent offers 57

Goal for Seller Release and forgive remaining debt Common Results Release lien – remaining debt on payments Release lien – liquidate assets to pay deficiency Release lien – forgive remaining debt Goal for Seller Release and forgive remaining debt 57