The Typical Short Sale Process
The short sale process is linear, standard in fashion and highly predictable. A Short Sale happens when the proceeds from the sale of a home are not enough to satisfy the outstanding loans on the home and the seller cannot make up the shortage.
The process consists of a series of steps that must be followed to the letter. Since the short sale process is time-consuming, having an owner who understands the long-term benefits of a short sale and is committed to work with the broker to complete the transaction is crucial.
The biggest keys to a successful sale are having a complete and compelling package and consistently following up with the bank’s negotiator. If the broker knows key contacts within the bank, he can escalate short sale process requests beyond ground level negotiators. (In short sales, who you know is often times more important than what you know.)
What are the steps to a successful short sale transaction?
Here is a summary of the process along with approximate timelines for each task:
1) Financial information provided by homeowner to establish hardship – 3-7 days
2) List the home and get letter of authorization – 1 day
3) Market the home and get qualified offers – 30-60 days
4) Package all financial information per bank requirements – 2-3 days
5) Submit package to bank and confirm receipt – 2-4 days
6) Negotiator assigned to the file – 1-3 weeks
7) Appraisal / BPO ordered – 2-3 weeks
8) Bank responds with their terms and conditions – 2-3 weeks
9) All parties negotiate terms and conditions – 2-3 weeks
10) Escrow is opened and transaction closes – 4-5 weeks
These steps add about three to four months to the transaction, not counting the time it takes for the escrow to close.
Creating a Compelling Short Sale Package
The first step in the short sale process is to document a hardship with a compelling package. Before placing the home for sale, the broker will take time to properly prepare and document the hardship that the bank will review once the package is submitted.
With the hardship package complete, the broker will now establish a competitive market price for the home. Although the broker may suggest the price to list the home for sale at, the bank will ultimately decide based on market data what value they will agree to sell the home for.
The goal during the marketing period of the process is to generate serious qualified buyers who will stay with the transaction through the negotiation. Generating multiple offers will also show the bank that the seller has done everything possible to get them the best possible price for the home.
Once the buyer offers have been reviewed and all buyers have been properly pre-qualified, the broker must prepare the full package that will be submitted to the bank. This part of the process is critical because if the paperwork submitted is incomplete or incorrect, the bank will typically place the package in an “incomplete bin”, otherwise known as the trash. Sending the bank only the information they need, and not more, is an important part of the process.
Maintaining Consistent Follow Up with the Bank
With the paperwork now submitted to the bank, typically via e-mail or fax, the broker will follow up to confirm the short sale package has been received and imaged into their system. This is a key step in the process that can save a lot of time.
Once the bank has input the documents into their system, a negotiator will be assigned to this file. Again, a good short sale broker will follow up within days of submitting the documents to confirm all needed paperwork was received and to receive contact information on who they’ll be negotiating with at the bank.
The next step in the short sale process is confirming that the BPO or appraisal has been ordered. It is important to run a report of the comparable sales for the person doing the valuation. Giving them a list of repairs along with the projected costs to repair will facilitate an accurate evaluation while assuring the transaction moves to the approval phase sooner.
Awaiting the Bank’s Decision
The bank will review the documents along with the appraisal and determine the value they will agree to sell the home for. Their response may or may not be reasonable, and it’s important to understand the bank’s response is just that, a response. This may be the start of negotiations that will iron out the price and conditions included in the bank’s approval. This is perhaps the most critical skill that the broker needs to have, since the bank is only after one thing: Money.
When all the details have been negotiated and agreed to by the bank, seller, and buyer, the sale process can now move forward and open escrow. During the escrow period, the buyer will do a full home inspection and work with their lender to obtain a loan on the home. We are now seeing light at the end of the tunnel.
Closing the sale
One the buyer’s loan is fully approved, a final closing estimate is prepared for the bank to confirm that all the terms have been met and escrow has authorization to close the transaction.
This process takes a minimum of three months in addition to the time it takes escrow to close. By carefully preparing the homeowner’s case for the bank and doggedly pursuing the sale through the system, the broker increases the likelihood he can plant a “SOLD” sign in the seller’s front yard.