Jim Lord of Arizona is a licensed realtor who specializes in short sales, works with investors on flipped properties, and is experienced with helping new and experienced individual home buyers and sellers. With a background in construction, Jim has a unique understanding of the home building process for new homes and remodeling projects that receive the best ROI. In the following article, Jim Lord provides tips for success in real estate transactions and complex short sales.
“Short sales” may sound like a quick-and-easy version of a routine real estate transaction, but in fact, they’re quite the opposite! These sales are complex, time-consuming, and require strong negotiation skills. Real estate agents who specialize in short sales can help mediate between the involved parties, file paperwork, research price comparisons, and negotiate a final settlement.
Below, Jim Lord of Arizona explores what leads up to a short sale, how they compare against alternatives like foreclosure, the steps involved in negotiating, and why finding a specialized realtor is so important.
Jim Lord Explains the Process in Detail
When a homeowner is no longer able to make their mortgage payments to a lender, usually a bank, they may choose to initiate a short sale, which involves selling their home for less than the value of their remaining mortgage to avoid foreclosure.
Short Sales vs Foreclosures
In most cases, a short sale is considered the lesser of two evils, with the alternative being a foreclosure. While short sales are bad for credit scores, foreclosures are even worse. Since both can remain on a person’s credit history for around
seven years, those able to act early and seek the lender’s permission for a short sale usually benefit more in the long run.
Jim Lord of Arizona explains that one of the main differences between a short sale and a foreclosure is the initiating party. A lender may file for foreclosure when a borrower has missed a certain number of payments, which is usually outlined in the loan terms. A short sale, on the other hand, usually starts with the borrower.
It is in the interest of both the borrower and the lender to avoid foreclosure whenever possible. Although a short sale is (rather ironically) a time-consuming, months-long venture, a foreclosure is ultimately always the less-favorable option. On average, foreclosures take 2.5 years to process, though some recorded cases have even taken up to 7 years to close.
Jim Lord of Arizona notes that the foreclosure process usually begins when a borrower defaults on between 3 and 6 monthly mortgage payments in succession. Lenders initiating a foreclosure often have many steps to go through, including obtaining a court order, notifying a borrower of potential foreclosure, and issuing a Notice of Default outlining how much the borrower must pay to rectify the situation.
Short sale discussions often arise in the context of a typical foreclosure or during the formalized "preforeclosure" period initiated by a Notice of Default. Yet, intriguingly, some short sales occur even after this notice, affording the defaulting borrower a lifeline to avert a Notice of Sale that would set the auction date for their property.
What Makes a Short Sale So Complicated
Jim Lord of Arizona says that part of what makes short sales so time-consuming is that, before a buyer even enters the picture, a borrower must convince the lender to agree to proceed with the sale.
While it is usually in the lender’s best interests to support a short sale if the only alternative is a foreclosure, it is far from an ideal situation for many reasons. Homes subject to a short sale tend to fetch a much lower price than other homes on the market. In cases where the borrower owes significantly more on their mortgage than the sale price, the lender may “come up short” by a large margin.
Jim Lord of Arizona says that as a result, most lenders require there to be a valid, documented reason for a borrower to ask them to sign off on a short sale. The requested or required documentation usually includes:
- A letter from the seller explaining the cause of their financial hardship
- Proof of their financial circumstances in the form of bank or tax documents
- Documentation of the seller’s total debts and assets
- A comparative analysis of similar properties on the market to determine pricing
Obtaining all the required documentation often involves long waiting periods and is rather stressful for the borrower.
Jim Lord of Arizona explains that negotiating the terms of sale and sale price usually also involves extensive back-and-forth discussions. In addition to the seller, prospective buyers are also negotiating with the lender, who can choose whether or not to accept the asking price.
Many investors take advantage of short sales’ reduced prices, which tend to be
30% lower than comparable homes on the market that are similar in size, location, condition, and age. Lenders usually reject a buyer’s first offer in the hope of getting a higher counteroffer to minimize potential loss on the property.
How a Short Sale Specialist Realtor Can Help
Given the difficult and delicate nature of short sale situations, having an intermediary to facilitate communication between the buyer, seller, and lender can be highly beneficial for all three parties.
Jim Lord of Arizona explains that in addition to their connections and communication skills, realtors who specialize in short sales can focus their time and energy on arranging and attending in-person meetings, filing, and following up on paperwork and making phone calls that may require hours of waiting on hold, which most financially struggling sellers working long hours to avoid falling into debt don’t have to spare.
Short sale realtors also know how to appeal to banks, as well as what information and documentation will increase the chances of them sanctioning a proposed sale. This expertise is especially helpful when it comes to providing an analysis of how the house compares against similar recently sold properties to justify the suggested asking price.
Conclusion
Short sales usually involve far more preparation and negotiation than standard real estate transactions, which can be highly stressful. Nonetheless, they are usually the preferred option for buyers, sellers, and lenders when the only alternative is foreclosure.
Working with a real estate agent specialized in short sale negotiations can save time and facilitate the short sale process for all involved. Some of the main ways these specialists help is by acting as an intermediary between the seller, lender, and buyer, ensuring that documentation is filed correctly, conducting and presenting price comparisons, and finalizing the sale terms.
