Understanding The Short Sale Contract Process

short sale contract processWhether it be written in real estate blogs or practiced in our daily operation of a real estate brokerage business, I often see confusion and misunderstanding of the short sale contract process.

This confusion is not limited to homebuyers and homesellers, in fact, it most often is evidenced in the correspondences that I read from real estate agents to our short sale department.

In an effort to provide some clarity to what is certainly "a different way from how things used to be," I provide this as simple guidance for understanding the short sale contract process.

The Normal (Arms Length) Contract Process

Normally, a seller has marketed a home for sale in Tallahassee, and a buyer views the home and decides to try to own it. The buyer then makes an offer, and the seller then either accepts the offer, rejects the offer, or counters the offer with a new or abridged offer.

The buyer then either rejects the offer, accepts the offer, or counters back with new changes. In rare cases, this could go back and forth several times (rarely when a buyer knows how to write the perfect offer on a home). Ultimately, a deal is struck, then both seller and buyer are committed to the transactions, with only a few contingencies to work through (property inspections, appraisals, etc.).

The Short Sale Contract Process

When a home is marketed as a short sale, things start out very similarly as in an arms length sale. Offers go back and forth (perhaps) between the seller and the buyer, until a deal is struck. But a short sale is immediately contingent upon approval of the lender. This is where the confusion usually begins for all parties.

The key to understanding the short sale contract process is to remember that the seller is the decision maker on one side, while the buyer is the decision maker on the other. There are only these two principals on the contract, the lender merely influences the decision of the seller.

Notes On The Short Sale Contract Process

Once the offer becomes a contract (between buyer and seller), we ship it off to the lender and negotiate on behalf of the seller to work out a reasonable solution. We submit an extensive package to the lender, and the lender will then determine what it is willing to do.

The lender communicates its offer back to the seller, and often times the buyer thinks the lender is actually countering them. But remember, the only two principals on the contract are buyer and seller, so actually the lender is communicating an offer to the seller (the terms the lender is willing to offer the seller).

Due to the nature of the loss mitigation industry, this offer will typically come back in memo format, from which the real estate company and the seller determine the next step.

If the lender wants more money, then the seller has the option of bringing more money to closing, or re-negotiating with the buyer. This is where the buyer often wants to know "what the lender is willing to do," and perhaps might want to negotiate directly with the lender.

Unfortunately, the buyer has no relationship with the lender, and the lender has no authority to negotiate a sale of the property, which is owned by the seller. It always amazes me when a real estate agent gets frustrated and demands to deal directly with the lender (note: I am not amazed that their buyers get frustrated, but the real estate agent should be keeping up with current real estate market conditions and preparing the buyer for the process that hundreds of thousands of people are going through right now).

Either the seller and buyer come to  terms, or they part ways and the home is put back on the market.

Home Buyers And The Short Sale Contract Process

I hope this simple overview of the short sale contract process illuminates the way for all buyers who are considering purchasing a short sale. Remember, most real estate buyer agents get paid exactly the same amount, so take the time to select the best one before you start the short sale contract process. If you find your agent asking stupid questions (or demanding to deal directly with the lender), then you know you have not selected wisely.

If you want to know who to hire as the best short sale buyer's agent to get a great deal, just drop me a note and I will put you in good hands. Just know that the short sale contract process is somewhat unique and takes some patience to endure, but it also is delivering wonderful value to the buyers who stay the course.

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