Christopher Rockey
Director of Education, Mortgage Resolution Services
Getting Short Sales sold, approved and closed involves careful handling of several components in a process that frequently has you, the agent, dancing on the head of a pin. Perhaps none more so than pricing strategy which has the agent balancing the need to get an offer to get the file moving with loss mitigation against the impact of the lender ordered broker price opinion (“BPO”). And, the reality that, in the end, an informed buyer is going to demand some degree of discount for tolerating the many aggravations involved in buying a short sale.
A quick point for moving forward-
It is truly astounding how lenders are unable to grasp the extent to which the inefficiencies of the Short Sale process have a negative impact on the price an informed buyer will pay for a Short Sale property. It is not the obligation of the buyer to tolerate weeks of waiting and being told the things they can’t have (home warranties, repairs and such), all so that the same buyer can overpay for the property.
It’s clear, lenders don’t operate In our world. The question is “In what world does that kind of thinking work?”
Now, how to price a Short Sale for a sale and an approval
1. Do not base your initial list price on the outstanding loan balances.
Be respectful of the loss the lender is going to absorb, but don’t factor the loan balance(s) into your pricing strategy. The lender will expect you to do everything possible to maximize their recovery of capital, but they do recognize that their loan balance is not directly indicative of market value.
2. Set the initial list price at, or above the level at which you expect the lender BPO to come in.
Shortly after Loss Mitigation starts working on your Short Sale file they will order a BPO. The value conclusion in the BPO is typically based on sold comparable properties within ¼ to ½ mile. Put yourself in the shoes of the agent/broker/appraiser who is going to be given the BPO assignment and get to a value estimate based only on closed sales – then list the property there.
BPO’s frequently come in with value conclusions that are higher than similar, unsold and currently available properties. Consequently if you list the property at the level at which you expect the BPO to come in, you will be listing at a price that is likely above that at which you will be able to draw a legitimate offer to purchase. Start at that price nonetheless, so you can later demonstrate to the lender that you made an effort to get an offer at the BPO amount.
3. Because the foreclosure process marches on, you need to move quickly- to get the price to a level that will draw a legitimate offer.
Assuming you have 30 to 90 days to work with, reduce your list price by approximately 3% every ten to fifteen days until you get to a level that generates buyer activity sufficient to generate a legitimate offer.
4. From the day you list the property, track activity on the property as you make the price adjustments necessary to get an offer.
When the lender’s BPO comes in at a value above that of the offer on your Short Sale property, you need to have solid data to provide to the lender demonstrating:
a) that the offer you have is at or close to true market value for the property, and;
b) that the value conclusion in the lender’s BPO is likely unattainable given the current condition of the market
Keep track of the dates price adjustments are made, the number of days on market at each price level, the number of showings and offers at each price level, as well as the number of unsold comparable properties within ½ mile of the subject property.
At the end of the day the property needs to be sold; if not as a Short Sale now, then as an REO later. As much as we would like to see Short Sale properties sell quickly at a price the lender finds acceptable, the fact is there will be battles to be fought on value. Your chances of dealing successfully on the value issue increase significantly if you execute a well thought out pricing strategy from the beginning of the listing.
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