When you initially meet with a buyer, the first step is to qualify their needs. Yet, we are seeing, over and over again, agents who are not counseling their clients when submitting an offer on a short sale. So here is a quick list of questions you should ask your buyers before even showing them short sale listings to make sure a short sale will work for them.
1. Do you need to be in the home by a certain time? Short sales take time. While some banks have gotten better about the process, others are still lagging. So prepare your clients. If they need to be in a house in a specific time period, pursuing a short sale may not be in their best interest.
2. Are they prepared, if the bank doesn’t agree to their offer, to either raise the price or walk away? Once the buyer has become invested in the short sale process, it is important for them to understand that the offer price submitted, isn’t typically accepted. Sometimes, there isn’t any negotiation. It’s a counter back with we will accept X dollars and no less. So it is important to counsel them on the maximum allowable offer.
3. Can your buyer afford to wait? Recently there have been changes to the mortgage insurance premium calculation as well as raising interest rates. For buyers who are not currently assigned an FHA case number before the 17th of April, they will see a cost increase of approximately $41 more per month on a $200,000 home. That amount significantly changes the debt to income ratios and lowers the amount of home which can be afforded. Waiting for the short sale approval process in the upcoming Spring months could cost buyers a lot of dollars over the lifetime of the loan if the deal can’t be worked out before April 17.
4. Are you prepared to not be in control? The short sale process is one that is only controlled by the bank. If your buyers need to have more control over the process, then a short sale is not for them. While buying a home is certainly a process that involves several parties, no matter if it is a short sale or not, we have found that buyers get more easily frustrated when the transaction is impersonal.
5. Can your buyer afford repairs? Most banks are not going to pay for repairs on the property. So if your buyers don’t have enough additional funds for repairs, they may be better off with a traditional sale. Most short sales have at least some differed maintenance.
If your buyers can answer these questions and is comfortable moving forward, then you have an opportunity to become a hero by helping them score a great deal on their dream home. However, if there is concern over any of the above questions, you should speak frankly with them about the process and check their comfort level. Otherwise, you may be wasting your time and frustrating your buyers.