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Tips for Selling a Fixer Home in Sacramento as a Short Sale
Selling a fixer home in Sacramento as a short sale requires justifying repair costs.
When I initially spoke to the seller on the phone, I had suggested that she might want to move back into her home prior to initiating the short sale so we could try to qualify her for a HAFA short sale, which pays $10,000 to the seller, but that proved to be impossible once I saw the condition of the fixer home in Sacramento. My office assistant called me after entering my description of the home into MLS. Laughing, that he had never heard a Sacramento Realtor describe the home in such “honest terms.”
The description was partly for the amusement of other agents but primarily for the short sale lender. The bank tends to read the marketing comments. Plus, I’m sorta tired of agents complaining that I didn’t clearly explain the condition when I say, for example, “the bathroom is gutted.” What does that mean to them? I don’t know. The basic problem with selling a fixer home in Sacramento as a short sale is the BPO agents often just do a drive by. They don’t even look at the interior of the property because that’s too much work, evidently, for the crummy $50 the bank pays, or whatever the pittance is for a BPO. Further, even if they managed to inspect the interior, the type of agents who rely on BPO wages to support their lifestyle can’t estimate the cost to replace a roof much less the reasonable cost to adequately repair a fixer home in Sacramento.
On top of which, sometimes the investor for the loan the bank is servicing has its own minimum net guidelines, which has little to do with the actual value. Selling a fixer home in Sacramento as a short sale is a struggle all around, primarily for the Sacramento short sale agent who is pushing for an approval. Throw into the mix the abundance of lowball offers from other buyers, guided by agents who also can’t estimate repair costs in the other direction. Agents call and beg to be in back-up position on these properties and why? Why, when it will immediately sell upon fall-out to some other eager investor and, at that time, at an approved price?
When a home is truly destroyed, selling a fixer home in Sacramento as a short sale is a piece of cake to get an offer, even though it may be a struggle to close. However, when a Sacramento Realtor is selling a fixer home that is not trashed from end to end, it’s less clear how much it may cost to repair. Those homes might require rehabs more for cosmetic purposes than physical damage. This is when we often advise the seller to require the buyer to submit at least a couple of licensed contractor estimates that bridge the gap between the market value the bank will expect and its true value based on condition.
I then submit a revised CMA with the licensed contractor estimates, close-up photographs and, voila, the bank now has tangible evidence to reduce the price. To do anything else means you’re just pounding your head into the ground and hoping it will feel so good when you stop.
Same Fannie Mae Short Sale Wrinkle But Different Approach
In short sale forums across the country, agents are lamenting the problems associated with Fannie Mae short sales and Freddie Mac on short sales, but I suspect that many short sale agents in Sacramento never even bother to look up Fannie Mae loans nor Freddie Mac loans prior to commencing the short sale — because some of them are way too focused on themselves and the fact they got a listing instead of putting the focus where it belongs: on the client, on the transaction itself.
It’s true that Fannie Mae and Freddie Mac cause havoc in a short sale. What else is new? But at least they are trying to do something about their muddled mess, even if it’s fairly ineffective, they get a B-plus for effort. One of the newer components of these types of short sales is our ability as a Sacramento short sale agent to request a pre-approved sales price.
The sales price, I should note, is the list price, which is not necessarily the BPO value. Of course, that’s been the problem all along, the BPO has very little to do with the price that Fannie Mae and Freddie Mac demand. This is like trying to pat your head with one hand while rubbing a circle on your stomach with the other. Then there’s the question of whether the offer price needs to meet the list price because we still don’t really know how much Fannie Mae or Freddie Mac will accept.
So, far, list prices are still above market value.
This is different than when Fannie Mae or Freddie Mac, after 8 or more weeks of processing the short sale, notifies us of its demand for a higher price. This is often a strategy that means: the government wants to send the home to foreclosure, but we don’t want to come right out in the open and admit it. This is the strategy that has agents across the county up in arms and frustrated with our government sponsored enterprises (GSE). I don’t really know why the GSE’s adopt this strategy, but in my world, I’d rather get this information on the front end than the back end, and so would my sellers.
That brings to question the status in MLS after an offer has been received. Because even in its new practice, Fannie Mae and Freddie Mac cannot seem to get us the pre-approved value prior to an offer. If we change the status in MLS to Pending Short Lender Approval, it means we don’t want any more offers. If the offer we have received is not close to or above the pre-approved price, we could be hosed if the buyer won’t raise the price upon demand, and we won’t get that demand from the GSE until we are closer to closing.
My solution for these dilemmas is to leave the file in Active Short Contingent status and allow backup offers.
What is the Problem With 2014 Sacramento Short Sales?
The problems with Sacramento short sales in years past used to lie with the banks and the buyers, but those days are long gone. Buyers and short sale banks are not the source of our misery today. Most of the buyers who enter an agreement to buy a short sale are willing to wait it out and realize there are a few fees the bank might not authorize such as pest and home warranties and 100% of the escrow fee. They possess realistic expectations. The banks have invested money and effort into establishing entire short sale departments that mostly did not exist from 2006 to 2008. They’ve put systems and procedures in place, and are constantly tweaking their efficiency and effectiveness.
There are some banks that face little struggles now and then such as the Chase HELOC departments in Equator and the banks that try to satisfy regulations and cope with the fallout from the National Mortgage Settlement, yet cause months of delays due to ineptness, but for the most part, you can’t really blame the banks anymore when a short sale takes forever. OK, you can blame Fannie Mae and Freddie Mac, but even those guys are shaping up their systems. Rarely a day goes by when I don’t receive a timely email from somebody at Fannie Mae to say by golly they have received the BPO, and they’re still working on a pre-approved value. It’s better than a poke in the eye with a stick, even if it’s sorta meaningless after 2 weeks.
I’m not getting a lot of pushback and attitude from buyers either because they are educated now. They do their own homework online, they talk to their buyer’s agent, and they’re prepared to wait for short sale approval. They realize that when they go into an escrow in which the Best Sacramento Short Sale Agent is negotiating, that escrow is likely to close. I cannot remember the last short sale that did not close, and I’ve closed hundreds of them — more than any other real estate agent in a 7-county area since 2006.
The problems I’m seeing today do not stem from buyers nor the short sale banks. Nope. They cannot shoulder the blame anymore in today’s Sacramento short sale world. Instead, the problems tend to stem from the sellers themselves. There’s not always a full proof way to figure out which sellers deserve help and which don’t really give a crap. So, try not to blame the agent if the short sale goes south because the sellers messed it up. Most of the short sale agents I know are professionals who care deeply about their sellers and sometimes can inadvertently overlook their shortcomings.
Short sale agents need to be more vigilant, especially since short sales make up such a small portion of our market (about 10%) — short sales now appeal to smaller pools of buyers and will take longer to sell. Fact, Jack. My advice to fellow Sacramento short sale agents is try to make certain the effort you expend is for a seller who is willing to cooperate and see it through to the end. Otherwise, cut the losers loose. You owe it your own sanity, and you owe it to the buyers. You may represent the seller, but you still owe honesty and good faith dealings to the buyers.
Today’s Risk in a Sacramento Short Sale
This fact seemed to come as a shock to a buyer’s agent the other day, but home buyers who are buying a short sale in Sacramento and waiting for short sale approval don’t get Brownie points for acting like a buyer. Buuuut my buyer waited, and he put his money in escrow, and that should count for something, the agent lamented. The agent was upset because the bank updated its BPO and now wanted more money. Sorry, behaving like a home buyer doesn’t earn anybody special favors.
Besides, that’s the risk of a short sale. With rising homes prices in Sacramento this spring, it’s even more of a risk as we move into summer. There is no guarantee that the price a buyer enters escrow with will be the same price a buyer will close escrow at. In fact, with the way some agents price short sales in Sacramento, there is no guarantee that the bank will even take that price. Unless there are extenuating circumstances, short sales ought to be priced in line with the comparable sales or where the comparable sales will rise, not below the comps.
I had explained to the agent when we received the counter offer that there are no renegotiations with this particular investor. There rarely is negotiation because the banks write the rules; and I’ve sold hundreds of short sales over the past 9 years — I’ve learned a thing or two from my closed short sales. It eats up more time to run around in circles with the bank, escalate the price issues and then be informed that the price is firm, like it was in the first place, than it does to replace the buyer. I’ve been working on this particular short sale for 9 months as buyer after buyer bailed as we watched BPOs bounce around. The buyer’s agent, however, still expected negotiations and didn’t appreciate the fact when I pointed out my advice seemed to have landed on deaf ears.
Sometimes I feel like I’m talking to a wall when I warn: no renegotiations. I’ve been to hell and back with this investor. It’s best to just give the investor what that particular investor demands and then close the deal. If that means issuing a Notice to the Buyer to Perform to sign an addendum increasing the price, then that’s what we do because we work for the seller. We treat all parties fairly, but my loyalty, as long as it’s not dual agency, lies with the seller.
If the buyer refuses to meet the investor’s demands, then the seller will find a buyer who will. Because those buyers are there.
I’ll tell you this, if you’re in a short sale situation right now as a buyer, thank your lucky stars if you get approval at the price you offered. I just closed another Elk Grove short sale this week that had dragged on since last fall. It was priced way below today’s prices. The bank did not increase the price. This lucky buyer was buying a home in Elk Grove at September 2012 prices. Which means when the vacant home was vandalized, and the buyer demanded a reduction, we chuckled. Hey, go out and see what you can buy at this price today. Nothing? Right! Now, let’s get this closed and stop whining about it.
The Problem With Pricing a Bank of America Cooperative Short Sale
The problem with our recent elections is not really who won or lost. Well, maybe for some of you, it is. The problem, the way I see it, is we had too damn many things to vote for. Too many Propositions and Politicians. I mean part of the reason we have propositions on the ballot is because the men and women we send to Congress can’t seem to do their job so they have to take it to the people. Like we know anything. We’re just people. We’re a Sacramento short sale agent, or a Raley employee about to lose retirement health insurance benefits or a state worker hungover from furloughs.
We don’t know anything, and we don’t wanna know anything. Don’t tell us what crap is in our food. If our tomatoes are walking Frankensteins, we don’t wanna know. Just keep us in the dark. So, why anybody in their right mind would trust us — the people — to make decisions that affect the entire state, is beyond me. On top of that, they did give us too many darn choices. My ballot was 4 pages, for crying out loud. On one page, I had to select 15 people in one category alone. Who are all those people? I don’t know. Do you know? I’m not responsible enough to vote. Isn’t this why we elect people and send them to the legislature? To vote on stuff for us? Why do we have to do all of this work?
I tell you what, on the surface those arguments sound plausible, don’t they? About as plausible and logical as what goes on behind closed doors at some of our short sale banks. Let’s talk about one of my favorite subjects: Bank of America. Bank of America does really odd things sometimes. For a while there, I thought they were on to something as I continually look for trends. One trend was to price a Bank of America Cooperative Short Sale below market value. That was a brilliant move by Bank of America. Seriously. It was smart strategy. That strategy welcomed bidding and pushed up the sales prices of our Sacramento short sales.
My last 8 or 9 Cooperative Short Sales were priced this way by the bank. We’re in a seller’s market in Sacramento, so it makes sense to let the market dictate price. However, the bank got drunk on its power. You think Diane Sawyer was tipsy? Take a look at the new strategy employed by Bank of America for its Cooperative Short Sales. If they aren’t throwing back a shot of whiskey before picking a sales price maybe they’re smoking pot. Could be pain pills. Yeah, that’s probably the problem. Oxycontin. Gets ’em every time.
Why else would Bank of America price a short sale at $260,000 when the BPO agent told them $245,000? I know this because I called up the BPO agent and asked her. Not to mention, the BPO agent was off the mark. She saw the home but didn’t take into consideration the lack of upgrades or its condition. Nevertheless, the fact remains the bank disregarded the BPO. It plucked a price from the bucket of don’t pass go and don’t collect $200. Does the bank not want the home to short sale? Does the bank think buyers are stupid? What’s the reasoning? Where is the logic?
This particular home sat on the market for 2 months without an offer. In one of the hottest real estate markets in Sacramento’s history! Thank you, Bank of America. The solution? We lowered the price, sold the home, and then raised the price back to the point Bank of America demanded. Then, we presented our offer to the bank. That’s why the sellers chose this Sacramento short sale agent. To work around problems like this. Thank goodness I don’t work in Congress.
