Feature Article: Five Strategies for Successfully Negotiating Short Sales
By Elizabeth Weintraub
Short sales are hot, hot, hot, but dealing with banks is definitely not! From people who don’t return your calls to last minute snafus that stop your deal from going through, negotiating short sales takes persistence, an iron gut, and real skill learned through trial and error.
For the uninitiated, a short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.
One thing to keep in mind when dealing with banks: they are corporations and as such, they really don’t care about you or even the property being sold. Before you approach a bank about your first short sale, it helps to understand the arena you’re entering and what you can expect. What follows are my five strategies for successfully negotiating short sales.
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Strategy #1: Be persistent and keep good records.
The difficult – and frustrating – aspect about dealing with banks is finding the right person to talk to and navigating the “shuffle,” as in, “Just fax that document to our department.”
Documents and files get shuffled around and lost, you’re pulling your hair trying to determine the status of your real estate transaction all the while being transferred from one person to another, and then you learn that you should have done this or that, but you didn’t know because no one told you – and now it’s too late. The bank doesn’t want to deal with you. Good-bye!
To avoid this problem, be persistent. Keep a log of whom you spoke to and when and copies of any paperwork you’ve faxed or emailed, and keep calling until you find the right person to talk to about a potential property. Usually the first person you talk to won’t be the person you talk with a second time.
Eventually, you’ll find the “go-to” people at each bank who know what they’re doing and who will actually talk to you. Which brings me to my second tip – be polite, no matter what.
Strategy #2: Be nice to people regardless of how nasty they are to you.
Banks have to deal with lots of real estate agents and investors who don’t know what they’re doing (and quite frankly, they don’t like dealing with agents to begin with because banks aren’t really in the real estate business).
When you find the person who knows their stuff, treat this person like gold. Show you’re different by being polite. If they appear talkative, get to know them and warm them up a little by asking about their weekend or children or chatting about the weather. Make talking to you a pleasant experience for the person on the other end of the phone. If their answers are short, respond likewise.
If someone does start yelling at you, be firm and don’t back down. I got into a discussion with a lender who started screaming at me about how the bank wouldn’t take our offer because they had run comps which proved the property was worth more than what my client was offering, plus lots of other nasty stuff. Rather than scream back at the bank’s rep, I used the same tone I would use if I were grabbing someone by the throat, and firmly explained why the comps weren’t right and what the real situation was with the property (aggressive male tenant, pit bulls, etc.). She backed down.
Strategy #3: Write a damned good contract.
When dealing with banks, you often don’t get a second chance if you screw something up, so it pays to ensure your contract is 100% perfect from the get go. Why is that? The contract is often the first impression the bank has of you , so you’ll want it to be clean and correctly filled out in order to show you know what you’re doing. You’ll lose credibility instantly with a sloppy, incorrectly worded contract.
If possible, draw up your contracts on the computer. If this is not possible because you’re out in the field, neatly print all information in capital letters. This makes the contract much easier to read when it’s faxed – and it eliminates the bank having to decipher illegible handwriting.
You’ll also want to ensure you’ve checked all the boxes and specified who is paying for what – so carefully proofread your contract more than once.
Strategy #4: Prove to the bank why you’re the best buyer.
Remember, banks are just corporations. It’s much easier for them to do business with someone who streamlines the process versus a yo-yo who makes mistakes. To streamline the negotiation process, implement the following tactics:
- Have financing in hand – Before beginning a short sale, make sure you have a pre-approval letter from your lender verifying employment and/or assets. It also pays to make a large deposit – i.e.: instead of putting down the standard $1,000 deposit, put down $5K or $10K.
- Make your best offer upfront – Banks won’t make a counter offer, so go in with your best offer. I tell the bank this is what we’re going to pay and why based on comps, value, etc., the deposit amount, and the reason why this is the best offer they’ll receive.
- Forget contingencies, paid-for home inspections, and closing cost concessions – Don’t litter your contract with contingencies as you’ll only anger the bank. The exceptions are the home inspection contingency and the 10-day lead inspection contingency, which is a federal law. I’ve seen too many short sales go down the tubes because the buyer put something stupid in, like, “The broken windows must be repaired.” With a short sale, you’re buying the property as is.
- The bank will not pay for the home inspection, so don’t ask for it. However, you do have the right to a home inspection, so go ahead and have it done – you’ll just have to pay for it. You also have the right to get your deposit back should you find something seriously wrong during the inspection.
- The bank won’t give you a warranty plan or concessions on closing costs, either, so don’t ask for them.
- Shorten the escrow period – You’ll look like a professional, motivated buyer if you shorten the escrow period. If you can say, “I can close in 21 days because I have financing in hand,” versus the standard 45 days because you’re scrambling to cash out bonds or stocks, you’ll catch the bank’s attention.
- Add timelines to your offer – Before setting a time for the bank to respond to your offer, call and ask how long it takes to get approval and if the bank has a main negotiator. Then put this information into the contract. For example, I add that the bank must respond within 10 days – otherwise, as I’ve learned the hard way, you can end up waiting two months for a response.
Strategy #5: Get everything in writing and read before you sign.
The bank will often make verbal promises but these mean nothing. I can’t stress enough how important it is to get everything in writing.
Once your offer is accepted – or even before – the bank will send you their own contract – a contract written by their lawyers. Before you sign it, have a real estate attorney read it over. I’m noticing that banks are now doing three things:
- Negotiating bulk discounts with title and escrow companies, which means, if you’re forced to use their title company and the lender is getting a discount, you’re paying through the nose for that policy.
- Refusing to pay the standard seller fees, such as transfer taxes.
- Stipulating that if you agree to a closing date and you don’t close on that date due to something such as a title problem, you pay a penalty for every day you go past closing. This penalty can be $100 per day!
In summary, when you’re dealing with banks and short sales, you have to be prepared to play hard ball. To mitigate problems, know exactly what you’re doing. Provide clean contracts, don’t lose your cool, streamline the transaction process, and read everything before signing the dotted line. You’ll be much better prepared to see your transaction through to a successful closing.
Elizabeth Weintraub is a full-time broker-associate at Lyon’s Real Estate in Sacramento, California and is the Home Buying columnist for About.com. She has an extensive background in real estate spanning more than 30 years, is also a member of the Master's Club, a designation bestowed by the Sacramento Board of Realtors. She can be reached by email at Elizabeth@elizabethweintraub.com or by phone at (916) 233-6759.
