Real Estate Investing

A short sale can be a very good way to score a deal and a great way for all affected parties to avoid the hassle of a foreclosure. It is essentially a transaction where property that is headed toward, or in the process of, foreclosure is sold for less than the remaining balance on the loan. Short sales require permission from the lender, who will typically want to see the buyer’s contract, a settlement statement and a hardship letter from the seller. A lender may not approve the deal, and the prospective buyer may then counter-offer.

Lenders don’t like the hassle of foreclosures because it requires them to fix the property up, market it, sell it, pay closing costs, etc. On the other hand, they also don’t like losing money, and that is what a short sale amounts to. They must forgive the remaining debt not covered by the property sale. Short sales, also known as pre-foreclosure sales, are very popular. 731,244 short sales have been filed thus far this year. The following are some tips to help buyers close short sales.

Analyze the situation: What are the circumstances surrounding the pending foreclosure? What is the interest rate on the loan? What is the outstanding loan balance in relation to fair market value? Not every home facing foreclosure is a good opportunity for a short sale.

Develop a plan: Try to put yourself in the lender’s shoes and anticipate his moves. Decide what your initial offer will be and how you will justify it. Also consider what your counter-offer will be and any justifications for it as well.

Talk often with the lender: Keep in communication with the lender and share information you discover about the property itself and the surrounding market. This info may help you justify your initial offer or counter-offer.

Do research, be prepared: Research and preparation are part of gathering the aforementioned information that is so key to the negotiation process. Have all your ducks in a row, so to speak, to avoid embarrassment when talking with the lender.

Be persistent: Don’t roll over when your offer is rejected. It’s not personal, it’s business. Make a counter-offer and inquire as to why your offer was rejected. Typically it will be because the offer was not high enough. You may need to submit a higher offer, but you should also show the lender more documentation in an effort to justify a lower price than they may have had in mind.

Hire a negotiator: A paid negotiator can be good if you are continually striking out, hopelessly intimidated by the negotiation process or simply don’t know where to begin. You can either hire a successful professional who has been down this road before, or you can even hire a former bank employee who used to get paid to work against people like you. They will best understand the other side and how to win.