Taylor Scott
Banks typically accept short sale offers about 40-50% of the time, with bank counteroffers being common. The bank's decision to accept a short sale offer is influenced by factors such as the lender's policies, the offer amount relative to market value, the borrower's financial hardship, market conditions, and the presence of multiple liens on the property. In declining markets, banks may be more open to short sales to avoid taking on depreciating assets, while in stronger markets, they may still approve short sales to prevent foreclosure costs. If a short sale offer is rejected, buyers can request specific reasons for the rejection and address the concerns before resubmitting or finding another qualified buyer. Short sale negotiations can be complex, and it is essential to have knowledgeable professionals who maintain consistent communication with the lender to reduce delays and improve outcomes.
| Characteristics | Values |
|---|---|
| Bank counter offers | Common |
| Average time for bank counter offers to arrive | 60-90 days after the initial submission |
| Bank acceptance rates for short sales | 40-50% |
| Factors influencing acceptance rates | Lender's policies, offer amount relative to market value, borrower's documented financial hardship, current market conditions, and the presence of multiple liens on the property |
| Bank's role in short sales | Banks own the home in some cases, but not always; they have the right to approve or deny the short sale |
| Communication methods for counter offers | Written counteroffers delivered through worksheets, online software, or letters; verbal counteroffers are also possible but less preferred |
| Negotiation strategies | Providing a counteroffer within a reasonable range, highlighting the property's flaws, and indicating willingness to negotiate |
| Importance of documentation | Crucial to address concerns and resubmit, including sufficient hardship documentation, complete paperwork, and competitive market analysis |
| Impact of market conditions | In declining markets, banks are more receptive to short sales; in stronger markets, they may still approve but be more selective |
| Presence of multiple lien holders | Complicates the process but doesn't prevent approval; primary lenders usually offer a percentage of the sale to release secondary lien holder's claims |
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What You'll Learn
Short sale counter offers are common
The short sale approval process usually takes between 3 to 6 months, but some cases may take longer due to negotiation complexities and the lender's internal procedures. During this process, the bank assigns a negotiator and conducts a preliminary review to ensure all required documents are present. A substantive evaluation of the offer and hardship documentation is then performed, which may include ordering a Broker Price Opinion (BPO) or appraisal to verify the property's value.
When a bank makes a counteroffer, it is typically delivered in writing through a worksheet in an online software program or via a letter emailed to the listing agent. Verbal counteroffers are also possible but are less preferred by buyers as they are informal and may lead to distrust. If a buyer feels that the counteroffer is incorrect, they can escalate the issue or request that a supervisor review it.
If a bank rejects a short sale offer, it doesn't mean the end of the process. Buyers can ask for specific reasons for the rejection and address the concerns before resubmitting their offer. Some banks will provide a counter-offer price they would accept, giving clear parameters for a successful sale. In some cases, renegotiating with secondary lien holders or temporarily exploring loan modification options may be advisable before resubmitting the offer.
It is important to note that policies regarding short sale counter offers vary across different states, lenders, and brokers. While banks have their formulas for pricing properties, the process may not always seem rational to buyers. Working with professionals who maintain consistent communication with the lender can help reduce delays and improve outcomes in the often frustrating short sale timeline.
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Verbal vs. written counter offers
Banks typically accept short sale offers about 40-50% of the time. However, they may also counter the offer. A bank counteroffer typically arrives 60-90 days after the initial submission.
When it comes to verbal vs. written counteroffers, it is important to note that there is no universally accepted law regarding multiple counters. In California, buyers must be notified in writing that there are multiple offers on the table, but this is not required in other parts of the country. A seller has no legal duty to respond to an offer in any particular way, and a verbal counteroffer can often expedite the negotiation process. However, buyers tend to be distrustful of verbal counteroffers as they are informal and they prefer to see proof of the counteroffer. In the case of a verbal counteroffer, the buyer should be the first one to sign so that their signature is secured.
A written counteroffer, on the other hand, provides proof of the offer and can be delivered through a worksheet in an online software program or via a letter emailed to the listing agent. It is important to note that a contract has two parts: offer and acceptance, but there is also a third part: communication of that acceptance. Once the parties have agreed on the terms and conditions of the sale, they should promptly put the agreement in writing and sign the contract to make it binding.
If a buyer is facing a counteroffer, they can choose to counter again with the same offer or adjust the amount to indicate their willingness to negotiate. If the bank rejects the short sale offer, the buyer can ask for specific reasons for the rejection and address those concerns before resubmitting. They can also cancel the short sale and reopen the file with a new negotiator.
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Bank's right to rescind counter offer
Banks have the right to rescind a counteroffer on a short sale for several reasons. Firstly, banks are under no obligation to approve a short sale. They may decide to rescind a counteroffer if they determine that the short sale is not warranted or if they conclude that foreclosure would be more profitable. Market conditions also play a significant role in the bank's decision-making. In stronger markets, banks may be more selective about the offers they accept to avoid taking on depreciating assets.
Additionally, the presence of multiple lien holders can complicate the process. All parties involved must agree to the short sale, and negotiations with secondary lien holders can extend the timeline. Banks typically accept short sale offers about 40-50% of the time, and counteroffers are common, often arriving 60-90 days after the initial submission.
The short sale process is notoriously slow and drawn out, and it involves multiple parties, including the seller, buyer, and lender. The seller's agent must negotiate with the bank to approve the short sale, and the bank may order a Broker Price Opinion (BPO) or appraisal to determine the property's value. If the bank's appraisal is significantly higher than the offered price, they may rescind the counteroffer.
It's important to note that verbal counteroffers from banks are generally discouraged as they are informal and buyers prefer written proof. However, some lenders do provide verbal counteroffers, which can lead to confusion and mistrust. In such cases, buyers can request their agents to escalate the matter or involve a supervisor to clarify the terms.
If a buyer encounters a situation where the bank has rescinded a counteroffer, they have a few options. They can choose to counter again with the same or a different offer to keep the conversation going. Alternatively, they can cancel the short sale, close the file, and reopen it with a new negotiator. It's advisable to carefully review the short sale purchase contract and any attached addendums to understand the terms and conditions that apply.
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Factors influencing bank approval
Banks typically accept short sale offers about 40-50% of the time. However, acceptance rates can vary significantly based on several factors, including the lender's policies, the offer amount relative to market value, the borrower's documented financial hardship, current market conditions, and the presence of multiple liens on the property. Here are some key factors that can influence a bank's approval of a short sale:
Lender's Policies
Each bank has its own internal policies and guidelines for approving short sales. Some lenders may be more flexible than others, especially in certain neighbourhoods or price ranges where foreclosure inventories are already high. Understanding the specific bank's approach to short sales is essential.
Offer Amount Relative to Market Value
Banks are more likely to approve short sales that reach a certain percentage of the property's current market value. Typically, offers that are at least 80-90% of the market value are more favourable to the bank. Banks consider the potential depreciation of assets in declining markets or the cost of foreclosure in stronger markets.
Borrower's Documented Financial Hardship
Banks require evidence of the borrower's financial hardship to qualify for a short sale. This includes various documents, such as pay stubs, income tax returns, W-2s, bank statements, and other asset statements. A well-prepared package that demonstrates how accepting a short sale benefits the bank financially can improve the chances of approval.
Current Market Conditions
Market conditions play a significant role in bank approval. In declining markets, banks may be more receptive to short sales to avoid taking on depreciating assets. On the other hand, in stronger markets, banks might still approve short sales to avoid foreclosure costs but may be more selective about the offers they accept.
Presence of Multiple Liens on the Property
When a property has multiple mortgages, home equity lines of credit, or other liens, the short sale process becomes more complex. All lien holders must agree to the short sale, and negotiations with secondary lien holders can extend the timeline. A large number of liens can decrease the likelihood of approval as it complicates the payoff structure.
Property Appraisal and Broker Price Opinion (BPO)
Banks often rely on property appraisals or BPOs to establish the value of the home. The seller's real estate agent should be present during the BPO to provide a market overview and specific information about the property, which can positively influence the BPO assessment. A favourable BPO, combined with a comprehensive understanding of the property's condition, needed repairs, and market values, can increase the chances of bank approval.
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Negotiating a short sale counter offer
Negotiating a short sale can be a complex and time-consuming process. Short sales are often sold at a discount, but it's important to remember that the seller is still motivated to get the best price, and the bank will want to avoid selling at a loss. Here are some tips for negotiating a short sale counter offer:
Understand the Short Sale Process
Before you begin negotiating, it's important to understand the short sale process. Short sales typically involve a property being sold for less than the outstanding mortgage, with the lender agreeing to accept less than what is owed. The process can be lengthy, often taking between 3 to 6 months, and sometimes longer depending on the complexity of the negotiation. It's also important to note that the bank does not own the home in a short sale, but they do have the right to approve or deny the sale after the contract is signed.
Engage an Experienced Real Estate Agent
Navigating a short sale can be challenging, so it's highly recommended to engage an experienced real estate agent who understands the process and can help you put together a strong offer. A good agent will also be familiar with effective negotiation strategies and can increase your chances of a successful outcome.
Be Prepared for a Marathon, Not a Sprint
The short sale timeline can be frustrating, so it's important to be patient and persistent. Make sure you have all your documentation organised from the outset, and maintain consistent communication with the lender to reduce potential delays.
Know the Market Conditions
Market conditions can significantly impact approval rates. Banks may be more receptive to short sales in declining markets to avoid taking on depreciating assets. In stronger markets, they may still approve short sales to avoid foreclosure costs, but they may be more selective about the offers they accept.
Understand the Lender's Perspective
When evaluating offers, lenders are typically looking for buyers who pose the least risk. Cash buyers are often preferred as they are deemed less likely to back out of the deal. If you're unable to make a cash offer, consider getting loan pre-approval and including a sizable deposit to make your offer more attractive.
Be Flexible and Patient
The ideal offer is often one that is flexible and patient. Be prepared to adapt to the lender's requirements, such as providing an \"as-is\" offer without credits for repair or closing costs. Remember that getting a bona fide offer to the lender is often more important than negotiating the perfect sale price.
Negotiate with the Seller's Circumstances in Mind
In a short sale, the seller may be motivated to sell due to financial hardship. However, if they have extra funds to cover the shortfall or are selling out of want rather than need, they may be less inclined to accept a low offer. Understand the seller's circumstances to gauge how flexible they might be with their asking price.
Be Prepared to Walk Away
If negotiations reach an impasse, be prepared to walk away from the deal. You can cancel the short sale and then reopen the file with a new negotiator if needed. Alternatively, you can counter again with a different offer to indicate your willingness to continue negotiations.
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Frequently asked questions
A short sale is when a lender agrees to accept less than the amount owed on a mortgage to avoid foreclosure.
A bank might reject a short sale offer due to insufficient hardship documentation, too low of an offer price, or incomplete paperwork.
If your short sale offer is rejected, you can ask the lender for specific reasons for the rejection and then address their concerns and resubmit. Alternatively, you can cancel the short sale and find another qualified buyer willing to meet the bank's terms.
