The Short Sale Process for Realtors

Short sales can linger on the market for months and months.

Before 2007, the term "short sale" barely registered on the real estate sales radar. By 2009, it was commonplace. In 2010, it dominated listings in some California, Nevada and Florida zip codes. Although the process is similar among different lenders, important details such as paperwork and time line vary. Universal among the complaints from agents, buyers and sellers alike are the uncertainty and lengthy time lines associated with these types of sales.

Buyer's or Seller's Agent

The real estate agent's role in a short sale depends on whether she represents the buyer or seller. Each role poses opportunities and challenges, with responsibility for different aspects of the short sale process. Although some agents feel a short sale is too much effort for the compensation, senior real estate editor Robert Freedman advises agents, "given the growing share of the market distressed sales represent, it might be just a matter of time before you must get involved with short sales."

Initiating the Sale

A short sale is initiated in much the same as a standard real estate sale begins: with an owner wanting to sell. While a regular sale would progress quickly to a listing, a short sale requires a lot of legwork before that point. To qualify for a short sale, the sellers must prove to the lender that they are not able to make payments on the mortgage and that the offer ultimately submitted to the lender will be at or near market value. Lenders generally have their own sets of short sale paperwork they will need to review before they will consider an offer. The seller's agent, then, has to help the seller acquire and understand the lender's paperwork and requirements, make sure they have gathered the appropriate documentation -- which will include pay stubs, tax returns and bank statements -- and must complete a comparative market analysis of the property in the format required by the lender. Some lenders want to see this information before the home is listed. Most won't look at it until the first offer is made on the house.

Negotiating the Sale

An offer for a short sale is made on a special purchase contract that requires approval by both the seller and the lender or lenders. In a standard transaction, only the seller responds to the buyer's offer. In a short sale, both the seller and lender respond. Once the seller approves the sale, the offer and bank paperwork is sent to the lender. The lender, just like a seller, can accept, reject or counter the offer. The seller's agent, then, will negotiate with both the buyer's agent (acting for the buyer) and the lender.

The Waiting Game

The most significant problem with short sales is the time line. When a buyer makes an offer on a standard sale, he generally gives the seller a day or two to respond to the offer. In a short sale, the buyer generally gives the lender another 10-15 days to respond. But unlike a seller, who is motivated to respond within the prescribed deadline, the lender often ignores the contractual deadline, resulting in an offer that lingers for weeks or months in the bank's hands. Because the buyer generally includes a deadline, his obligation to purchase the property ends when the deadline isn't met. The seller's agent is relegated to the unenviable position of regularly calling the lender to get a response on the offer and keeping in touch with the buyer's agent to see if he is still interested in buying the house, even though his obligation has ended. Meanwhile the buyer's agent attempts to keep his client interested in the deal but encourages him to make offers on other properties because there is no telling what will happen with the short sale offer.

References

• Realtor Magazine: Short Sales: The New Wild West
• NAR: The Basics: Short Sales
• "The Washington Post"; Where Short Sales Stumble; Elizabeth Razzi; June 2008