Training for Short Sales & Mortgage Loss Mitigation to Stop Foreclosure

Do Price the Home Like Goldilocks

March 13, 2009 by  
Filed under Short Sale Do's & Don'ts

goldilocks-70Goldilocks found that one item was too hot, another was too cold, and one was just right. The pricing a short sale listing needs to follow the Goldilocks principle, not too high, not too low, but just right.

If you price the house too high, you will not get showings and offers. To get the short sale process started, you normally have to present an offer to the lender. There are some lenders who will pre-approve the seller’s qualification for a short sale, but that is in the minority. So, you need to price well to get an offer.

You might have to ignore this rule briefly, depending on the lender you are working with. Some lenders want to see that you tried to get them fully paid. In other words, they want to see that the listing price started at a figure that would give enough money to fully pay the lender. If the market tells them there is no way to get that amount after you tried, they are more satisfied that it is the market, and not the Realtor, who is forcing them into a short sale situation. If you have to do this, leave the price high for a while, then drop it. How long is a while? That depends on whether you are facing foreclosure or not. If not, a while is a couple of weeks. If foreclosure is looming, you might want to skip this altogether, or price it high for a few days.

Why not price too low? You want to get an offer to start the short sale process, but if the offer is outrageously low the lender will not even open a file to review it. Also, if you do not generate an offer that is close enough to the market value for the lender to accept, you will not get the lender approval so you will not close the sale. Generally, most lenders will take 90% of the market value from a Broker Price Opinion (BPO) or an appraisal, although some will go as low as 80%. In some markets, the buyer’s agents will not bring you offers above the asking price. So, your low price generates offers that are too low and you do not close.

What is just right? You want to stand out below the price of the other homes for sale, because you will have to give the buyer an incentive to go through all the difficulties of a short sale. What it takes to stand out depends on your market. In Raleigh, a 5% discount is enough to get the buyer’s attention. In other markets, it may take more or less, depending on the inventory of homes for sale.

There is an exception to the Goldilocks rule. If you are facing foreclosure, do whatever it takes on the price to get an offer. Some lenders will not proceed with a foreclosure if they see that the home is being aggressively marketed and they will keep the property in the loss mitigation department. But, once your file is transferred to the foreclosure department, the lender goes full speed ahead to foreclose. The foreclosure department’s mission is to either get the loan fully reinstated, or to sell the property on the couthouse steps. The only thing that will stop the run away train heading toward foreclosure is an offer.

On one property in Raleigh, I was trying to sell it around $450,000. When the foreclosure notice came out, we dropped the price to $425,000 and got more showings but no offers. So, we dropped it to $400,000 and got multiple offers that bid the price back up to $420,000. If you want to see how to get multiple offers to bid up the price, go to www.CreateAGreatDeal.com. Without an offer, the home would have been foreclosed.

Which side to your err on? Go toward the low side in pricing instead of the high side. It is better to have offers to submit, and get a counter offer from the lender, then try to get the buyer to accept the lender’s counter offer than to have no offers at all. One monkey wrench in this plan is the occasional lender that will just turn down your offer without a counter offer, leaving you with nothing to present to the buyer. Luckily lenders are getting smarter in short sales, so they are doing this less.

Comments

11 Responses to “Do Price the Home Like Goldilocks”
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