Don’t Sell Yourself Short

In today’s world of short sales, the tried and true adage “if it is sounds too good to be true, it probably is” oftentimes applies. Given the complex and tedious nature of short sale lingo, we will not bore you with terminology but rather cut right to the chase with an example. In February 2010 a multi-unit property came on the market in University Heights (92103) for $450,000. This property had previously sold in 2006 for $769,000. No sooner had we received notice of the new listing than the email flurry commenced. Alas, having been down “Deal of the Century Drive” only to have it turn into “Waste of Time Way” time and again, experienced agents know to first check the Sales Restrictions: “Need Short Sale – No Lender Knowledge, Call Agent.” Not the words you want to see. Now had it read “Short Sale Approved” or “Pre Short Sale Package Submitted to Lender,” you could jump on the bargain bandwagon with the rest of ‘em. The first showings were to commence around 5 p.m. so we arrived with our Buyer in tow promptly at 5 p.m. Like bees to honey, buyers and agents were swarming the multi-unit hive. Let the game begin! While our clients toured the listing, a few questions were posed to the listing agent:

  • Has your client stopped making their mortgage payments? I believe so
  • Has your client established financial hardship with the bank? I don’t think so (Strike One)
  • Has your client been in touch with their bank(s) or received a short sale package from the bank? No (Strike Two)
  • Is one lender owed or two? Two (we’ll call it a ball for the sake of not striking out just yet)
  • Have you been in touch with either lender? No, I’ve left messages with both (Strike Three)
  • Has an NOD (notice of default) been filed? I don’t know
  • May I ask how you determined this list price? We didn’t have much to go on given there aren’t any real comps in the area (note: there is always a comp)

So, in this scenario you essentially have a Seller who wants “out” but has no authority to “get out.” The bank has not approved the short sale, and, more importantly, neither lender has approved the list price. While we are not privy to the motives behind a below-market list price, one current trend is to set the list price low, encourage offers above asking and then submit them to the bank/lender under the guise that the offer prices indicate current market value. While the market has certainly taken quite a dip since 2006, a 40% decrease in this area and at this price point warrants a flashing yellow “proceed with caution” signal. A general rule of thumb is that banks do not approve short sale prices lower than 80-90% of market value.

In the hands of an experienced and well-versed agent, you can typically avoid the many pitfalls of short sale negotiation. For those who are braving the distressed waters solo and find themselves frustrated by one “go nowhere” short sale offer after another, we hope the aforementioned questions provide you with the basis for your short-sale survival kit. Oh, and as for that “too good to be true” listing, it was “withdrawn” from the MLS three weeks later.

Contact Us

  • Janna Hernholm,
  • CA BRE # : 00841932
  • Melissa Hernholm,
  • CA BRE # : 01253708
  • Matthew Hernholm,
  • CA BRE # : 01874558
  • 810 W. Washington Street
  • San Diego, CA 92103
  • P: 619.299.4272
  • E: janna (at) hernholmgroup.com

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