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Las Vegas REALTORS®: Sharpen Your Short Sale Skills
November 1st, 2007 categories: Las Vegas REALTORS®, Las Vegas Real Estate, Las Vegas Short Sales
With the proliferation of distressed home sellers in the Las Vegas real estate market REALTORS® are adjusting to a new reality — a buyer’s market. Is this really new news? Las Vegas REALTORS® have had since spring 2006 to adjust so what in the market is “new” to them? In the simplest terms, SHORT SALES.
FACT:
In the Las Vegas Valley 1 in 5 homes for sale are now Short Sales.
Diamond in the Rough
As a reminder, the term “short sale” basically means that a homeowner is selling their property for less money than they owe on their home loan. The “short” (or discount or loss) must be absorbed by someone. If the homeowner doesn’t have the assets to cover the short, then their lender (or lenders if there is more than one) must agree to take a loss. Ouch.
Let’s look at a real world example. Recently, I found a 1,800 sqft home for one of my buyers that was built in 2006 and had been barely lived in. The sellers originally bought it only a year ago for $307,000, but months later they had to relocate to California. In order to compete with their builder who is still selling homes and other sellers in their neighborhood they had no choice but to sell their house for less than they paid for it or as a short sale. Guess what price they agreed to sell it for? $205,000. Wow! So who’s going to take that $100,000+ loss? Their lender…as long as they agree to it and they probably will.
Now, do you think that short sales a good source for home deals in the Las Vegas real estate market? Absolutely, yes. Do REALTORS® understand how to effectively represent their buyer or seller in a short sale transaction? Some do, some don’t. Before 2006 short sales in Las Vegas were rare so very few REALTORS® have much experience handling them. Thankfully, those REALTORS® who are new to short sales will get up to speed as they get more education and more experience handling short sales for their clients.
Contracts 101
In an effort to help that learning process, I want to correct a few misconceptions about handling short sale transactions that have come to my attention.
1. A short sale contract is not a real contract until it is approved by the seller’s lender.
In other words, some REALTORS® believe that a short sale purchase contract is not really an enforceable and valid contract until the seller’s lender approves it. Guess what, gang, this is not true. In fact, once the buyer and seller sign a contract it is an actionable, legal instrument. This is no different than any other transaction. Remember that virtually all real estate purchase contracts are contingent on the buyer getting final approval and funding from their lender so they can even buy the home. When dealing with a short sale you are simply adding another contingency based on the seller’s lender approving the sales price (and their financial loss). In both cases, the lenders don’t sign the contract to make it enforceable, only the buyer and seller.
On the flip side, if either the buyer’s lender or seller’s lender do not give final approval, this action alone does not cancel the purchase contract. Since the buyer and seller are the only parties involved in the purchase contract, they must be the ones to decide to renegotiate or cancel the contract in writing. This is truly Contracts 101.
2. Escrow does not have to be opened until the lender approves the contract.
Oh really? Where in your purchase contract is this stated? REALTORS®, if you are using the Greater Las Vegas Association of REALTORS® Residential Purchase Agreement (or GLVAR RPA) as your purchase contract without changing any terms, YOU MUST OPEN ESCROW. On page 10 of that contract you sign your name to the provision stating that you will open escrow and deposit your buyer’s earnest money deposit within 1 business day of contract acceptance. Of course, all terms in the GLVAR RPA contract are negotiable, including this one, as long as any changes are in writing and agreed to by both the buyer and seller.
If your goal is to not deposit your buyer’s earnest money deposit until the seller’s lender gives final approval for the purchase price, then simply write this into the purchase agreement upfront. You can still open escrow with just the purchase contract to move the transaction forward.
Help the Seller’s Lender Say, “Yes”!
Okay, so why take the time to highlight these two points? Why should anyone really care to split hairs with these technicalities? Because the seller’s lender cares and they have the last word on making the deal happen. They consider the purchase contract to be valid. They expect escrow to be opened and the earnest money deposit to be deposited. Do yourself a favor and meet or exceed their expectations. With their support the buyer gets the deal they hoped for and the seller gets to move on from their house (and possibly foreclosure).
