BIC TIP #1256: Nothing Short About It
There is nothing short about a short sale. As the market has shifted, Stephen Long has seen short sales making a comeback, and with them, a common mistake: listing agents who never get a proper payoff before they take the listing.
What a Short Sale Really Is
By definition, a short sale happens when a seller sells the property for less than what is owed on the mortgage and does not have the money to make up the difference. The lender agrees to take less than the full amount owed.
Stephen describes it as one step below a foreclosure. It should be a last resort for someone in a very difficult financial situation. The seller generally has to demonstrate a financial hardship and show they do not have the means to cover that gap in any capacity.
The Payoff Problem
Here is where agents get into trouble. Many sellers believe they know what they owe. They remember a number from an old statement and assume that is the amount the lender will need at closing.
But by the time they reach the closing table and the payoff is pulled, it may be much higher than expected. Penalties, late fees, and other charges that build up during a period of hardship can add significantly to the balance. Suddenly the numbers the seller and buyer were counting on no longer work.
Get the Payoff at the Listing Appointment
Stephen’s fix is straightforward. At the time of taking the listing, have your sellers call their lender and request a payoff for a projected closing date, around 60 days out is his suggestion, though a 45 or 90 day window may make sense depending on the situation.
With that real number in hand, you can prepare a proper net sheet based on the seller’s actual payoff, not their best guess. That protects the seller from a nasty surprise and keeps the buyer from getting caught in a pickle when the numbers fall apart late in the deal. Short sales can be complicated, so loop in your broker-in-charge and encourage sellers to seek appropriate legal and financial advice.
The Practical Takeaway
Short sales are back, and they are anything but simple. Treat them as a last resort for sellers in genuine hardship, and always have the seller obtain a current payoff for a projected closing window when you take the listing. Build your net sheet on real numbers so sellers and buyers are prepared for what lies ahead.