A 3rd party negotiator can be invaluable to the success of a short sale. Good 3rd party negotiators have established relationships with many banks. They know the in’s and out’s of how to best handle each individual short sale which is unique with respect to the seller’s situation and their bank’s requirements. The process gets even more complex when there are two loans (a first mortgage and a second mortgage) with two different banks.
While the seller’s agent may be able to negotiate directly with the bank, a good 3rd party negotiator who specializes in short sales will often produce the best results for the buyer (i.e. approval at the most favorable terms and in the shortest amount of time). Considering that a real estate agent may process a few to several short sales per year, a 3rd party negotiator may handle thousands per year. This means the 3rd party negotiator is in regular contact with most banks, establishing cooperative lines of communication, and keeping current on industry changes in the short sale process.
There are fees involved with using a short sale negotiator. And while banks are reluctant to pay those fees, most sellers cannot afford the fees. So it is becoming increasingly common for the buyer to pay the fee for the 3rd party negotiator.
In any case, a seller typically cannot receive any proceeds from a short sale. The bank agrees to take less than they are owed for two main reasons: 1) The market value of the home is less than the debt owed on the property including mortgages and selling costs, and 2) The seller has a valid financial hardship and cannot afford to pay off what is owed to the bank.
So while it may initially seem unfair for the buyer to cover the cost of the 3rd party negotiator, the bank is already accepting a loss on the sale and the seller has demonstrated they can’t financially contribute more to the sale. Also, the buyer often makes out the best by getting a home at a price well below market value. On a national average, short sales sell for about 80% of market value (i.e. what a non-distressed property would sell for).
Fees for a 3rd party negotiator can run between $1,500-$3,500 or 1% of the sales price of the home. So, if a home with a market value of $300,000 is sold in a short sale for a price of $240,000 (80% of market value), it’s well worth it for a buyer to pay $2,400 to a 3rd party negotiator who can help make the sale go through at that price.
Also, many 3rd party negotiators will help the buyer recoup the cost of their fee through the use of a seller assist (buyer closing costs paid by the seller’s bank).
The 3rd party negotiator doesn’t typically get paid unless the short sale is approved and the property goes to settlement. If the terms of the approval are different than originally offered, the buyer will have the choice to accept the terms of the sale or walk away.
Anyone who has been involved in a short sale understands that it can be a long and frustrating process. In many cases, a good 3rd party negotiator is exactly what is needed.
The Scott Loper Team includes Scott Loper, Lisa Loper and Gina Wherry, Re/Max Realty Group, 439 Main Street, Harleysville, PA 19438, 215-256-1200.