It takes a certain kind of person to enjoy negotiating counteroffers, much less a counteroffer with a short sale lender. That's because part of a counteroffer negotiation might involve terms and conditions not encountered in a typical real estate transaction. On top of that, the counteroffer might not make sense to the parties involved. Let's dig into how to deal with a short sale counteroffer.
Why Is There a Counteroffer?
Short sales can be complicated. It requires extra work for the listing agent and has more parties involved. The lender of the person selling the home has to approve the short sale, and instead of approving the short sale, it may make a counteroffer.
When you and your real estate agent first review the counteroffer, it might not make a lot of sense. A counteroffer always makes sense to the party issuing the counteroffer, though. In this instance, that party would be the short sale lender.
Understanding the reasons behind the counteroffer can help you and your agent develop a strategy for dealing with it.
Here are a few reasons you might have received a counteroffer from your lender:
- The lender doesn't want to approve the short sale: Yes, it is possible the lender, for whatever reason, has concluded it would be in the best interest of the bank to foreclose. Perhaps the lender is paid more money if it forecloses due to the terms of its pooling and servicing agreement (PSA). A PSA is a contract that outlines the terms when lenders sell a group of mortgages on the secondary market. If it is more profitable to foreclose, the lender might counter at a price point that would make a short sale more profitable than a foreclosure.
- The investor guidelines could contain a provision that dictates the counteroffer provisions: This also has to do with the secondary market. The secondary market is when mortgages are purchased by companies like Fannie Mae and Freddie Mac and then sold to investors. Those mortgages must meet certain guidelines. Typically, an investor guideline can't be changed. The investor would need to change it, and that investor could be part of a pool of investors who have no incentive to alter existing agreements.
- The BPO agent made a mistake: A broker price opinion (BPO) is an estimate of how much a home is likely to sell for. BPO agents can be asked to do a BPO in an area they don't know very well. If the agent is unfamiliar with a neighborhood, the agent might not have enough information to prepare a valid BPO. Generally, lenders don't pay BPO agents enough money to motivate experienced local agents to accept these assignments.
Whether you're buying or selling a home in a short sale, choose an agent experienced in these transactions to represent you. They are significantly more complicated than a typical sale.
How a Lender Issues a Counteroffer for a Short Sale
Lenders like to see an estimated settlement statement or HUD-1 settlement statement so they can decide whether to approve all of the fees or counter some of those fees. The counteroffer might not be strictly a price counteroffer. After all, if the lender can reduce some of the fees charged to the seller, the lender can increase its bottom-line net. You may receive two types of counteroffers:
- The written short sale counteroffer: This counteroffer from the short sale bank could be delivered through a worksheet in an online software program such as Equator or via a letter emailed to the listing agent.
- The verbal short sale counteroffer: Nobody likes these types of counteroffers because they are informal and buyers prefer to see proof of a counteroffer. Buyers tend to be distrustful and with good cause, but some lenders do it. They will call the listing agent dictating the terms that need to be changed.
Picking Your Counteroffer Battles
Sometimes, the lender's negotiator is simply flat-out wrong. Lenders operate in many different states and each state has its own laws. What's true in New York is not typically true in California, for example.
If you feel the counteroffer isn't correct, ask your agent to escalate the short sale or demand that a supervisor looks at it. There's no reason to make a buyer pay a fee that should be approved by the short sale lender.
If the bottom-line problem is the price on the counteroffer, and your agent has delivered an updated competitive market analysis to the bank—including a list of repairs, if any, and the cost for those repairs—and the bank still refuses to back down, there is one more available option for you. You can cancel the short sale, and the bank will close the file. Then, you can reopen the file with a new negotiator.