How to Price a Short Sale
How Much is Your Short Sale Home Worth Today?
The way to price a short sale is very similar to the way agents price any other home, with a twist to account for market conditions. Short sale sellers who don't price their homes appropriately are unlikely to receive viable offers. That's because pricing needs to appeal to more than the buyer to ensure a short sale transaction will close. There are other entities to appease.
To price a short sale correctly involves choreographing a delicate dance between bringing in an offer and getting the bank to buy into that offer.
Moreover, if a Notice of Default has been filed, time is of the essence. In that instance, there are only so many days left on the calendar before a short sale seller may lose the home to foreclosure.
Price it wrong, and the home defaults to the bank. That's one of many reasons why it's important to hire an experienced short sale listing agent. The short sale price needs to be attractive to the following five parties:
- The Short Sale Bank.
Because short sales can take a minimum of 3 months to close from listing inception, the price should be based on pending sales, which will become the comparable sales at closing. Banks will generally accept an offer priced within reason of comparable sales. The bank will also hire an independent agent to assess value based on surrounding homes.
- The Buyer.
Short sale buyers want to buy under market; they want a good deal. Otherwise, buyers have little incentive to wait 90 days or more for a short sale to close. Sellers will catch a buyer's eye if the home is priced under the competition. But a lower price might not get accepted by the short sale bank. Banks generally do not accept lowball offers, regardless of what a buyer might hope.
- The Buyer's Agent.
Short sales aren't high on the list of a buyer's agent's favorite transactions. Buyer's agents generally earn a lower commission on short sales, the deals take longer to close and sometimes they don't close at all. The listing verbiage needs to assure the buyer's agent it's worth the time invested. And the price still needs to be reasonable. Some buyer's agents who don't know any better will tell a buyer to jump on a lowball price, but those are typically not closing.
- The Buyer's Lender
A buyer and seller can arrive at a mutually agreed price, but the buyer's lender will hire its own appraiser to determine market value. This means the home will need to appraise in line with the comparable sales. Pricing too low is rarely a problem. But if it's priced too high, it won't appraise, and either the buyer will need to foot the difference in cash or the pending sale will blow up. If the appraisal comes in low, it will require a revised short sale approval letter from the short sale bank, and not every bank will agree to lower the price to the new appraised value.
- The Seller.
Some types of short sales are subject to deficiency judgments and mortgage debt forgiveness tax, which means sellers need to get the highest possible price. Attractive pricing will encourage multiple offers, and multiple offers tend to bid up the price. Sellers who might have to pay taxes on the difference or face a monetary contribution care very much about the sales price of that short sale.
Appealing to all five of these entities may seem impossible to do due to the conflicting interests of the parties involved, but it is possible. There is an art to pricing a short sale. I can honestly report that many of my short listings in Sacramento -- in our soft market -- receive multiple offers.
They are priced correctly.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.