There are some very specific reasons that short sales fail. Take a look at my Top-Five. I could easily expand this to 10, 15 maybe even 20 but that would be a bit overkill as they all often stem from the same origins.
Coming in at number-FIVE: Low Sales Price. Priced too low and every short sale is going to fail. Often an issue in areas with high competition and a seller that needs an offer fast. Or when a Realtor new to short sales thinks any offer is a good offer.
number-FOUR: Bank BPO (Broker Price Opinion) came in too high. We see this a lot when the agent doing the valuation is from outside our local area. Meet the BPO agent, show your comps and defend your price. But do it all politely and from a position of contribution. Annoy the agent and the value is certainly coming in high 🙁 (also see last paragraph below)
number-THREE: Buyer backs out after a long wait. This relates to number-ONE below. Keep the buyer agent and buyer in the loop. Even lengthy short sales can make it to closing with the initial buyer when managed correctly. I also suggest getting them vested financially into the offer as well. Get the seller to escrow money to reimburse the buyer if the sale is denied but have the buyer complete all inspections and the appraisal right away. There will be some minor timing issues with the appraisal but once done the buyer feels a bit more tied into this purchase and will often stay for the long haul.
number-TWO: Second Lien Holder Demands Un-reachable. This can be for 3 reasons. The first is again a high BPO on their end where they feel the home is being sold too low, so they ask and push for more. Secondly is when they have their own mortgage insurance and will net a higher bottom line when the home forecloses and they place their claim. Third is when they think the home owner shows that financially they can participate in offsetting their loss so they ask for it anyway. Sure the payoff to the second has to be approved by the first but don’t let that make you believe they won’t push back hard. The best defense here is having the certified appraisal and holding your ground. Don’t get me wrong it doesn’t work every time but works 80% of the time for us. The most difficult to deal with is when the second has its own mortgage insurance. the best way to combat that is to push on the first to agree to the amount needed and do all of this while referring to your appraisal if you were able to get that done. Oh and the fourth reason the second lien holders demands might be unreasonable – you have Chase as the second lien holder 🙂
And my NUMBER-ONE reason Short Sales do not close . . .:
Wow, I cannot say this enough. With regular communication to your seller, the buyer agent and follow ups to the banks holding the liens there is no good reason for a short sale to fall apart. I understand it’s not a perfect world and things go sideways all the time. But if you are on top of your calls and follow up it is a lot harder to be caught off guard.
It actually serves the greater good of both the seller and buyer to get the appraisal prior to waiting for the bank to approve the short sale. Top Reasons, numbered 5, 4, 2 & 1 can all benefit from having a certified appraisal to negotiate from. No matter what the banks BPO, the appraisal just cannot be ignored. Also if that same appraisal is an FHA or VA it holds with the property and will cause any following buyer to end up with the same value if the banks try to ignore it.