Why Do Banks Prefer Short Sales to Foreclosure?
Hey, guys! Nicole Espinosa here, the Short Sale Queen. Today we’re going to talk about why banks prefer short sales versus foreclosure. So, let’s get into it.
Financial Decision, Not Emotional
The banks view this strictly as a financial decision, not a heartfelt desire to help the seller. Even though the sellers and a lot of homeowners really perceive that. A lot of times you’re going to get sellers that are going to say, hey, my bank is helping me. No, they’re not. They’re giving you the option to do something. But at the end of the day, it’s a financial decision. So let’s talk about what makes sense or what makes more sense.
Understanding Short Sales vs. Foreclosures
A short sale involves the lender taking a loss by selling the property for less than what is owed on the mortgage. The key question for the bank is whether the loss from a short sale will be less than the loss from a foreclosure.
Why Banks Prefer Short Sales
- Higher Return: Banks usually get a higher return from a short sale than from foreclosing on a property. They avoid the costs associated with taking back the house, securing it, paying a foreclosure attorney, and eventually selling it through a real estate agent.
- Cost and Time Efficiency: Foreclosure involves additional expenses and time, including property maintenance and legal fees. A cooperating seller in a short sale helps expedite the process, saving the bank money and time.
- Property Condition: Vacant properties often get vandalized, reducing their value further. By working with a seller in a short sale, the property remains occupied and maintained, preventing additional loss of value.
The Negotiation Process
When negotiating a short sale, it’s crucial to show the lender that all efforts are being made to sell the house at a fair market price. This involves using the same MLS that the bank would use in a foreclosure. So wouldn’t it make more sense to not have to go through this whole process that could take months or years when they can work with the seller who is cooperating, they’re occupying the property, and they’re willing to go through the process so that the bank can get the highest return. Remember, whenever you leave a house vacant, that’s where you have the horror stories, right?
Valuation is often the hardest part of the short sale process. Many short sales fail because realtors facilitating the process don’t know how to get around a bad value. They struggle to negotiate or lower the price set by the bank. They don’t know how to fight that value.
Remember, the value is subjective to the person.
Preparing for Success
Before taking on a listing, we ensure we understand the full picture. This includes getting repair estimates upfront, knowing all the comps, and creating a comprehensive package with pictures of the repairs. This preparation helps get a good value from the start, avoiding months of back-and-forth negotiations, and we do our due diligence because we have one shot at this.
Conclusion
One thing that I need you to understand, that no means you’re either talking to the wrong person or you’re asking the wrong questions, banks will always prefer the option that yields the highest return. Successful short sales depend on the agent’s ability to negotiate and advocate for the seller. I can tell you that because I’ve done it before. So if I’ve done it before, that means that I was able to get down to the heart of it.
And there’s the only difference between me and you when we’re calling the bank is I know the questions to ask or I know how to identify if I’m talking to the wrong person.
