Why Would a Short Sale Counter Offer Not Make Any Sense?
Let there be no mistake, the counter offer always makes sense to the party issuing the counter offer. In this instance, that party would be the short sale bank. Whether the listing agent, the sellers, the buyer's agent or the buyers understand the reasons behind the counter offer is not relevant.
Here are some of the reasons the counter offer could appear to be ridiculous:
- The bank does not want to approve the short sale. Yes, it is possible the bank, for whatever reason, has concluded it would be in the best interest of the bank to foreclose. Perhaps the bank is paid more money to foreclose through its PSA? If it is more profitable to foreclose, the bank might counter at a price point that would make it preferable to short sale. Either way, the bank will win.
- The investor guidelines could contain a provision that dictates the counter offer provisions. Typically, an investor guideline cannot be changed. It is whatever it is. The investor would need to change it, and that investor could be a pool of investors who have no incentive to alter existing agreements.
- The BPO agent or the appraiser made a mistake. BPO agents can be asked to do an estimate of value in an area the BPO agent does not know very well. It happens a lot. If the agent is unfamiliar with a neighborhood, the agent might not have enough information to prepare a valid BPO. Generally banks don't pay BPO agents enough money to motivate experienced local agents to accept such an assignment.
How a Bank Issues a Counter Offer for a Short Sale
Banks like to see an estimated settlement statement or HUD-1 so it can decide whether to approve all of the fees or to counter some of those fees. The counter offer might not be strictly a price counter offer. After all, if the bank can reduce some of the fees charged to the seller, the bank can increase its bottom-line net.
- The written short sale counter offer. This counter offer 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 counter offer. Nobody likes these types of counter offers because they are informal and buyers prefer to see proof of a counter offer. Buyers tend to be distrustful, and with good cause. But many banks do it. They will call the listing agent or send an email dictating the terms that need to be changed.
Picking Your Counter Offer Battles
Sometimes, the bank's negotiator is simply flat-out wrong. Banks 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. In California, we have a mandated natural hazard disclosure, which the seller must provide to the buyer.
I have had negotiators refuse to approve a $99 fee for a natural hazard disclosure. Other agents would just pay that fee themselves to avoid the hassle, but not me. I will make the negotiator back down and allow the fee. Because it's the principle, not the money.
I have also run into negotiators who do not understand a HUD. Since the RESPA rules were revised in 2011, fees appearing on a buyer's good faith estimate must appear as a credit on the HUD from the seller, even though a HUD seller credit is not really a credit. It's not a credit because it also appears as a debit to the buyer. That's our government, simplifying disclosures for a buyer. They are so simplified a bank executive cannot understand it.
Again, some agents will say fine, we will remove the city transfer tax, for example, but not me. I will escalate the short sale or demand that a supervisor look at it. I don't want to be part of the problem when I can be part of the solution. I will also send the RESPA verbiage to the negotiator in hopes of enlightenment. I know it is confusing, but I see no reason to make a buyer pay a fee that should be approved by the short sale bank.
If the bottom-line problem is price on the counter offer, and you have delivered an updated CMA 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.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.