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.
Note
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.
FAQs
More often than not, your initial offer will never be accepted. Most short sales come with a lot of back-and-forth negotiations. Therefore, you should focus more on why the bank should sell the home—not how much. If the negotiations go well, you will be guided in the right direction.
What is a reasonable offer on a short sale? ›
If it's below value, that is generally acceptable. Just not excessively below. Think of your offer as being “within shot.” For example, a Seller that has an FHA loan trying to get short sale approved, a common number the bank is willing to approve is a minimum “net” 88% of the bank's appraisal price.
How do you win short sales? ›
A preapproval letter and short inspection period can strengthen your position with the seller.
- Offer a Strong Earnest Money Deposit.
- Check the Comparable Sales.
- Don't Ask for Special Reports or Repairs.
- Give the Bank Some Time.
- Assure the Seller You'll Wait.
- Offer to Pay the Seller's Fees.
- Shorten Your Inspection Period.
How to Bid and Win on a House with Multiple Offers
- Leverage an experienced real estate agent and loan officer.
- Pre-underwrite the loan.
- Present an offer with no contingencies.
- Offer a larger down payment and earnest money deposit.
- Add an escalation clause.
- Waive the appraisal contingency.
- Present an all-cash offer.
When you find a short sale home you'd like to purchase, it's best to make an offer quickly – but don't lowball it. Although a short sale often means a lower purchase price, the mortgage lender wants to recover as much money as possible. Therefore, the seller is more likely to accept a competitive offer.
Who must be involved in the negotiation of a short sale? ›
Short Sale Negotiators represent the seller and negotiate on their behalf with the lender / bank. Often short sale negotiators are hired by investors, who need to negotiate the payoff down to a level that they intend to purchase the property for.
What percentage of short sales are approved? ›
If your offer is at fair market value and whoever is negotiating the deal for the seller is experienced and knowledgeable in their process, you have a better than 90% chance that your short sale will get approved. You just have to be patient and let the process run its course.
Why do banks prefer foreclosure to short sale? ›
Banks are businesses and, just like any business, they are seeking to earn a profit. If it costs more to foreclose over agreeing to a short sale, the bank is very likely to favor the short sale. With foreclosure, a bank takes possession of the house, then resells it at a mortgage auction to the highest bidder.
Who gets the profit with a short sale? ›
A short sale occurs when a homeowner in dire financial trouble sells their home for less than they owe on the mortgage. The lender collects the proceeds from the sale and forgives the difference or gets a deficiency judgment requiring the original borrower to pay the leftover amount.
Is a 20% counter offer too much? ›
Your first counteroffer:
Do your skills exceed what's required of you? Start with a figure that's no more than 10-20% above their initial offer. Remember, you're applying for entry level, and you shouldn't expect something on the higher range. Consider negotiating lower if 10-20% places you above the average.
The basics of a salary counter-offer email
- Be grateful: Always start by expressing gratitude for the job offer.
- Be clear: Clearly specify your counter-offer and the rationale behind it.
- Do your research: Base your counter-offer on industry standards, your experience, and the cost of living in your location.
The rule of thumb when you negotiate salary with a counteroffer is between 10% and 20% of the offer amount. If you like the job and would accept the first offer rather than pass on the job, a counteroffer of 10% to 15% above the initial offer is not too aggressive.
Can you lower the price on a short sale? ›
While it's possible to negotiate the purchase price for a short sale, there's no guarantee the seller's mortgage lender will approve the price. It's also unlikely the seller will be able to make concessions or assume additional closing costs.
Can a bank come after you after a short sale? ›
Your Lender May Not Sue You for a Deficiency Judgment After a Short Sale. After the short sale is completed, your lender might call you or send letters stating that you still owe money. These letters could come from an attorney's office or a collection agency and will demand that you pay off the deficiency.
Why would a bank deny a short sale? ›
There are several reasons why banks reject short sales but the three most common reasons that disqualify a property for a short sale are comprised of an initial offer price that is very low, disqualification of the property seller for the short sale, or disqualification of the buyer for the short sale.
