The Appraisal

The Appraisal

One of the biggest factors that effect ShortSales & their processing, is the property valuation.  Depending on the type of loan & ShortSale program, appraisals/BPOs will be performed either before an Offer is received, or after. Regardless, the Bank will need to verify the Property’s worth, so as to accurately respond to the Buyer’s Offer.

            In some ShortSale programs, such as FHA, the appraisal will need to be performed before the Homeowner is even approved to participate in a ShortSale!  Once the appraisal is received, the Bank will then issue a “pre-approved” listing price, which is typically the Property’s appraised amount.  The Listing Agent then, is responsible for amending/updating the listing price to match the Bank’s value.

            In other ShortSale programs, depending on the investor, a BPO (Broker’s Price Opinion) will be ordered instead of a full blown appraisal.  These can either be interior BPO’s or external “drive-by” BPO’s.  Needless to say, a BPO does not go into nearly as much depth as an appraisal, and the consequent value will tend to reflect that.

            Regardless of the type of valuation performed, the quality & importance of said valuation is not something to be trifled with. It is our duty as Real Estate professionals to make sure these valuations are done properly, accurately, and on time. There are many things to take into consideration when evaluating a property’s worth, and a good appraiser is worth his weight in gold; although it is a fairly common occurrence to see Banks being presented with a bogus, unrealistic value. And since the value will be “valid” for up to 3 months, an inflated appraisal/BPO can put a significant strain on the ShortSale process.

            In an effort to educate & help the appraiser perform the most accurate valuation possible, there are several things that the Listing Agent or Homeowner can provide, such as the hardship letter, and CMA’s.  If nothing else, often times there are repairs needed which might not be immediately/visually evident to the Appraiser, and so the perceived value is higher than in actuality. If supporting documentation is not presented to the appraiser/BPO Agent, the value can come in too high, potentially halting any ShortSale progress with the Bank.  Compounding this issue is the lack of knowledge Bankers have about Real Estate.  9.9 times out of 10, the ShortSale worker at the Bank is located across the Country, and has no idea whatsoever about the Property’s condition & market.  The Banks only insight to the Property is the Appraisal, so it is our responsibility to make sure the Appraiser presents an accurate value.

            A few things that can be provided to the Appraiser to support and/or sway the appraisal/BPO are: Good comparables, a CMA, the MLS sheet with listing history, a separately performed appraisal, the Homeowner’s hardship letter, neighborhood statistics (average DOM, proximity to school/services [police, fire, hospital], etc.), documentation of property damage that is not immediately evident such as contractor estimates and/or the Property Disclosure, current appreciation rates (property, neighborhood, zip code, city), and even a printout/map showing the convicted felons living in the area. 

            A fair amount of the supporting documentation is intangible and might not necessarily translate to concrete value adjustments, although they are still important factors that any potential Buyer considers.  If the Bank worker knows the appraisal didn’t take some crucial details into account, they can submit a value dispute in an effort to revise the value.  Without having any additional property information on hand however, the Bank will take the appraisal/BPO as gospel.

            Providing value supporting documentation to both the Appraiser & the Bank will help the ShortSale immensely. It helps the Appraiser by making their job easier, and it helps the Bank recognize the different factors affecting the Property and its sale.  A poorly performed valuation will be a detriment to everyone involved in the transaction, and will lead to delay & conflicting information.  A proper Appraisal/BPO, on the other hand, will keep everyone on the same page, and streamline the ShortSale process.

Title Companies

Title Companies

When facilitating/negotiating a Short Sale, the importance of picking a Title Company cannot be understated. There are many vital factors to consider when making the decision of who to work with, including responsiveness, customer service, and knowledge of the Short Sale process. Since Short Sales are very cumbersome & unpredictable, the Title Company you choose can make or break the deal.

The first thing to consider when choosing a Title Company is their responsiveness.  One of the first steps when tackling a Short Sale is to order a title search on the Property.  Since the Homeowner is undoubtedly facing a hardship, and there is most likely a foreclosure auction date posted, time & patience are your enemy. As such, it is absolutely imperative that your Title Company realizes the inherent urgent nature of the title search, and completes it as fast as possible.  Many Title Companies either do not deal with Short Sales, or experience very low Short Sale volume; and as a consequence, will take up to twice the amount of time generating the needed documents.

Furthermore, the responsiveness of the Title Company will directly impact the Short Sale progress by way of HUD1 changes & updates.  Each lienholder on Title will have different rules, guidelines, and stipulations for the HUD1 that must be met in order to allow the Short Sale.  Some guidelines are relatively minor, such as specific wording, but there are also major rules that pertain to HUD1 structure, Title fees, subordinate lien payoff amounts, etc. As you are making your way through the Short Sale process, there will be roughly 5 or 6 versions of the HUD1, so an unresponsive Title Company can accumulate weeks of unnecessary delay.

Another factor to consider when choosing a Title Company to work with is their customer service, and willingness to go the extra mile.  This is especially important during the closing phase, since the banks have very strict timeframes but poor response times.  It is a relatively common occurrence in Short Sales to have a small window for closing, and because of this, it is even more necessary to “babysit” the transaction during this time.  More often than not, Buyer’s lenders cannot perform final inspections, appraisals, etc. until the Short Sale approval letter is issued.  Combine this with the small window for closing, means that sometimes final Buyer lender figures are not received until the very last minute.  Additionally, because the Bank requires the final closing HUD1 ≥ 48hrs prior to closing, it is very common to be scrambling late in to the night, finalizing fees & documents.  A good Title Company will realize the time sensitive deadlines, go the extra mile, and assist the transaction as needed, even during their personal time!  A bad Title Company will only work the standard 9-5, and will not recognize the urgency of the request, greatly increasing the risk of Short Sale failure.

Lastly, choosing a Title Company that deals with Short Sales on a regular basis, or has in-depth knowledge of the Short Sale process is extremely crucial. As previously mentioned, many Title Companies do not deal with Short Sales, or have very little experience dealing with them.  Among other things, Title Companies that are not familiar with Short Sales or the process will take up to twice the amount of time as other Title Companies generating needed documents. Additionally, Banks are exceptionally picky & stringent on how the HUD1 needs to be structured & worded, so a significant amount of time can be saved by having a Title Company that knows these requirements.  There are also many fees & closing costs that Short Sale Banks typically will not agree to pay, so a good Title Company will know to preempt the Bank & structure the HUD1 accordingly from the beginning!

In this same vein, all Banks will have Short Sale program/bank/investor specific documents that will need to be signed at closing, and not all Title Companies know exactly how or why these closing documents must be executed.  After all, many Bank specific documents are redundant with the Purchase Contract, Listing Contract, and their addenda.  However, while these documents are seemingly pointless, the Short Sale can & will fail if they are not fully executed. Indeed, as it is not uncommon to be scrambling after closing, getting Bank specific documents signed, due to an inefficient or inexperienced Title Company.

The Title Company is an essential cog in the Short Sale machine. They can make or break the deal with very little ease, due to response times, customer service, and knowledge of the Short Sale process. A bad Title Company can/will cause undue stress, waste time, and prepare insufficient HUD1s; ultimately putting the Short Sale in jeopardy.  A good Title Company, on the other hand, will be the exact opposite.  They will respond to requests promptly, go the extra mile, and have extensive experience in closing Short Sales; consequently becoming an integral partner & team mate to ensure the best chance for success!