I was asked yesterday if an agent should tackle an FHA short sale or leave that type of short sale to the pros. For starters, I don't believe any seller should be held at the mercy of an agent learning how to do a short sale. The agent either has negotiated and closed a bunch of short sales or the agent hasn't.
If the agent is not a short sale expert, that agent should not learn how to become an expert at anybody's expense, much less a client's. That agent should work under supervision. As a Sacramento short sale agent, I speak from experience about that. When I started negotiating short sales in 2006, I didn't jump into the water blindfolded. But few agents can afford to be supervised or are willing to be supervised. So, here is my secret for doing an FHA short sale.
First, realize that FHA will not make it easy. FHA has 2 faces. The face of a borrower taking out an FHA mortgage and the face of a borrower in default or about to go into default. The rules are different for both. They are at odds with each other. On the one hand, the government wants to help and on the other it does not.
FHA will do its own appraisal. It will be a full blown HUD appraisal, not a BPO. Before you price that short sale, look at the comparable sales and the pending sales, because the pendings and active short contingents will be your comparable sales at closing.
FHA will not allow a 3% buyer closing cost credit. That's not to say you can't get an exception because, believe it or not, I have obtained an exception for an FHA short sale, but those are few and far between. This will, of course, eliminate almost all of your FHA buyers for that short sale. Remember the part about the two faces of FHA? FHA will guarantee a loan for a buyer to buy a home as long as it's not one of its own or one about to become its own.
You can get a 1% concession without much trouble. The key to an FHA short sale is the net to FHA. This is the secret. You don't have to meet the sales price set by FHA, but you do have to meet the net. The net is 88% of the appraisal. See, this is why you should have paid attention during math class. The best way to meet the net without messing with the sales price is to lower those closing costs. This means moving some of them to the buyer's side of the HUD. And there you have it. Straight from your Sacramento short sale agent.
Tip: If you can't figure whether the loan is an FHA loan, look at the original sales price vs. the original loan balance, and you'll find your answer if the balance is near 97-98%. Odds are 95% LTV is a conventional.
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Certified HAFA Specialist
My Sacramento Real Estate Listings
Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available at Amazon.com.
Lyon Real Estate is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.
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The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.
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Hi Elizabeth - I've been lucky in that buyers ususally get 3% in our area with short sales. I agree about pricing them right!
Hi LaNita: Not on a FHA Short Sale they don't.
Elizabeth, bless you for this info, came at just the right time. We have FHA SS coming on mls tomorrow. WF did an appraisal already. I know we have it priced well for the area. glad to know about the 88% net. That will come in handy!!
Elizabeth ... thanks for the great advice ad the wonderful blog! Good to know these great tips ... especially from an expert like you! Thanks!
great and accurate information.
Elizabeth, as always, I really appreciate your posts. Thanks for the Short Sale information. It's the best!