How Can I Sell A House With No Equity?  

Sell more listings and accept ones you previously turned away.

 Why is your seller insisting on a high list price?  In foreclosure?

 Are your pre-foreclosure listings at a price above the market value? 

Learn to ask the right questions before taking a listing.

 Yes, you will get paid in a properly structured short sale!

 You need a negotiator to deal with the bank. 

Your seller pays us nothing!  They get to walk away without debt or deficiency judgments.  In some cases they can get paid.

 You get paid at closing as a referral fee. 

Frequently Asked Questions by Agents on Short Sales 

What is a short sale? 

A sale requiring the mortgage lender or other lienholder to reduce their payoff.  This will create enough equity so commissions and closing costs can be paid. The homeowner is still the seller but the lienholders must approve the reduced debt payoff.  Typically, the seller must be at least two months behind on their payments. 

What seller needs this? 

One with a high principal balance or payoff when compared to the value of the house.  If they owe more than the house is worth, closing costs and commissions would have to come out of their pocket.  Usually a seller who is behind on payments won’t have the funds available to close.  A short sale done correctly will cost the seller nothing.  Attorney costs, commissions and forgiven debt are taken from the bank’s discount.  A seller wishing to avoid the auction and save themselves from a  foreclosure on their credit report will be a candidate for our program.

 Why would the bank allow this?

 They know the house is headed for foreclosure.  Nationally, this costs them an average of $36,000 in lost interest, attorney fees, taxes, insurance, repairs, marketing commissions and eviction costs.  If they can dispose of the property before a foreclosure with a controlled loss in a few months it saves them money in the long run.  Many banks know they made bad loans with inflated appraisals.  They are willing to make up for it now.  They need to feel some pain before allowing a loss which is why the payments must be delinquent.

What should I ask all my clients before listing any property? 

You want to ask their objectives.
Are they selling to avoid a foreclosure?
Are the payments, taxes and insurance current?
Are their any liens or judgments?  Water liens?
Do they know where the abstract and survey are?
Are there any structural or mechanical defects on the property?

How will the client benefit? 

They may need to just walk away from this high debt.  Your client will go further into foreclosure if you don’t help them sell the house.  A high listing price and extended days on the market will only make this situation worse.  To save their credit and stop a foreclosure you need to motivate them to act early.  They can concurrently process a refinance, forbearance, loan modification or list it for an unrealistic price.  The short sale process can take a while so you may as well have them start early.  If another plan unfolds, it didn’t cost anything to think defensively.  If they let this go to a foreclosure auction, the bank can process a deficiency judgment for money they lost in the foreclosure.  In a short sale, they usually give up their right to collect for damages. 

How will the listing agent benefit? 

You are going to sell this house and get a referral fee!  If you have to list the house at an unrealistic price just to cover your commission the client will get hurt by not selling the house and you aren’t going to get paid.  The bank reduces their payoff to allow commissions and closing costs to be paid.  You need to be proactive by asking the right questions when you took the listing.  You have probably turned down listings before which had no equity.  Now you don’t have to.  Even if the bank requires a reduced commission, at least it is going to sell.  Expired means no commission. 

What is the procedure from here? 

Call me to make sure the house fits the criteria for a short sale.  Having answers to the client questions above will speed this along.  If it looks like a short sale is best for them you can refer the listing to me and get paid a referral fee.  Your client will sign an Authorization to Release Information to allow my staff to negotiate with the lender or other lienholder.  Your client needs to collect their last two years of tax returns, two months of pay stubs, two months of bank statements, write a hardship letter, fill in a financial worksheet and be ready to sign some bank specific paperwork.  I will submit the package with purchase contract, HUD-1 and a letter explaining the situation.  The bank will send their specific paperwork requirements and schedule an appraisal.  I will accompany the appraiser.  This is the most critical event and must not be taken lightly.  This is why I must be involved directly.  If it comes in too high, the house will go to foreclosure.  

 What will this cost my client?

 Zero.  The bank is taking a reduction in their payoff so commissions and closing costs can be paid without any money from your client.  They can’t walk away with any cash since the bank is taking a loss.  Occasionally, the bank will limit commissions to make their required net.  Still, this beats an expired listing.