Short Sale Counter Offer Strategy

I experienced a first this week. The first time a seller countered an offer from one of my buyers on a short sale asking contingencies to begin right away upon seller-acceptance, not at the time of bank approval. I was immediately taken aback by this almost insulting suggestion – my thought was “you’re asking the buyer to incur costs of appraisal, credit report, inspections, and potential escrow cancellation fee with no certainty that the short sale will be approved at all, at the price offered, or that the seller will not derail the transaction intentionally by doing a loan modification or deciding to keep the property instead of doing a short sale?” In my mind, this was extremely unfair. In a normal sale, buyer’s contingencies begin right away, but in that case the buyer has control over whether to continue or cancel. In this case there are so many factors beyond the buyer’s control that these incurred costs can easily be lost due to no fault of their own.

After thinking about it and my explaining the implication of this decision, my clients agreed to it (it turned out the incurred costs would be under $1,000), however it was not soon enough since someone else agreed to it first, thus we are the backup offer. I see the merits in this strategy – it really ensures the buyer is serious and motivated and would not potentially throw away cash for a property they only have lukewarm interest in or if they are making offers on multiple short sales, fishing for a deal. However, the listing agent that ultimately suggested the idea to the seller, is definitely reducing the pool of buyers, which I am philosophically opposed to. Furthermore, it is almost necessary to price the home well under market, which this property was, for a buyer to agree to this, willing to take the risk that they will get a good deal. In this case, there is a hightened risk that the bank’s appraisal/BPO will come back significantly higher than the price offered, necessitating a counter offer and resulting in a probable buyer cancellation, creating the same situation you had intended to avoid, but this time with hard feelings.

In my opinion, this is the wrong strategy. A short sale, where there is an extreme amount of uncertainty, should not require one to incur costs prior to bank approval. Unfortunately, buyer cancellation prior to approval happens sometimes, but it cannot be entirely prevented through this forceful strategy and I contend that it works to the seller’s disadvantage in terms of reduced pool of buyers and price less likely to be approved, not to mention to the listing agent’s reputation and willingness for buyers agents to suggest their listings to future clients.