The Short Sale Counter Offer
You may want to read this article before continuing so you have some context for the information here.
Since the buyer and seller are in the drivers seat concerning the terms of a real estate purchase contract, and the bank is simply a 3rd party, the information that comes from the bank to the seller is privileged information that the buyer is not entitled to know.
The information from the bank that the short sale addendum to the purchase contract implies that the buyer is entitled to know is a simple “yes” or “no” regarding short sale agreement. If the seller and seller’s lender come to an agreement, the seller notifies the buyer. If the seller and seller’s lender do not come to an agreement, the seller can do one of two things: a) notify the buyer in writing that they will not come to an agreement, effectively canceling the contract, or b) continue to negotiate with their lender.
Aside from proving that the seller diligently pursued the approval to the best of their ability, the seller does not have to disclose the details of the negotiations. The seller will disclose the final terms of the contract through the HUD-1. They may also provide the buyer with the actual agreement letter from the lender, but they don’t have to. All they need to do is notify in writing that an agreement was made.
One of the pieces of information that the seller and seller’s lender often deal with is what everyone has been calling a “Counter Offer.” In Arizona, the counter offer is a document that is used prior to ratification of the purchase contract and is between the seller and the buyer. One the contract is fully executed, only an agreement between the seller and the buyer can alter the contract price, and this is accomplished through a standard Addendum.
The lender may look at the seller’s proposal based on the contract and ask the seller to bring more to the table. This is what many agents are calling a counter offer, but they’re failing to explain that it is a counter offer to the seller, not a counter offer to the buyer. Therefore, if the listing agent in a short sale conveys to the buyer’s agent that the bank has “countered” the offer, then they are inherently confusing the purity of the short sale process and they’re putting their seller’s short sale success at risk. When buyers of short sales have come to an agreement on price, it’s the listing agent’s responsibility along with the seller to work hard to get the net payoff as a result of that contract to fulfill the lender’s loss tolerance.
The banks have most people believing that the sales price of the home is the important number, but we know better. The net payoff to the lender is the important number, and if we can meet that while remaining completely compliant with the law, then the purchase price is irrelevant.
When your lender wants more than the offer, convey that to the buyer as a last resort, but do your best to negotiate with the seller’s lender before scaring the buyer off.