The bank wants to check and make sure the home is not worth more than $319,000 before approving the sale. They order an appraisal. The appraiser stats that the home is worth $350,000. The bank is already losing money on the sale. They don't want to lose an extra $31,000 on the sale. If this happens the bank usually asks the buyer to raise their offer to the appraised value. Often times the buyer will agree to pay the higher price.
Reason #2: The lender doesn't have a complete short sale package. Maybe the seller's last 2 bank statements are missing. Or a page is missing from the sales contract. In that case, the necessary paperwork will be sent to the lender.
Reason #3: The offer doesn't meet the short sale guidelines. Every lender has different guidelines for whether they will accept or reject a short sale. For example, the owner of the loan might be Fannie Mae. Fannie Mae has specific short sale guidelines. Unless the short sale offer meets those guidelines, it will be rejected.
Reason #4: Unrealistic expectations from the lender. Every lender has a specific employee who negotiates and processes the short sales. That employee is called a short sale negotiator. This employee has a lot of discretion over what they will and will not approve. We have seen those employees make up their own guidelines. They decide that Fannie Mae's short sale guidelines aren't good enough. So they demand more money from the buyer. Or they want the seller to give up their entire life's savings.
If the seller or buyer do not agree, then they will turn down the short sale offer. Never mind that they do not own the loan. If the short sale is turned down then the owner of the loan, Fannie Mae, risks losing even more money. Most short sales that are foreclosed upon end up selling as a bank owned property. The Boston Consulting Group recently did a study on short sales. They studied what a lender would net when selling a home either as a short sale or a bank owned property. They discovered that banks lose twice as much money on bank owned sales versus what they lose on short sales. What should your agent do with a short sale negotiator at the bank who doesn't follow the short sale guidelines?
We gently remind them of the loan owner's guidelines. They usually approve the file. If that doesn't work, then we will notify their supervisor or someone higher up at the bank. That solves the problem most of the time. But, if it doesn't, then we contact the owner of the loan directly and let them know what is happening. That is the basis of what we do to get your short sale approved and help you move on with your life.