On Counters

Everyone involved in short sales must recognize that the offer submitted to the bank is more than just the gross dollar amount.  As can be seen on the standard HUD-1 settlement sheet, there are a myriad of services, fees, and other dollar amounts that are itemized.

Most people only know of the bank countering on price (the purchase price of the property,) but counters can come in many forms at many times.  A bank is most interested in one line of the HUD-1:  Their payoff (or "offer net.")  If they assess through their analysis of the offer that there is money going elsewhere while it could be going to their payoff, they may choose to counter.  They could challenge any number of items and it's up to your short sale negotiator to ensure that the deal remains viable.

Counters can also be countered by your short sale negotiator, a turn of events which could end then and there, or lead to further counters until the bank has an acceptable offer.

Let's look at an example in the negotiations of "Mr. Smith," typical homeowner and short sale applicant:

• Mr. Smith has a mortgage with a balance of $300,000.  His house in the current market will only sell for considerably less.
• Mr. Smith gets an offer for $250,000.  Since he will be short, he seeks out a professional to negotiate the short sale.
• The offer is submitted to the bank with their payoff worked out to be $220,000.  So, to the bank, Mr. Smith is selling his home $80,000 short (the balance less the offer net.)

• Counter Scenario One -  The bank performs a BPO on the property and asesses it to actually be worth $275,000.  They counter at the full BPO price.
• Suddenly the bank firmly believes that the house is worth substantially more than is being offered. 
• The bank presumes that they could get more money in a foreclosure auction than is coming to them from the offer.
• With all other fees remaining the same on the HUD1, they see that if the purchase price were raised, the difference would be added into their payoff.
• Mr. Smith's short sale negotiator can ask the buyer side to raise the purchase price to the full BPO value or they could counter it.  The counter could be somewhere in between the two figures or could even be at the same price originally offered, often necessitating that the negotiator challenge the BPO value as incorrect.

• Counter Scenario Two - The bank counters the settlement fee of $1,500 at $1,000.
• Yes, even for only $500 a bank could counter, knowing that the difference will be added to their offer net.
• Often the bank will counter to reduce or remove fees that they believe to be either too high or extraneous respectively.
• Mr. Smith's short sale negotiator again has the option of complying with the counter or countering back.  An experienced negotiator argues for what they know to be necessary, or believe to be appropriate, for the specific transaction.

Naturally, the two categories above only scrape the surface of the process of short sale negotiation.  A good negotiator will know when to accept, meet in the middle, or stand their ground in the event of a counter.  It is also worth noting that higher tiers of review can counter on an offer accepted by a lower tier, as would be the case if Mr. Smith's investor decided that the purchase price should be even higher than what the bank accepted.