Psychology of the Distressed Seller

May 6th, 2009

As a person that spent 10 years on his Psych education. I have had the pleasure over the past few weeks of gaining some interesting stories. So i have written 2 contract over the past 2 weeks that have fallen through due to sellers not wanting to sign the PSA. Normal right? of course. But these are PRe Foreclosure Short Sales. So in the State of Washington if your property is a Short Sale and subject to lender approval, and it is being advertised as such, the seller legally has no negotiating power in this situation. The reason for that is, the Seller actually can not guarantee the sale price of their home if the contracts needs lender approval. As we all now in a normal transaction the seller and the buyer negotiate, and we settle on a price, and that is what we close at minus any credits or debts. But if your property needs lender approval; the seller in not actually the seller; the lender is.

Recently I put an offer in on a property in a great neighborhood but the house was a dump. The owner wanted a certain price for his house even though that settling price was less than the outstanding debt, and the owner had yet to get that number approved. But the owner being a person of faith, argued that God told him through prey that this was the price his house was to sell for. And he had a social responsibility to not hurt that lender with our offering price. I explained that our offering price; one was logical due to the comps in the area; and do the the condition of his house it wasn’t worth what he thought. Of which I showed this with a packed of information about 50 pages deep. Then I told him that he can not negotiate on behalf of his lender, because he had no right too. But there was no getting him to follow the law much less the logic of the process. So we had to walk.

Next I put a contract in on a distressed property on the East side for another client, and we were getting the run around form the agent that the seller had signed it and it was off to the bank. I said if it is signed why don’t I have a copy? Then she said she would send it right over. A few minutes later I got a call from her saying the contract was not signed and the sellers would not sign it. I asked why, and she said the sellers wanted 15k more than we offered. Again I told her that since the deal is a short sale and it needs lender approval the sellers can’t guarantee that the bank will even settle at our agreed upon price. And further more if the bank ends up countering (which they will) this offer my clients and the sellers negotiated, the sellers have now committed fraud. Because, why? When you are in Default on your loan, you basically give up all rights to negotiate the sell price. Because the bank is now the bottom line, not the seller.

What this says to me is that; one their listing agent had not fully informed their client on what it means when they choose to sell their property as a ”Subject to lender approval” Short sale. Two, when you are going through mostly like one of the most difficult periods in your life, you still reach for anything that will let you feel like you are in control. Unfortunately the grief minds logic most of the time does not let you move forward, but it will keep you in your distressed and stressed partern. So listing agent please coach your clients on the reality of the situation. Instead of being tunneled visioned on just getting the listing. Not only does it put your client at more risk for trying to negotiate in a situation that they can’t, but it puts you at risk to.

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