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Bruce Lynn, Real Estate Pro in Coppell, TX

Short Sale Price

Asked by Bruce Lynn, Coppell, TX Fri Jul 18, 2008

I've seen some houses lately listed as "short sale" but with really incredible prices. In my opinion it really doesn't matter what price the home is listed as the bank will be in control anyway. How often are you seeing seller accept a low offer only to see it turned down by the lender or lender comes back and says we need your offer plus X. What's the best pricing strategy to actually get these sold?

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Pricing short sales is tricky. Price too low, and the bank will effectively destroy your transaction. Price too high, well we all know what happens.

But I figured out a solution!! Bear with me...

After mutual acceptance the bank orders an appraisal or BPO on the property. If that appraisal/bpo comes in higher than your sale price, you're in trouble. Most buyers walk away when you tell them the price has to be increased for bank approval.

When this happend on my listing I felt frustrated and out of control. Here's what I did to get a little control back...

Step 1: TAKE THE KEYBOX OFF OF THE PROPERTY right after mutual acceptance.

Step 2: WAIT FOR AN AGENT OR APPRAISER TO CALL YOU FOR ACCESS TO THE HOUSE. The bank will order an interior bpo or appraisal after they're notified you have mutual acceptance. They're going to need to get into the house and they will call you.

Step 3: TALK TO THAT AGENT OR APPRAISER ABOUT YOUR COMPS AND MARKET CONDITIONS. If the agent BPO or appraisal comes in close to your sale price, you've just avoided a big hurdle in the transaction.

Since I started doing this I've had almost no problems with the Bank trying to influence my sales price after mutual acceptance. Check out http://www.ShortSaleSuccessKit.com for more.

Good Luck! - A few hours ago
0 votes Thank Flag Link Sat Dec 20, 2008
I have done many short sales, Alot of agents when they get there first meeting with the home owner and they tell them they cant pay there mortageg anymore they go about pricing it all wrong. The Bank does not care how much the person owes them. Agents biggest mistakes is they usually start off with the price they owe the bank and add commissions etc, to that price to nreak them even. The bank will usually take no more than 10% below real market value. So for example a owner owes the bank $1,000,000, maybe they did a refinance or whatever, but the house is only worth $850,000 true market value, the bank would take $765,000 for it. Ill explain, if the bank forecloses they need to put it back on the market, so they have alot of expenses as well to do the foreclosure, than when they finally get the home, they have spent approx 5% to foreclose not to mention time not recieving funds on mortgage and an uncertian future if they will actually be even able to sell the home. So if a Realtor has a listing in this example and got the homeowner $765,000 the bank would most likely take it and run, on to the next. For home buyers short sales can be very good as opposed to buying a foreclosed house from the bank which will be at market value anyway. Hope this was helpful.

Mike Luchen
Short Sale Expert
Coldwell Banker Residential Brokerage
White Plains, New York
914-316-9486
http://www.WestchesterRealEstateNY.com, Visit my website for more info on Short sales and Foreclosures.
1 vote Thank Flag Link Sun Aug 24, 2008
If the agent has not pre-cleared the price with the loss mitigation department of the seller's mortgage company, it is highly unlikely they will accept it. They want a hardship letter and proof that the seller cannot pay the mortgage, along with evidence that the price is a fair market value. Yes, they will get at least a BPO from someone else, if not an appraisal.
Absent pre-clearance and accompanying proof of hardship and fair market value, the mortgage lender will not just sign off on it. Often the agents are neglecting the second mortgagees, too. This is a no-no.
One seller read some book on auctioning and was running an auction on his house. You are correct that the bank is the decision-maker, regardless of how tasty the listing agent tried to make the list price.
1 vote Thank Flag Link Sun Aug 24, 2008
Sylvia, unfortunately we often just don't have the luxury of systematically reducing the price. In many cases the owner is in trouble, and has known it for months, but the notice of foreclosure really got them to act and you have only 3 weeks in which to find a buyer and get the deal approved by the bank. (Foreclosure may be held off pending the closing.)
Banks are willing, as first lien-holders, to deal, but if the owner financials don't match the deal, they will reject it. For instance, if the second lien-holder is to be paid off, then the first lien should also be paid off -- hence they will re-write the deal to cut out or severely reduce the second's payment at closing. Or, if the owner has other assets that could be converted to cover the loss, they'll throw out the deal, too.
In other states the properties are going for a song compared to 2 years ago, but not here. Typically, short sales are below the balance owing by not more than 10% typically, unless (as you say) your BPO or formal appraisal can show the market is lower. Unlike the formal appraisal, do include the distressed sales in your BPO or estimate to them. I know, the appraisal district ignores them, but the banks don't. They'll still do their desktop analysis including them.
Yes, I have seen lower, but the lower the offer, they less likely the deal will be accepted, not that it will never fly.
So, Bruce, price at market, as Syliva says, but private notation for SHORT SALE OPPORTUNITY. Most of us will get it. Buyers usually don't understand when it is in the public remarks., though.
Prcing below market is not in the client's interest, unless you have pre-approval from the loss mitigation folks that they'll sign off if the loss is less than x. Then you might have them questioning you about why you're offering to give away their money.
At this point S***n Mortgage is probably kicking themselves for allowing foreclosure that would have almost paid off both them and the second. Their REO is still sitting ... now $40k below the deal we offered the loss mitigation people.
Web Reference: http://www.SumnerRealty.com
1 vote Thank Flag Link Fri Jul 18, 2008
I have seen many priced artifically low to get offers so they can send it to the lenders to approve.

However, the lenders would rather have you priced it at market rate (who wants to lose THAT MUCH money), prove that you are not trying to sell it dirt cheap just to get a sale. Those artifically low homes, althought went into contract quickly, do not get approval.

If you price it realistically but can not get an offer, then you can reduce the price systematically until it sells. You will have a btter chance of showing the lender that you did your best but the market just won't take the house at certain price, so they don't feel they are taken advantage of.

That, to me, may take a bit longer to get offer, but when you get it, it has a much better chance to be approved.

Sylvia
1 vote Thank Flag Link Fri Jul 18, 2008
Sylvia Barry,…, Real Estate Pro in Novato, CA
MVP'08
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If there is a foreclosure sale date in the near future, it is VERY common to price a short sale property LOW to get a quick offer and stop the sale date. We have done this many times, and if the bank wants more $$$ and the buyer really wants the house, we have also seen them increase their offer many times. Either way, they pave the way for the next buyer in line to get a quick closing and a deal!
0 votes Thank Flag Link Tue May 24, 2011
If the sale date is close, price cheap to get an offer and get the sale date stopped.
0 votes Thank Flag Link Mon May 16, 2011
I have unfortunately wasted 3 months of my time waiting on one of these lower priced properties. The odd thing was that it was priced at 120k. FMV in good condition was probabaly 130k. It was however not in good condition. we put an offer of 110K and there was another offer on the table. We waited 2 months for the bank to come back and say they were going to have to have a net of 126k which in my mind was absurd. Obviously the buyers walked and the 1 month I had invested working with plus the two months we waited had all been waster. I believe it should be illegal for listing agents to list homes at prices they are not sure are going to get approved. It is a lack of concern and respect for a buyers agent who is doing the leg work.
0 votes Thank Flag Link Tue Dec 23, 2008
Listing agents need to understand and know the acceptable ranges that the lender will accept. The lender/banks have ranges that they use to determine if an offer are acceptable. I can normally come very close to that acceptable amount by using the lenders range to accept, market condiitons, outstanding liens,etc.
0 votes Thank Flag Link Tue Dec 23, 2008
needs lender approval however it depends on how open the bank is accept offers. As a listing agent need to determine have property sold best interest for all 3 parties.
Web Reference: http://www.lynn911.com
0 votes Thank Flag Link Sun Dec 21, 2008
David,

My experience shows that there is not any logic in bank's reaction. Most of the times to close a short sale is a matter of good luck. Banks are unpredictable.
0 votes Thank Flag Link Sat Dec 20, 2008
I like that. To negotiate with appraisers, wow. I will start doing it:-). Thanks!
0 votes Thank Flag Link Sat Dec 20, 2008
I've seen and experienced the very same thing. Agents list short-sale properties without getting lender approval on the price. The lender soes not entertain the short-sale until they get a firm written offer from a prospective and qualified buyer.

It is a cycle that needs to be addressed by the lending industry and it will certainly be more concrete in the near future. I've seen some very low asking prices for properties worth 50% or more ~ there is no doubt that these short sale prices and offers will be rejected.

From my own experience, it seems that the mortgage balance(s) are what needs to be considered when listing and presenting offers on these types of sales. Lenders have formula that they use where a percentage of the debt would be forgiven. It could range fron 30-40% less than the first mortgage. Every market and situation is different. It is a matter of learning from experience and rejection.
0 votes Thank Flag Link Fri Aug 22, 2008
Great answers....thanks everyone.....there's a couple I've got my eye on so I'll let you know how they turn out.
Web Reference: http://www.teamlynn.com
0 votes Thank Flag Link Thu Aug 21, 2008
Bruce Lynn, Real Estate Pro in Coppell, TX
MVP'08
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