And CJ is absolutely correct--the Bank in this case is NOT the owner. You are making an offer with a contingency of "approval by a third party" to the short-sale which is normally the bank (s). The Seller decides what's going on with the offer. The reality is if they banks do not wish to negotiate then all bets are off. The "Short-Sale" will result in a transaction which goes no where! Currently in Sonoma County the Continue to Show numbers are very high with 946 "in escrow". However 578 of these are Shorts! That's 61% ! Throw in 104 REO's and 72% of the Continue to Show homes are Pre-or Foreclosed homes!
Regarding your question on price--some Realtor/Agents price at "market" (that's a term which you can get a BIG arguement over!) and some price a levels so low they are gauranteed to generate many an offer. I fall on the "market" side as usually the price point "Shorts" are falling is in the very sought after sub $400K range. You're going to sell it! The more realistic price the better recieved by the lender and the less disappointment for YOU the Buyer! Your Realtor/Agent should be giving you sound guidance in this. Short-sales historically sell HIGHER than REO's. It's all there in black and white. They are NOT bargains just fall in that first timer category price point.
Counter-offers? Through the Seller is where the counter will come from. They are NOT negotiating with YOU but with the Seller! Granted, it takes both parties to agree to the price but the Seller has more to lose in this situation. The bank could be demanding a promissory note, threatening further litigation, playing major hardball--it is the SELLER's choice to make. Many a Realtor/Agent,slugging it out for months with the lender, become indifferent to the wishes of the Seller and make it their personal mission to "close this sucker!". It is NOT their call.
Understanding the language of the pre-foreclosure and foreclosure market and the timelines, plus nuances of negotiations will put you in good stead. If your Realtor/Agent can't guide you in this then get one who can.
REOs: this is another difficult process for buyers. Often there will be multiple offers and every buyer has to decide what their "highest and best" price is. About 20% of the time (it seems so far), the buyer that is the highest, drops out of the deal - as long as 1-2 months later, and the bidding starts all over. It's no wonder many buyers trying to buy a home don't want to get involved in these deals either.
The trouble with ignoring these properties, at this time, in the 95405 area, for the last 6 months, 18% of the market were REOs, and 35% were shorts. So ignoring these meant skipping 53% of the market.....a very tough decision.
There are other market hurdles, not covered here, that buyers need to know. I highly recommend you work with an informed representative. These days particularly, who you hire will make a BIG difference in your results.
You should reall speak with your real estate professional about the "short sale" process. With a short sale the buyer actually needs approval from both the seller and their bank.
Important to note is the fact that the bank normally has nothing to do with the listing price and therefore would request a higher price, if it were to protect their interests.
To your second questions "When a house is listed as a foreclosure, is the asking price already approved by the bank or could we possibly run in to the same problem as before?"
There are generally fewer games played with a bank owned sale. That said there are often situations where the BPO the bank had done is too high and when the lender has the home appraised the appraisal comes back lower than the BPO. Even if the BPO is correct if there are multiple offers on a home the bank may counter asking for best and final offers. It is the Asset Managers job to get as much for a home as possible.
I would not immediately give up on short sales. They can be a pain but they also make up a good portion of the available inventory in many areas. This trend will continue to grow as banks are encouraged to allow owners to sell short as apposed to going into foreclosure. Ask your agent about the new HAFA program.
A home listed as foreclosed, an REO, or bank-owned returns the transaction to a familiar buyer-seller model. In this case the listing agent works with the bank to set the price. I have seen many foreclosed homes sell for more than the listing price, but that was because of buyer demand and not the bank countering at a higher price. The bank is within their rights, however, to counter your offer. A more likely circumstance is that you can expect to find competition for well priced REO property. There are a lot of buyers looking for bargains and it's very common to be in a multiple bid situation. In the lucky situation that you're the only offer on an REO and your offer is solid, the bank will probably take it.
The low listing price could be due for several reasons, e.g., they want to attract offers to get the lender to tell them what they will accept because they know the lender won't tell them until they get an offer.
When a house is listed as a foreclosure, sometimes it's a pre-approved price. More often it's not. Homes being sold under the HAFA (Home Affordable Foreclosure Alternatives) program as short sales do have pre-approved prices.
So, yes, you very possibly will run into the same problem as before. Have your Realtor ask whether the figure being presented is a pre-approved figure, and/or whether it's being offered under HAFA.
Otherwise, you might want to stay away from short sales and foreclosures.
Hope that helps.