Home Buying in Alamo>Question Details

Sophia, Home Buyer in South Ozone Park, NY

I am interested in a short sale, i made an offer at the listing price, the listing agent says the bank won't approve if i want to add closing

Asked by Sophia, South Ozone Park, NY Tue Sep 27, 2011

cost

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Jen Pfeffer’s answer
I've run into this before as the listing agent on a short sale recently. If the homeowners original loan is a Fannie Mae loan,there are federal restrictions that don't allow closing costs to be added to the purchase price. I know this makes NO SENSE, but even if you roll the closing costs into the purchase price, Fannie Mae will not allow it. A loan officer or broker would be able to better explain it. I didn't quite get it, because the bank still nets the same in my opinion, because you're essentially paying your own closing costs, but I think it has to do with something about the way it breaks down on the HUD1. I hope this helps a little, sorry I couldn't be more help! Good Luck!
1 vote Thank Flag Link Tue Sep 27, 2011
There are enough realtors here who have had extensive experience working with various short sale banks. The listing agent may be providing some advice to you based on experience, to guide you on how to make your offer stronger so that it stands a chance of getting accepted and approved by the bank.

Everyone's goal is to get your offer approved -- and if there's something in your offer that weakens it, or from experience, the agents know it will be rejected, then you as well as the seller may appreciate the parameters of what makes an offer strong.

The first step is to present the offer to the seller who is guided by the listing agent. If they want to take a chance and accept your offer as written, don't be surprised if the bank rejects or counters your offer. Just remember that it's the short sale lender who makes the final decision on the price, terms and conditions.
1 vote Thank Flag Link Tue Sep 27, 2011
Hello Sophia,

This may be true...

If this would weaken the deal (and put the net to the bank below what bpo results were calling for (bpo is the broker priced opinion value - given by a bank assigned realtor) - the listing agent would be correct to let you know about the closing costs not being possible to be included.
Jen showed another reason why you were told no to the closing costs being included (FNMA).
It's possible that adding the costs after the file was submitted could jeopardize or prolong the approval process (or start it over, depending on the lender)...

It's the listing agent's fiduciary duty to do what's best for the seller.
I hope you have your own buyer's agent to represent you as well...

Irina Karan
CDPE - Certified Distressed Property Expert
IrinaKaran@gmail.com
Beachfront Realty, Inc.
0 votes Thank Flag Link Tue Apr 17, 2012
First of all, the seller has to be the one to chose the offer to submit to his lender. While the listing agent might have experience with a given lender or have established a dialogue with them, it may be that the listing agent is trying to leverage the best offer he can to increase the chances of a successful sale without having specific knowledge of what that lender will do.

If your offer has already been accepted by the seller and the lender is commenting on what it will take for them to accept the deal, that is one thing, but if the your offer is good and the best of what is submitted for the property, you could wait until it is selected by the seller and submitted and see what the lender actually says. It is almost impossible to guess what a lender will want in advance.

The real question is, "is the listing agent trying to coach you to submit an offer that will beat out other competing offers (Somewhat unethical but it happens) or is he trying to leverage you for a better offer to have a smother review buy the seller's lender. If the latter, I would submit an offer that makes sense to you and let the lender tell you what if anything more is needed. If it is a matter of multiple offers and you believe the listing agent is trying to coach you as to what is needed to get the deal, Listen to him.
Web Reference: http://BestEastBayHomes.com
0 votes Thank Flag Link Tue Apr 17, 2012
Sophia,

Short sales are a stange animal. What gets approved is based on broker comparable valuations and something called a net present value of monies recieved at forclosure relative to a potential loan modification. In the real world value is determined by what a willing and qualified buyer is willing to pay. In todays fantasy world its based on what some MBA in some other state says it might be worth.

Take the banks number and compare it to the comps with your agent. If its out of line then let the bank have it back, its clear that the investor's pet MBA wants it...
Web Reference: http://bob2sell.com
0 votes Thank Flag Link Thu Sep 29, 2011
Your first problem is basing everything on the LISTING PRICE which is normally a number pulled out of the air:

Understand that the LISTING PRICE has one primary objective, to attract attention: It is not intended to be set in stone, and in many cases it is not even a good guideline toward the SELLING PRICE.

Some Sellers believe that by setting the LISTING PRICE high, they can always come down, and people will make an offer anyway: WRONG! Buyers will just bypass the property and look at houses that are within their price range. And six months from now, the Seller will slowly start lowering the PRICE, (this is called “chasing the curve”) and Buyers will be asking the question; “What’s wrong with that house?” and “Why has it been on the Market so long?”

Other Sellers set the LISTING PRICE low, to attract multiple offers. (The correct strategy.) We are asked; “Aren’t you obligated to sell at this price if someone offers it?” The answer is probably not; for that to happen, you would first have to have only one offer, and secondly, the offer would have be exactly the same, down to the smallest detail, (please discuss this with your Realtor).
Another thought; Buyer will search for potential properties by groups; for example, $400,000 to $450,000, and $250,000 to $300,000. If your house is priced at $460,000 or $310,000, the Buyers will never see it. (something else to discuss with your Agent.)

Different Banks have different philosophies about pricing their properties: You cannot draw any conclusions without a good analysis.

Have your Realtor do a CMA, (Comparative Market Analysis) to help you determine your Offering Price. It is the surest way to determine the Market Value of the property.

If you want to buy a house for a price that is 25% less than Market, which is also 50% less than it was three years ago, and then you want them to pick-up another 3% for Closing; you are probably thinking that you have some leverage that you do not. It may be a BUYER'S MARKET right now, but not that much.

Good luck and may God bless
0 votes Thank Flag Link Thu Sep 29, 2011
Hello Sophia,

I have been closing short sale transactions since 1996 with 100% closing success to date, and a full time agent since 1989. Here's how short sales work;
1) The listing agent determines a listing price.
2) The listing price is generally less than market value
3) Very few banks pay closing costs, repairs or home warranties
4) Your purchase contract must have the words "as-is" added to the terms, even if it's already in the body of the actual contract. Clean offers only are normally submitted to the banks; clean meaning a Buyer does not ask for any closing costs, they pay for HOA transfer and doc prep fees, pay for their own closing costs.
5) The offer is submitted and that's when the back and forth between the listing agent and the bank(s)begins. There's never a guarantee that the bank will approve an offer, even at full price. The investor gives guidelines to the banks on percentage loss, etc. The bank may or may not counter. Than there's also the tricky part of getting second and/or third mortgages/notes to agree to the short sale. The agent must then negotiate back and forth between these banks. Even when they are the same banks, they are separately negotiated. Crazy, huh?!

The listing agent has obviously done a few short sales and has learned that asking for closing costs is a waste of time. You could wait 4 months, and be turned down. If you need closing costs, then only write offers on either traditional sales, or REO's (bank owned), which are properties which have been foreclosed upon.

Best of luck to you.
Isabelle

Isabelle M.J. Javier
DRE# 01118928
People & Properties
Sotheby's International Realty
360 Diablo Road
Danville, CA 94526
925-209-1370 (direct)
925-837-8569 (fax)
isabelle.javier@SothebysRealty.com
http://www.IsabelleJavier.com
0 votes Thank Flag Link Thu Sep 29, 2011
Sophia,
The response you state is from the listing agent and not the bank, RIGHT?
You should base your strategy on what the bank ACTUALLY does.
There are too many unknowns to allow more clarity regarding your next action.

Find out what is needed to have your offer submitted, regardless of the anticipated response from the bank. You however, must be able to increase your offer or pay the closing costs should the banks final position dictate that outcome. The reality is, "anything can happen!" If you are unable to 'come up' with the extra, you may be wasting everyone's time. There is a mountain of work involved in a short sale. Very few actually are purchased by citizens seeking a new home. It is important to work with buyers who actually have the capacity to buy the subject home based on the historical behavior of the bank. Short sales are the 'Wild, Wild, West' of real estate.

Best of success in finding your new home.
0 votes Thank Flag Link Wed Sep 28, 2011
Sophia:

I'm not familiar with standards in New York, but in our marketplace (SF Bay Area, East Bay), when a buyer makes an offer, it is not the listing agent who accepts or denies an offer. It is the listing agent's responsibility to present all offers to the seller (the current home owner). If the seller accepts the offer, then the listing agent submits the package to the seller's lender. The seller's lender then determines if they want to accept the offer or not. In some cases, short sale properties will receive offers at list price, but this price was established by the seller with advice from their listing agent. The seller's lender was not necessarily involved in the process. This means the lender may want more for the home than the list price, regardless of whether or not the buyer has asked for closing costs. And then, if the seller's lender accepts the offer, and you are in contract, your lender (if you are buying the home with a mortgage) will perform their own appraisal and determine if they are willing to lend you money on the price you've offered (and agreed to with the seller's lender). Your lender may believe the home is worth less and a new round of negotiations will need to take place.

All of this can be explained in more detail by your real estate agent. Short sales are complicated and should be fully understood by all parties before entering into the process.

I hope this is useful information for you in your quest to buy a short sale property.

Sally Blaze
925-998-1284
Alain Pinel Realtors
0 votes Thank Flag Link Tue Sep 27, 2011
Hi Sophia,
Good answers so far. The banks need to net what they determine to be an acceptable value for the property. (The listing price may or may not represent market value). Also, the banks want the strongest offer possible. Your offer will not appear to be as strong if you need closing cost money to complete the purchase. In my opinion it is better to lower your price and not ask for assistance. Just make sure your offer price is supported by recent sales.
Good luck,
0 votes Thank Flag Link Tue Sep 27, 2011
If the bank won't approve paying closing costs then you could either pay them yourself or wait and see if the property goes to auction. If it's not bought at the auction the bank will eventually list it for sale with a real estate office and will probably take less than what you're offering right now.
0 votes Thank Flag Link Tue Sep 27, 2011
Sophia,

Some banks won't approve at the listed price even without closing costs! The banks are looking to recover as much money as possible on a short sale. Sometimes the dynamics of mortgage insurance or investor guidelines makes it impossible to sell a short sale for the amount that a bank needs to approve a short sale. Ask your agent to explain.

Best of luck!
Vickie Nagy
CA DRE#01363932
0 votes Thank Flag Link Tue Sep 27, 2011
Most banks won't pay for closing costs in a short sale however I have seen many exceptions. I would at least ask for them and worse case scenario the bank will counter back and let you know if they will pay any at all or nothing. Its worth a try and you have nothing to lose by asking.
0 votes Thank Flag Link Tue Sep 27, 2011
I'm unclear to what the question is...but this is not uncommon... The bank is not required to accept any offer, and they are not obligated to pay for your closing costs. It has become common in this economy and market for sellers to cover some if not all of the closing costs, but the bank has a rigid accounting format on what sales price they can/will accept on a short sale based on the total net to them. You could try to increase your offer price and ask for the closing costs = 300K home, you want 9 K closing costs, increase your offer to 309K...but you might want to make sure it will appraise first. Have your buyer agent run a CMA so you don't waist your time.
0 votes Thank Flag Link Tue Sep 27, 2011
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