Home Buying in 91042>Question Details

Mae, Home Buyer in 91042

What percent of the owner's loan balance is the loan institution willing to accept as the final sales price for a short sale property?

Asked by Mae, 91042 Sun Sep 13, 2009

Help the community by answering this question:


Hello Mae,

Your question seems more sellers’ question, than buyers. However, important is the fresh appraised or BPO-Broker Price Opinion, (1 to 3 months mostly) value of the property. And max. you can go up to 85 to 90% of appraised value. Of course there are lots of other nuances involved and it will take several hours of typing to go over everything and at the end it will be a book. But don’t worry, the only thing you need, is an agent with good experience in short sale.
If you need something more specific, because each short sale is kind of unique, call or e-mail me directly.

Good luck.
0 votes Thank Flag Link Mon Sep 14, 2009
Here's how it works: They'll do an appraisal to determine what your home is worth. From there, they will calculate their cost that it would take to foreclose. ($25,000 on average, but it also depends on if you have other liens, unpaid prooerty taxes, HOA dues, etc.)

Most short sales that I have sold have approvals 3-5% less than market value. An experienced short sale Realtoir can give you a pretty good idea. It also depends on your lender, as well as the experience of your Realtor.
Web Reference: http://shortsalesheep.com
0 votes Thank Flag Link Sun Sep 13, 2009
The Hagley G…, Real Estate Pro in Pleasanton, CA
Hello Keith and thanks for your insight.

You know I'm a big fan of your answers, and I'd agree with everything you wrote earlier except--and this is worth noting to Mae--a lot of banks do not necessarily approve a short sale until they have offers. When a home is in distress, the Realtor will ask the lender if they will consider a short sale, but if the prices come in too low, or there are too many encumbrances, then it is certainly within the lender's right (and probably is the recommended course of action) to foreclose on the property.

The only assurance that the Realtor and the seller obtain in talking with the bank prior to listing the home for short sale is that the bank will forestall foreclosure for a limited period of time while a short sale is marketed and offers are obtained. There is no guarantee that, in the end, the bank has to agree to sell the home short--only the consideration that the bank will wait to give the short sale a chance.

I've been in several transactions where the bank agreed to sell the home short, but, in the end opted for foreclosure because no offer would cover their loss as adequately as a foreclosure and MI.

So Mae's question, in my mind, is very astute, since she recognizes that there is a connection between the loan value and the probability of success in closing on a short sale, and that is, to my understanding, quite correct, along with, of course several other factors, but it was a good question.

Good luck, Mae and thanks for your comments Keith!
Grace Morioka, SRES, e-Pro
Area Pro Realty
0 votes Thank Flag Link Sun Sep 13, 2009
There is no percentage. The bank is going to send out their own appraiser to determine Fair Market Value. The banks are losing their butts out there & they're trying to recoup as much of their loss as they can, however they are aware that most of the time, if they let the home go to auction or they take it back to come on in the future as an REO they will lose even more money.

This is why deals can still be made for a good price on a short sale property. Plus short sale properties are usually in nicer condition than REOs.

Don't frustrate yourself with percentages (each bank is different for what their guidelines are) Once the bank does their appraisal, they do have a Range in mind for what they will accept, based on their own policies as of that date & those policies & regulations are constantly changing.

0 votes Thank Flag Link Sun Sep 13, 2009
Your profile says home buyer, so I am not sure for your reason to ask this question. As a buyer, the fair market value of a property is determined by the market, not by the lender that gave the loan to the current owner. Once a lender has approved a short sale, they have made a determination that selling the property at a loss is better for the lender than foreclosing. In most cases the cost of foreclosing is $50-$75K, when you add up all the costs. That is why short sales can be preferrable.

If your concern is that you are offering a lot less than the home loan shown in the title records, let's reverse the question. Would you pay more for the property than it was worth? Of course not. When you make an offer, your lender will have an appraisal of the property conducted. The appraisal should confirm the fair market value. The lender approving the short sale knows that an appraisal will be conducted by your lender, so there is really no point in trying to sell a home for more than it will appraise.

And you can see that the amount of the loss is really not relevant from the buyer's perspective. From your Realtor's perspective, they will want to find out more details about the short sale so they can inform you about the potential issues, timing, etc. The key to buying a property that requires third party approval (like a short sale) is having a knowledgeable Realtor that can make sure you are not wasting your time and effort.
Hope this helps.
0 votes Thank Flag Link Sun Sep 13, 2009
Keith Sorem, Real Estate Pro in Glendale, CA
Hello Mae and thanks for your email.

If we all knew that answer, short sales would close 90 percent of the time, rather than the abyssmal 40 percent that appears to be the average now.

Truth is the banks do NOT look solely at the loan value in order to determine if the price a buyer offers on a short sale will be accepted. The bank's negotiators will look to the comparable home sale prices in the area, the amount of the loan, the loss, the encumbrances on the property (2nd, 3rd loans and any liens) and the appraisal price they receive on the property shortly after a contract has been received. If, after assessing the sale potential of the home, the bank determines that the loss is too great or that a foreclosure would be better, then no matter what you offer (short of the loan value+encumbrances and who would do that?), the home wil be foreclosed rather than sold short.

If you really want the home, work with your Realtor or qualified real estate professional to determine a comparable price for the home. By the way, it actually does help to work with an agent who has successfully negotiated short sales in the past, as they can help you understand both the process and the strategy behind buying a short sale home.

Good luck!!
Grace Morioka, SRES, e-Pro
Area Pro Realty People's Choice
co-host "Naked Real Estate" on http://www.blogtalkradio.com
0 votes Thank Flag Link Sun Sep 13, 2009
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