Home Buying in Stuart>Question Details

Janice, Home Buyer in Sandwich, MA

What can I expect when making an offer on a short sale or foreclosure?

Asked by Janice, Sandwich, MA Tue Sep 2, 2008

Many of the properties my husband and I have reviewed through our agent in Southeast Florida are short sales, about to be short sales and some are already in foreclosure. How much room is there for negotiating a short sale? How do you know what kind of offer to make based on recent comps? What can we expect in terms of time frame, concessions, success rate in bringing this type of sale to conclusion? I notice in some listings that buyers are expected to mortgage through a specific company (Countrywide is one that I recall). Are we required to do our financing with these institutions? Thanks for any help you can provide.

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Clients who were referred to me recently closed on a short sale in Petaluma, California. They purchased a very nice home that previously sold for $550K and now was sold at $341.5K. We had written multiple offers on REO properties over the previous weeks but lost out to all cash buyers in multiple offer situations of anywhere from 4 to 13 offers. We generally avoided short sales but spotted one where the savvy listing agent highlighted in agent comments that her listing (on the market nearly 6 months) had had a previous buyer grow impatient and walk away, meaning much of the work in getting the bank to accept the sales price had done and was near completion. We felt this was a suitable short sale to risk writing on and did. So did a couple of other buyers. While we were only 5% down, we were solidly pre-approved at a higher price and my clients were so confident in the value this home represented that we felt good making an offer, and their credit was excellent. At the last minute I added in a cover letter saying how much they really liked the home. I always do this on regular sales (i.e. give info about the buyers) but was advised not to bother with the REO's and short sales. My gut told me to put a few words in anyway, and the listing agent told us that is why we got the home! Go figure. Banks are run by people too. Anyway, the lesson learned was that there are opportunities in short sales, although in our county only 1 in 10 closes before foreclosure. But if you carefully search with your agent and scope out opportunities you may be one of the 10 in your area. Regarding concessions, we got 10K in credits off the asking price. The other offer came in about the same as us and went into backup at a higher price, not leaving much room for negotiations after we did the inspections. But we did get in for about 8K less than asking,. In contrast, one REO we wrote on was a fixer with good bones that received 13 offers (priced at 309) and closed at $350! BTW, it took the bank about 3 weeks to get back to us on the REO offer and decline. Meanwhile we kept looking. I give you the details on this transaction because it is a fairly typical view of the Sonoma County market for distressed properties and the process. Your agent will know the unique characteristics of your market. On, and my clients were not required to use the lender, they had already arranged financing and that was never an issue.

Sorry this answer is so long, but one more thing! We had to wait nearly a month for the bank to respond to the multiple short sale offers--we had written in our contract we could close 15 days after acceptance. The bank finally accepted us and said the price would only apply for a close within 7 days--which we were able to do. Thanks to a great lender and good inspectors and flexible clients. The bank would have honored our original terms but at a higher price so we went for it. Classic wait and hurry up scenario. Good luck!
1 vote Thank Flag Link Tue Sep 2, 2008
You have gotten some very good advice! I might add that in the Stuart area we are seeing about a 20-30% success ratio on short sales and 90-120 day wait. It is all dependant on the listing agent and how well they have managed the bank.
1 vote Thank Flag Link Tue Sep 2, 2008
I will only add the fact that I would assume that you aren't required to use a specific lender, only that you are pre qualified through the owner/lender, which I have seen Countrywide do many times
1 vote Thank Flag Link Tue Sep 2, 2008
Janice,

Our advice is to identify an area and locate a local agent that understands the market. Additionally, we feel there is too much time and risk involved in "short sales" to get involved with them. We strongly suggest "foreclosures" over short sales because most of the hurdles have been dealt with prioor to foreclosure.

Your offer should be based on an awareness of the current local market. The recent area comps should provide information to clarify your position. Stay with the basics....if you really, really like the home and it's the one, it would be in your best interest to come in with a higher offer so you minimize the risk of loosing it to another buyer.

We would be happy to provide a referral for a top area agent if needed.

Good luck,
The "Eckler Team"
1 vote Thank Flag Link Tue Sep 2, 2008
Your question has many answers and all are correct (mostly). In many cases there not only is little to room to negotiate the price of a short sale- in many cases the selling price is significantly higher than the original asking price. The process of the short-sale could be as little as a month to as long as 6 months and may possibly never happen at all.

The comps are just one of the elements in determining the acceptable selling price- the mortgage balance(s) are a critical factor as well.

In a foreclosure that is already bank or lender owned- the time frames are significantly reduced and the asking price is generally a little negotiable. Often, if the property is in a HOT area or priced extremely well; therer are several offers that the lender can choose from. Naturally, they take the highest and/or best offer received.

I have not heard of being required to use any particular lender, title company, etc. That requirement may be against the law.
1 vote Thank Flag Link Tue Sep 2, 2008
Janice, Short Sales can really afford you a fantastic buying opportunity. When you are considering purchasing Short Sales you want to make sure that your Agent is up on Short Sales and knows the workings of them as he or she will need to know what to ask of the Seller's Agent and what to expect during the process. Without this, your transaction could possibly be more difficult than it ought to be unless you know the Seller's Agent is well versed in Short Sales.

When you're making an offer on a Short Sale your Agent will need to know the market as to what has sold in terms of the homes competition and will typically offer below the market value.

As far as time frame; this varies depending on the Lender of the Seller and the Seller's Agent. I've received approvals in less than 30 days and some have taken over 75 days; variance with me was due to the Lenders Short Sale process and their file load.

Concessions are a possibility. It will have a lot to do with how much room the Lender has to net what it is that they're looking for. If there are a lot of other costs such as unpaid HOA fees and unpaid taxes, the Lender may have less room to offer any type of concession.

As far as how successful Short Sales can be goes back to what I said before; the Sellers Agent. I've closed Short Sales and have had a great rate of success.

You wanted to know if its required that you use a particular Lender for your financing; I've seen this request with just a few Listings yet typically this isn't the norm from what I've seen. Your Agent would have to have the discussion with the Listing Agent.

I hope I've answered some of your concerns for you. You should know that Short Sales Sales really do work and all you and your husband will need is a little patience. If that's the worse that can happen for getting a great home on sale, you should be so fortunate! Best Wishes!
1 vote Thank Flag Link Tue Sep 2, 2008
Short sales and foreclosures can be very good deals. But buyer beware, these are transactions that only a savy realtor can navigate. Choose your realtor wisely. Short sales can require a lot of patience on your part. You will submit your offer to the seller and then the offer goes to the mortgage company. And you will wait for a response. That could be as much as 1-4 months...or more. Your interest rate could rise considerably during that time. Shop carefully for your property and the realtor representing you.
1 vote Thank Flag Link Tue Sep 2, 2008
Make sure you follow through with all inspections. You will not know why the home is being sold....the bank will only do minimal disclosure. Be prepared for disclosures after your offer is accepted. Read carefully...these can require you to pay additional commissions. Have a good Realtor represent you!
1 vote Thank Flag Link Tue Sep 2, 2008
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