Is 20-25% under loan amount reasonable for short sale?

Asked by Allan, Orlando, FL Wed Jun 4, 2008

I am a first time homebuyer and I realize I got screwed by being born 10 years too late. Now that the market is backtracking I figure now is my chance to make up a little room. I am interested in a property currently listed at $199k in Conway. The agent indicated that it would be a short sale. I researched it and the owner took out a $206k mortgage in early 07, and since has received a Lis Pendens letter. At $199k, the home is not too far of a stretch for the neighborhood, but I need to know how good of a deal I can get.

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Frank Martone, , Kendall, FL
Wed Jun 4, 2008
What will the bank take? Here in Florida the rule of thumb is:
For a conventional loan 80%
For FHA 82%
For VA 82.8%
of current market value. There in lies the hard part, determining the current market value. What the seller paid has nothing to do with the equation. The current market value and what it will cost the bank to take the property to foreclosure is all they look at. Upon receiving the first offer it will trigger the bank having a Brokers Price Opinion or Appraisal. The BPO or Appraisal is going to determine if the loss mitigator will consider the offer. The offer is then weighed against what the bank will get if it has to go through the full foreclosure process.
The offer package for the Short Sale must be complete and contain everything required by the Lender. As you will be on the Buying side make sure your Realtor has the expertise necessary to get your offer seen by the loss mitigation department. This could mean assisting the lisiting agent if they lack the expettise necessary. Remember the bank is an entity, they don't know you, all they are looking at is numbers. They do not take offers in the order they come in, they take best Price and Terms period. It may take up to 60 days for the process so other offers may come in. Make sure you have an Approval Letter, not a Pre-qual, make the closing very fast upon acceptance, time is money to the bank. Good Luck
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T, , Florida
Wed Jun 4, 2008
Allan, I generally never respond to blogs but happened to read yours and had to... I would first start off by saying it seems that the old adage might fit you "you have enough information to hurt yourself".

I am a real estate investor myself and look literally at thousands of properties every week throughout Florida. The only way to answer your question is to know what the FMV (Fair Market Value) is for that home, that area, that neighborhood, that sq ft, for that year of home, etc. I would say Ms. Lynn from Coral Springs had the best advice. You need an expert to answer some questions for you on today's value for that home.

I appreciate that you did a public search for information on the Lis Pendens and it is good to know how to do that but that is just a tiny piece of information and is basically useless for someone who is not an investor.

As a real estate investor the more I know the better offer I can make. You should know what the SALES trends are for that neighborhood over the last 3, 6, and 12 months You should know how many homes are for sale in that neighborhood (careful Realtors generally use only their bible, MLS and Tulia doesn't necessarily have the most updated info..)

We purchase many properties in Central Florida but not familiar with the Conway market. We work with many Realtors and have come to know some of the best. If you want free advice get an Expert Realtor they will save you 10’s of thousands on your purchase.

Good Luck

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Rick Aguirre, Agent, Orlando, FL
Wed Jun 4, 2008
How good of a Deal?,Depends on a couple of things,
1. are there any other offers. ( 1st to the gate usually wins)
2. How much are YOU willing to pay.
Not very insightful but the sooner an offer is tendered the better in a short sale. The loss/mit dept is not likely to review a dozen offers. usually the listing agent sends in the 1st offer and if its good enough for the bank, well you get the picture.
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Robert Diamo…, Agent, Town of East Troy, WI
Wed Jun 4, 2008
20 to 25 % is reasonable in any market and most Lenders have loss mitigation teams in place for this very reason. You may go even higher, as much as 35 to 45% under loan amount given the time of year and market. Short sale is an abreviated term related to the bank being "shorted on their loan agreement". The question always comes down to how much of the short end of the stick are they (the banks) willing to take?
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Lynn Pineda, Agent, Coral Springs, FL
Wed Jun 4, 2008

I would recommend that you contact a Realtor well versed in Short Sales who can assist you in knowing what to offer. You will want to make an offer based on the fair market value for the home and not its mortgage balance. Too many will get caught up in the mortgage balance but the Seller's Lender will be more interested in what the fair market value is for the home and will accept or negotiate your offer based on that. The mortgage balance will be secondary as to how much of a loss they will be accepting thus how far from the FMR that they will be willing to go.

You mentioned that you think the $199K is too high for the neighborhood and your Realtor would look at comparable home sales to guide you in making an offer if the List price is too high. But to simply make an offer based on a percentage from the loan amount wouldn't be recommended. Contact a qualified Realtor in your area. Best of luck to you.
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Greg Traub, Agent, Orlando, FL
Wed Jun 4, 2008
First, are you sure there is only one mortgage on the property? If there is a second mortgage, especially if owned by another lender, the chances of successfully purchasing a short sale at any price drops significantly.

As far as how much under loan amount you can purchase a property for...the loan amount has no bearing on the short sale decision. The lenders will order appriasals or BPO's to determine what the market value of the home may be. They then decide whether they will recover more money by foreclosing on the property and selling it themselves (expensive and time consuming process) or if allowing the short sale will net a higher $ amount for them.
There is no formula for what they will accept under market value and it differs from bank to bank and from loss mitigation manager to loss mitigation manager within the bank. To add to that the chances of even being able to purchase a short sale at full appraised price aren't that great, as the banks are so backed up with the things that it can take them 3-6 months to approve or dissapprove the sale. By that time most buyers have walked, or the foreclosure department has already gone through with the foreclosure sale.

If your looking for a great deal, I'd suggest looking at properties the banks already own. Unless you are willing to wait a long time, and can deal with the dissappointment of not getting the property after such a wait, don't mess with short sales. I'd say 1 out of 4 short sales actually go through, and if the listing agent knows what they are doing, maybe 1 out of every 2 or 3 go through. I'm not saying don't consider them altogether, just know what your getting into before considering them.
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