Seeking advice on Short Sales

Asked by Rqf, Sacramento, CA Sat Mar 7, 2009

I am seeking opinions on what strategies I should use when placing an offer on a home that is in Short Sale. My Realtor seems to think that as long as it passes inspection, the best course of action would be to purchase "as is" and to adjust my price down for things that need fixing. Do you agree or disagree with this course of action?

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17
Reliable Rob…, , Bellingham, WA
Thu Mar 19, 2009
You may have to accept it 'as is' since banks are clearly reluctant to do repairs (and there are deferred maintenance items, as someone mentioned, in most cases. My recent experience has found that some banks, like Wells Fargo, will cough up the moneyt for safety or structural issues (rotting foundations, etc). But, you should always get an inpsection to know what you are getting into, even though that is probably only for your protection and to allow you to back out if it's more than bargained for. Make the offered price your lowest and don't worry about hurting the banks' feelings. They don't want to own the house; they want to unload it and write it off. Twenty percent off the asking price isn't too much to ask in my opinion. You do get what you don't ask for. Good luck Rqf The Sac/Stockton area has tons of choices right now.
2 votes
Jim Walker, Agent, Carmichael, CA
Mon Mar 9, 2009
Caution on Ajay's 82% to 85% of market value benchmark:

On average, I would estimate that the average distressed property has so much defferred maintenance (repairs needed) that the deferred maintenance probably averages out to about 15% of the after repaired value.

Thus an 85% discount is no discount at all, and a 82% discount is the equivalent to a 3% discount off of a fully rehabilitated house.

If you have construction skills, you can put in sweat equity, but then you are trading work hours of your own labor for sweat equity. The bank is still not doing you big favors.Rehabbing a house is very hard, dusty, dirty, sweaty (thus the name: sweat equity) tiring. bone aching, and sometime smelly work. Thank heaven the snake I found today at my fixer was a garter snake and not a baby rattler.

I like Ajays comment about the quality of the repair work that bank or seller will do if they are negotiated to do repairs. They use the lowest bidders, the cheapest materials, the lowest paid and least skilled workers to do repair work on your next home. Is that how you want the repairs done?
2 votes
Jim Walker, Agent, Carmichael, CA
Sun Mar 8, 2009
I agree with your Realtor.

Neither the owner nor the bank want to make any repairs except maybe a health or safety item, or an item required by your lender or insurance company.

Most professional home inspectors will give you a comprehensive report that addresses cosmetic, structural, systems, health and safety items.

Short sales and foreclosures are "distressed" sales. Yes that means financially distressed. The double meaning is that the property condition too is usually "distressed" as well.

There are a few homes on the market these days marketed by professional "flippers" who buy distressed houses, fix them up real nice, and then resell them at a profit. Those kind of sellers can more easily be persuaded to make repairs, since they are getting higher prices for the rehabbed homes, and can make a profit by doing so.
2 votes
Phil, , Guilford, CT
Fri Apr 3, 2009
Yes, the agent is correct. The sellers should have no money to make repairs, and if they did it should be paid to the bank. The seller, agents and bank expect you to purchase the property As Is. Absolutely.
1 vote
Harrison K.…, Agent, Irvine, CA
Fri Mar 20, 2009
Jerry ... The owners of title to the property would continue to be owners of the property until title is transferred and recorded. If the owners abandon the home and the bank has not yet foreclosed, the owners would probably still hold title.

The owner of the mortgage ... or note secured by deed of trust .. would have control over the short sale process .. and possibly grant permission for the sale.

Don't buy any home or short sale without professional Realtor help. Please contact and hire a qualified and experienced Realtor in your area who will help you with this. Make sure this person is a Realtor member of the National Assoc. of Realtors. http:// http://(www.Realtor.org), and that person would be bound by the NAR code of ethics, have special training with short sales, and will pursue your best interest while advising you accordingly.

Harrison K. Long, Explore Group Properties, Coldwell Banker Previews.
http://www.ExploreTheOC.com
1 vote
Krista DeWee…, Agent, Jenison, MI
Thu Mar 19, 2009
I believe your best strategy would be to work with a realtor that you trust. He or she knows what the market is in your area. However, don't be in a hurry. With the new changes taking place, my short sales have been delayed even longer. The banks are overwhelmed and have no problem kicking back an offer more than once requesting more information from the sellers even though they already submitted it. Be patient, make sure you want that particular home, your best chance is that you are buying as is, and be ready when the bank says it is a go. Remember, no two banks have the same rules and regulations that they follow.
Good Luck!
Krista DeWeerd
Towne Square Real Estate
1 vote
Arturo Shive…, Agent, Danville, VA
Thu Mar 19, 2009
Your statement that your Agent is worried about passing inspection leads me to believe you want low-downpayment FHA financing. Ask your Mortgage Broker about 203K financing. I only want to add that a lender evaluates a short sale based upon the seller's hardship and what the bank needs to net dollar-wise, to be able to writedown the existing debt. A bank is not a party to the short sale transaction as they are in an REO transaction. With that said, a buyer and seller should negotiate everything, as with a traditional resale. BUT, there are situations in which the hardship is so dire, that the seller will bring nothing to the table in the negotiation. It is like trying to bargain and dicker about a price that is blow-out-bargain-basement low already. That is the extreme...the lender doesn't require a short seller to give up their last red cent to satisfy the debt. So, lets say, a $500 window needs to be repaired. A lender is not going to reject the offer becuase the seller should be using that $500 to pay any back payments. The deal with short sales is that every case is different because it is based on the seller's hardship and no two sellers share the exact financial dynamics. Your Agent should be negotiating to your benefit. With that said, lenders have had months of experience now working with short sales and they are getting better at it. One of the first guidelines that they are following is to frown upon "low-ballers". If an Agent is advising you that your offer should be adjusted down from jump, on the supposition that the bank will reject it if repairs are requested, is premature and may not be the best advice if the bank perceives it as "low-ball". Offering 85% of market value as a blanket policy is just naive, especially if you are writing that type of offer for a property that only needs paint and cleaning, or a new set of closet doors in one of the bedrooms. Don't assume that your required 'creature comforts' are going to be considered material defects. Most likely, you will end up one of those buyers who sit and wait six months to hear absolutely nothing.

Perfect example, I closed a short-sale listing that I had in 30 days with Section 1 repairs paid for by the seller. Part of that had to do with the lender's policies and the other part had to do with the offer.

Best advice - Select an Agent with short-sale experience and choose an Escrow Officer that has the experience also. It is probably easier to find the latter, in any case.
1 vote
Sue Archer R…, Agent, Palm Harbor, FL
Sun Mar 8, 2009
Short sales have some pros and cons. It used to be that we realtors shied away totally from putting an offer on a short sale. Only 7% were accepted. However, in the last few months things have changed....a little. That depends on the real expertise of the listing agent in gaining the seller's lenders to approve; if that's possible and how long it will take...but back to your question.

Short sales are definitely as-is sales. You can ask for what you want. You have little competition in your offers (as many realtors STILL shy away from them), you can expect a very slow response and they will counter with what they will accept. Some banks will not pay for a home warranty, or pest report. But that doesn't mean you shouldn't ask. But by the nature of a short sale, most want and need an as-is sale because it is a simpler analysis for the lender. He can evaluate your offer and see what his net proceeds will be and how much money they are losing by taking your offer. If they agree to repairs, then that number would need to be a fixed amount. The seller's lender needs fixed amounts in order to make decisions.

So go ahead and ask in your initial offer. They will counter most likely but it will be just you and the bank. in negotiations, not a multiple offer scenario (less competition) Once you're in contract expect an as-is sale under almost all circumstances. They are pretty strict on the close of escrow date attached to their approval, and the terms. Otherwise you can start over on the approval process and wait longer.

I agree with your buyer's agent.
Web Reference:  http://www.suearcher.com
1 vote
Jerry, , 20020
Fri Mar 20, 2009
i have an offer on a short sale house. The owner's do not live in it. It is abondanded. The owner's could not afford the mortgage because they lost their job. In this case, who owns the house? the bank or the owners?
0 votes
Harrison K.…, Agent, Irvine, CA
Thu Mar 19, 2009
RQF ... Please contact and hir a qualified and experienced Realtor in your area who will help you with this. Make sure this person is a Realtor member of the National Assoc. of Realtors. http://(www.Realtor.org)
Your agent would be bound by the NAR code of ethics, have special training with short sales, and will pursue your best interest and advise you accordingly.

Best wishes on your home search and possible purchase of a short sale.

Harrison K. Long, Explore Group Properties, Coldwell Banker Previews.
http://www.ExploreRealEstate.net
0 votes
Larry Lang, Agent, WEST PALM BEACH, FL
Thu Mar 19, 2009
Most of the homes on the market in Florida are short sales. These are homes where the homeowner has run into financial difficulty. The majority of the property are not in poor condition nor do they need major repairs. In comparison to homes that are the same age and condition, the same work will be needed.
I closed on a short sale last Friday. My buyers purchased it for $230, 000 with 6% back, for a net cost of $216,200. It needed about $1000 in repairs which were all minor. It appraised for $250,000, with the bank
loan being $350,000. Other then the minor repair, the home was in pristine condition.
My job as a Realtor is to find these type of properties for my clients. there are homes that are not a good value. I do sort through the properties and weed these out. You can find properties in all price ranges, where you can find value, the homes do not need major work and you are doing your client the service you are hired for.
0 votes
Sean D Minor, Agent, The Woodlands, TX
Thu Mar 19, 2009
I have yet to see a short sale that wasn't as-is. What most people and agents don't understand is the lenders have a certain percentage of the loan balance that they will accept. Some will go to as low as 82% of loan balance up to of course 100%. So chances of getting that home for 50 cents on the dollar is not realistic. Lenders will take a chance at auction if they aren't getting reasonable offers.

Do you plan on living in the property or purchasing for an investment? You should always get a home inspection so you know what you are dealing with. Nothing will turn a good deal into a disaster quicker than discovering a huge problem after the ink has dried.
0 votes
Thomas McGiv…, Agent, Farmingville, NY
Thu Mar 19, 2009
Rqf - the only thing your real estate agent should be concerned with is determining what the FAIR MARKET VALUE is of the subject property (aka the home you want to purchase). Period.

Determining the FMV of the property will allow you to know what to expect to offer - at or around that price.

From there - if the property is in bad shape - the FMV is adjusted.

The key (at least in New York) is to get the offer accepted and pushed to contract and have that FULLY EXECUTED CONTRACT sent to the bank - period.

Good luck.
0 votes
Thomas McGiv…, Agent, Farmingville, NY
Thu Mar 19, 2009
Rqf - the only thing your real estate agent should be concerned with is determining what the FAIR MARKET VALUE is of the subject property (aka the home you want to purchase). Period.

Determining the FMV of the property will allow you to know what to expect to offer - at or around that price.

From there - if the property is in bad shape - the FMV is adjusted.

The key (at least in New York) is to get the offer accepted and pushed to contract and have that FULLY EXECUTED CONTRACT sent to the bank - period.

Good luck.
0 votes
Bob Georgiou, Agent, Danville, CA
Thu Mar 19, 2009
This is a very resonable strategy provided the home is priced right to begin with and prices are stable.

Since lenders will be doing a calculation such as this of their own. I (sight unseen) like the strategery and believe it is one that would get the house with minimal lender aggravation.
Web Reference:  http://bob2sell.com
0 votes
Ajay Pandya, Agent, Columbus, OH
Sun Mar 8, 2009
I don't completely agree with it. You may loose the deal. In Short Sales final price is determined by the bank and most of the Short Sales are sold "as-is where-is in its present condition". The banks are taking less than what's owned on it and they will be careless of the repair and work needed. Banks get the appraisal done and then decide how much of cut they will take on each case by case basis. Banks have limitations on what they would accept on Short Sale they may as well let it foreclose and make more money in certain cases. My question to you would be how bad do you want this property? Ask your agent to find out from the listing agent or the bank that what is their bottom line? The bank will not accept offers less than that amount that they have approved the short sale. Usually it is about 82 to 85% of the current market value depending on types of loan. Also, be ready to wait for a few weeks before you get any answer from the bank.
0 votes
Bill Eckler, Agent, Venice, FL
Sun Mar 8, 2009
Rqf,

Not having seen the home and having no feel for it's overall potential, it is impossible to provide accurate and helpful information.

Your real estate professional, with out a doubt, benefits from the best vantage point to provide you with factual and supportive information. On the surface, his/her recommendation is not out of the ordinary and is a tact that is often taken in these situations.

Good luck
0 votes
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