When is a Short Sale a good deal ?

When is a short sale a good deal?

Short sales can snag a great property for a buyer at a screaming deal…sometimes.

Short sales can take months and months before the bank accepts an offer, it can be one of the most frustrating purchases you can make, and it isn’t always your best deal. If you would like more detailed information about Short Sales, read on…

Buyers make the mistake of assuming because it is a short sale it is automatically their best deal.  Sometimes they’re right.  Many times the seller owes such large amounts to the bank and the bank(s) price the home based on what they are willing to take, not what the current market dictates.   

So, in a nutshell here is how the typical short sale works:

• Seller decides/needs to sell, they owe more on the home than they can sell it for. Maybe they bought at the top, maybe they borrowed against the home – either way their loan is too high. 
•  The seller goes through an arduous process to get the bank to agree to allow a short sale
• Bank agrees to a short sale, home is placed on the market.
•   Some sellers continue to maintain the home, others do not
• Short sale homes are sometimes not available to show very easily, or are not listed with the local brokerage ( have to wonder about their motives – to sell it or squat until they are booted out?)

Pricing:

• Most banks won’t tell the Seller or the Agent what they feel an acceptable price is, and it is left up to the agent to list and price the property to sell.  
•  Some agents price the property to reflect market value, some go just below and some properties are priced like a K-Mart blue light special.
•  Banks will conduct a BPO – Broker Price Opinion of what the property pricing should be. This is based on closed sales within a given area. This number can depend on which properties the broker uses for comparison.  Did they use a good range of sold properties or just the distressed ones?

The process:

The short sale process can take months and months to complete. There is no standard processing time or procedure the banks follow.  Many times the bank will not even look at any offers for weeks and weeks. The Buyer’s agent has no ability to communicate with the bank – the listing agent often has spotty communications with the bank.  You place the offer and wait, and wait and wait. 

Many Buyers get anxious and become tired of waiting. They walk away and find another property. In Utah, earnest money is not required of the Buyer until acceptance by the bank, so it is easy to walk away.  The banks don’t always use logic when choosing the offer they like.  You could give them a full priced cash offer closing in 3 weeks and they might choose a lower financed offer closing in 5 weeks because it serves their purposes better – or maybe they are just too busy and approve the first one they grab off the pile on their desk! Plan on longer than you think it will take. Don’t give up your rental until you have bank acceptance and loan approval.  

Things to ask:

When you are working with an experienced buyer’s agent, they will do the research to find out if this property is viable. Here are some of the questions your agent should get answered for you prior to getting emotionally invested in a home:

•  Where is the bank in the short sale process
• Do they have any offers currently?
• Are they planning on submitting multiple offers
• Have they had past offers and how has the bank responded?
•  Is this home priced in a reasonable range to make it a good deal and worth the wait?

If the short sale process has just started, the bank is less likely to take a low ball offer and will be more likely to try and get the highest price possible.  If there are offers in currently that can make the possibility of your offer getting accepted lower. Sometimes the bank will work with the first offer until it dies or closes, then move on to the next.  If the seller is planning on submitting multiple offers you know you will have some competition to face and should offer accordingly. How the bank has responded to past offers can be an indicator of how long the process could take.  If the home is in a $700,000 neighborhood and is priced at $850,000, chances of getting a screaming deal price are slim and none – at least not right away.

Things to avoid:

·         Click the links below to see some of the Short Sale pitfalls to avoid:

Nolo Legal - short sale fraud scams 

 AOL - Short Sale flopping

5 common buyer short sale mistakes 

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Fabulous Bank-Owned Promontory Ranch home successfully closed!

Bank owned properties are a challenge. Yes, the prices can be a screaming deal, but there are lots of hoops to jump through. If you have the stomach for it, I say go for it! Get your ducks in a row first, then jump in.

Right now, Promontory Ranch Club, a high end golf community in Park City, Utah has some great deals. The development went through a bankruptcy a while back and the community is still on the rebound. Homes that previously went in the $2 million plus range can now be picked up for just under 1Million. Gorgeous homes, great community, great amenities. The theory is once the economy changes and the market has recovered, these homes will be worth a heck of alot more than the buyers have paid. In the mean time, these buyers of the bank owned bargains will live in a gorgeous, high end home for half the price. Promontory is about 10 minutes from Park City Mountain, Deer Valley and The Canyons. These homes have some of the most fabulous views of all 3 resorts.

So, you write an offer and think long and hard about the price, the closing date and the rest of the terms that work for you and your situation. Usually the seller will respond and the negotiations begin. Bank owned properties are different. The bank required my seller to sign an addendum they create as a blanket document to cover all possibilities in all areas of the country. Seriously, why don't they just write their own contract? They completely blow out of the water all of your dates on the original offer - due diligence deadline, financing deadline etc. In this particular addendum they gave the buyer 10 days to get an inspection and 15 to get loan approved. Inspection, not a problem, but even with a well qualified buyer, full loan approval in 15 days is difficult.

Back are the days where the banks require your first born child to approve a loan. Lending institutions give a borrower a "conditional approval"  along with a list of additional documents they need to give full approval. No big deal, right? Wrong. In this particular case the list never ended. As soon as one required document was submitted, a request for something else would come. Luckily,  this buyer was super organized and had all of the needed documents available. It almost felt like the underwriter was trying to justify their job!

Bank owned properties can be a great way to go if you know what to expect. Don't expect the offer and negotiation process to be like a regular home purchase. Meet with a loan officer and get everything ready to go on that front before you go shopping, then be ready to pre-qualify with their required lending institution.  Next, go into the process with reasonable expectations about the price. Have your agent pull all the closed sales in that area. Banks aren't going to negotiate as much in an area with brisk sales. Figure they may not credit any money for repairs. Make sure you understand the bank addendum and the ramifications.

Call me at 435-731-0803 or email me at heather@parkcityhousehunters.com  for more information about Promontory Ranch Club bank owned properties. Click on the link below to view some Promontory deals.

CLICK HERE TO VIEW PROMONTORY RANCH CLUB BARGAINS