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:
