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Short Sale FAQ

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Have a short sale question or need clarification on any response in the FAQ?  Send those questions to rich@choiceutahrealty.com and I’ll answer them.

How can I get an advantage over other bidders on a short sale?

Offer more money than everyone else.  At the end of the day, the bank only cares about money.  And, ask for as little as you can.  Offer cash.  Someone getting a conventional loan will have a slight advantage over someone getting a FHA loan or rural housing assistance.

Ideally, you want your offer to be the first offer submitted to the bank.  So, being quick to put in your offer is key.  But, check with the realtor about how they intend to proceed to know for sure.

 

On a short sale does the bank only look at the first offer submitted?

It depends on how the selling realtor is running his short sale and the preferences of the bank.  Standard practice has realtors submitting the first offer to the bank.  If everything goes well with the first offer, that’s the only offer the bank will see.  More often than not, the first offer drops out at some point.  The bank then comes back and asks everyone for their highest and best offer.

Being the first offer submitted to the realtor will most always give you an advantage.  Having an aggressive realtor who can get you to see homes the first day out on the market is key.

On a short sale, what is a reasonable offer?

Even on short sales, the bank wants to get as close to market value as they can. More and more realtors are pricing their short sale properties on the low side to attract more offers. So, the list price may be way off from the price the bank will accept.  I saw one property listed at $155,000 and the bank came back wanting at least $190,000.  And, they were asking people to come in at their highest and best.  Most likely, someone was going to be bidding more than $190,000 on that house.

If there’s no offers on the house, feel free to bid low if the realtor submits the first offer they receive to the bank.  If the realtor is collecting offers or if they are submitting every offer they receive going low might not be great

In a multiple offer situation, you really do need to pull up a list of homes which have sold in the area.  (With all offers you make, pulling up a list of homes which have sold in the area is important.) Then, use that as the starting point to your offer.  Decide how badly you want to get into the house.  Even if you do win the offer, there’s plenty of ways to bail and lots of people do bail.  So, if you don’t win, hang in there especially if you like the house.  Maybe down the road, your offer could be the only offer remaining and you could end up with a super deal.

Tell me more about a bank approved price on a short-sale.

An offer has gone from start to finish with the bank and the bank has come back with a bank approved price on the property.  Most likely, the original person putting in the offer has decided to move on to another home.  This is the best possible deal to get involved.

The time it takes to go from start to finish on a short sale with a bank approved price, is just slightly longer than a “standard bank owned deal.”  There’s no more negotiations which need to be done by the bank.  If a person is getting a loan, expect about 30 days plus a few days for the bank to review documents.  Every bank does things differently so make sure to ask the selling realtor plenty of questions.

 

Should I be worried about there being two lien holders on a short sale property?

Yes and No.

No. If the primary and secondary lien holders are on the same page with what they want to accept than it’s possible this kind of deal will go well.

Yes. When there’s two lien holders on a short sale property it can be tricky.  The primary lien hold may have rules which will only give the secondary lien hold a certain amount of cash from the deal.  The secondary lien hold may not appreciate getting a low amount of money back from their loan.  This can create a problem with getting this type of deal done.  The secondary lien hold may want the seller to come to the table with cash or agree to make a note to pay the secondary lien an amount of money back over time.

Asking the selling realtor the status of the lien holders before getting involved in the property is important to avoid stress down the road.

 

How can I walk away from a short sale deal–especially as a cash buyer?

Walking away from a short sale is extremely easy.  In the short sale addendum for Utah, it’s clear that any party can walk away from a short sale at any time.  When an offer is finally accepted there’s a few ways to walk away: The due diligence deadline, The appraisal deadline, and finally the financing deadline.  Take a close look at your offer to find the your deadlines and watch those carefully.  It doesn’t really matter if a buyer is a cash buyer or if they are getting a FHA Loan.  The ways to walk away from a deal are the same.  Just make sure to ask the sellers if they have their own cancellation form or if they’ll let you use a standard form provided on the MLS.

 

What is a reasonable amount of earnest money on a short sale?

On a short sale, the earnest money you put down on your offer isn’t as significant as other kinds of transactions.  In Utah, you can choose to have the realtor deposit the earnest money 4 days after bank acceptance.  That allows investors to put offers on multiple short sale homes without actually having to come up with the earnest money in cash.  And, that bank acceptance could take months.

When the bank is evaluating an offer, the most important thing to the bank is their net from the deal.  The earnest money certainty is important but not something to really stress about.  A lot of people like to put down 1 percent of the purchase price as their earnest money.  But, at the very least for deals under $200,000 going with about $500 to $1000 should be good enough.  The bank won’t accept or decline an offer based on the earnest money.  But, they will decline an offer if the net to the bank is lower than another offer.

Real Estate Investing: What to know about a short sale

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Ten Tips for a Short Sale

In today’s market, people view short sale homes as a way to gain instant equity. A short sale is where the amount owned on the house is greater than what they could obtain if the house was sold on the current market.  The owner finds himself in a situation where he can no longer make the payments on the house.  So, he goes to the bank to see if the bank will accept a lower amount than what is owed on the house and if the bank will release the seller from the lien when the house is sold.  Caution should be used when making an offer.  Using an agent who’s familiar with the short sale process is absolutely critical.  
A few guidelines would include the following:
Avoid Homes with more than one lien held by multiple lien holders. Negotiating with two different lien holders can be extremely challenging.  The primary lien holder will receive the lion’s share of the funds while tossing remaining crumbs to the junior lien holders.  The primary lien holder may have a maximum amount allowable to be paid to the junior lien holders.  And, the junior lien holders may have a minimum amount they will accept.  That results in a standoff between the two lien holders which will lengthen the time to close a short sale and might even stop the short sale process altogether.  A buyer in this situation will have wasted a lot of time and may end up missing other potential opportunities.  Find out the number of lien holders even before considering a particular home.  Good practice is to inquire about the current negotiations with the lien holders.  A little bit of research before making an offer will go a long way towards having a successful short sale buying experience.
A home with a pre-approved bank price considerably speeds up the short sale process.  Very often, the first person submitting the first offer to the bank will walk away from a short sale for many reasons.  After the bank has evaluated all the offers and selected one, other buyers often bail and move on to other homes.  If the sale fails and the house comes back on the market, the bank is usually without any buyers and may be more eager to unload the property.  The bank will have done an analysis of the loss they willing take on the property.  And, will come up with the bank approved short sale price.  So, if you lose out on a short sale, have the realtor follow up until the house actually closes because it could come back on the market with an approved price.  And, then the short-sale approval process could be much shorter when making a reasonable offer.
Just because a bank wants a certain amount of money, it’s worth a shot to push the bank on exactly how much of a loss they are willing to take.  It’s is a good strategy especially if you’re willing to walk away from the negotiations.  If you feel like the short sale home is on your “A” list, pushing the bank may not be a good idea—especially if the bank has already approved a specific price.
Don’t take the due diligence process lightly in an effort to speed up the transaction thinking you’re already getting a great deal.  Often the property is sold in an “as is” condition.  A home inspector can discover a lot of things with homes.  But, they can’t tell you everything.  Consider having a specialist come to inspect any red flags which have been identified by the home inspector.  Take every potential problem spot in a short sale home seriously.  You never know how deep the rabbit hole goes until you take a closer look.
Short Sale homes often will be vacant and no one maybe be particularly interested in maintaining the property. The realtor might not have the time to winterize the home, inspect the home regularly for problems, or even do simple home maintenance such as mowing the lawn.  A roof with minor damage can turn into a huge problem over the winter.  A small water leak in a roof can cause a collapse in the ceiling thus causing major water damage to the floors below.  Sometimes, that water damage can cause black mold issues which the realtor may not know about until months later.  I’m often surprised how little some sellers and realtors actually know about the condition of the house they are trying to sell.  Thousands of dollars of repairs may be needed to repair damage caused from failure to be aware of what’s going on with the house.
Short sale homes may have uninvited visitors from squatters, vandalism, and insects.  A buyer who discovers a swarm of bees has taken up occupancy in a home may not appreciate the extra benefits the bees would provide.
Don’t put all your eggs into one short sale basket.  Waiting around for the bank to accept your offer for that special house could leave you disappointed in the end not to mention the one to six months of waiting.  Even after that initial first offer on a home, keep looking around at other places.  Identify more than one short sale home of interest.  And, don’t tie up your earnest money on a short sale until after the bank has accepted your offer if that option is available. There is no risk in doing offers on multiple short sale homes. There’s many ways for a buyer to walk away from a short sale without even having to give a reason. But, keep a close eye on the contract deadlines.  Missing a deadline can result in the loss of the earnest money.  Any realtor worth their salt will never let a buyer lose their earnest money—ever.
The listing price may not be the price a bank will accept.  Realtors want to get as many offers on the house as possible.  They do that by lowering the price of the home to make it seem like a super deal to attract as many buyers as possible.  The realtor’s listing price may not be the price the banks will accept.  Banks will do their comparative market analysis and try to come as close to market value as possible.  The offer which is finally accepted may be much higher than the initial listing price.  That sweet short sale may not end up being such a great deal.
Having more cash in the offer will increase the chances of an offer being accepted.  The more cash you can include in the offer the greater confidence the bank will have that that you can actually close on the home.  A full cash offer or an offer with at least 20 percent in cash will have an advantage over someone who just comes up with the minimum 3 ½ percent down payment in the case of a FHA loan.  The bank doesn’t always go with the highest offer but will also look at the strength of the offers.
Be ready to move fast when looking for a short sale.  Every morning realtors send out automatic email messages to their clients with the most recent homes coming on the market. For the first few days a home will have a lot of visitors coming to see the home.  Have a clear idea of what you are looking for in a home. Then, you will be more confident to move quickly to make an offer.  The first person to have an offer submitted often has an advantage especially when making a strong, reasonable offer.
Get an edge on the competition. Search for homes in the evening to identify short sale homes just coming on the market. Try to view the home that evening and submit an offer before the automatic email messages get sent out the next morning.  This strategy may be difficult to make happen.  When it does happen it could give you the advantage of having the first offer submitted to the bank.
Short sale homes can occasional be a super deal and can give buyers instant equity.  They can also be extremely long and frustrating.  Buyers can walk away disillusioned and without anything to show for the effort.  Other opportunities may have been lost while waiting for a response from the bank.  Buyers should consider looking at homes with comparable prices which might not take as long to close and where the owners may be making a better effort to maintain their home to sell.