how do you negotiate short sells vs foreclosures

Question

can you negotiate either or both or none. What I've heard; Short sells are listed by the agent based on comps, you can come in low but the listing agent doesn't have to submit it.

Banked owned, as is, aren't negotiable and usually go for more than listed. The Bank will not listen to your case of the cost of rehab.

I don't believe all this, or else you guys wouldn't be getting any deals, so can someone shed some light on what and how you negotiate under different buying circumstances.

In a real life instance, today, my realator called on a short sell for 75k and the lister said she presented an offer to the bank at 55 and they came back at 68. I was wondering if i should come in at 55k as well, or 56k or 60k....does it do any harm to lowball, will the listing agent just say no way, the bank has said 68 so get close or will they try to convince the bank....make your case for you?

What is the real motivation for the banker in a short sell situation, and in a forclosure situation. Whats the difference in leverage for the buyer?

Jon Holdman · Answer

Always figure out what the property is worth to you. For fix and flips, that's based on the price you can get after the fixup, so apply the (70% of ARV) - rehab cost rule of thumb. For rentals, consider expenses = 40-50% of rent, subtract off the P&I payment, and leave yourself a profit. For wholesaling, use either of these, depending on what the end buyer will do, and then subtract off your fee. The listing prices is only interesting as to your probability of getting an accepted offer. If your max price is close, you are more likely to get it if that if you max price is much lower.

If you agent is embarrassed to submit your offer, get a new agent.

Scott Hubbard · Answer

Short Sales are more successful when your offer is within 10% of BPO. If the broker asked to do the BPO takes in account the rehab, then you should have no problem getting a decent price.

To get below the a "lowball" offer accepted you should concentrate on writing a proposal when submitting your offer to the listing agent. In that proposal, include your justifications for your price. Be prepared to provide documentation. Investors who get their offers accepted are very good at justifying their price. Here you need to be creative.

Also, during the short sale process, most agents will submit all offers, but there may be some qualifying factors the lender may require. For instance, proof of funds may be stipulated.

Since there are a lot of variables, such as, lenders, markets, staffing, personality, etc., each deal is different from the last. One thing is constant though, convincing the lender it is in their best interest to sell the property to you at your price. The motivation for lenders to short sell are varied too. Some argue that carrying non-performing loans on the books hinder the banks ability to lend by tying up liquidity. Unfortunately, banks are illiquid on such a large scale in today's enviroment, that the case by case basis that is short sales, will not even be a drop in the proverbial bucket. So, I personally do not think this is a motivation for them anymore. I believe, in today's enviroment, the lender has to be convinced that the stand to lose more if they decide to wait until foreclosure.

Bank owned properties are a different animal. The lender has already added considerable expense in the judicial foreclosure process. Therefore, they may be less wlling to discount their properties.

Most agents will submit any reasonable offer, but it is difficult to get really big discounts here. Again, within 10% is very possible, but it really depends on DOM and other factors as well.

Good luck

how do you negotiate short sells vs foreclosures

2 Replies