Anyone have a firm grip on the math of how Banks determine what to accept for a Short Sale?

[William R.]

I know this is equivalent of asking someone to throw darts in complete darkness, but as I'm researching I'm finding that Banks/Investors have at least some initial approach when contemplating where to set their values at based upon the market. I'm generally able to get a 80-85% of market value with solid comps accepted rather frequently, but when I start to get below that I notice the approval rate either takes longer or it takes a bit of a fight (market dependant) to get within that magical 65-75% range.

Any experienced short sale investor/negotiator care to dialog on what you are experiencing, and some of the different ways you approach to maximize your chance at getting lower numbers?

I'm seeing homes that have PMI insurance on them, with higher taxes in stricter code enforcement municipalities seem to be more negotiable as well.

[Joseph Zanazan]

Originally posted by @William R.:

I know this is equivalent of asking someone to throw darts in complete darkness, but as I'm researching I'm finding that Banks/Investors have at least some initial approach when contemplating where to set their values at based upon the market. I'm generally able to get a 80-85% of market value with solid comps accepted rather frequently, but when I start to get below that I notice the approval rate either takes longer or it takes a bit of a fight (market dependant) to get within that magical 65-75% range.

Any experienced short sale investor/negotiator care to dialog on what you are experiencing, and some of the different ways you approach to maximize your chance at getting lower numbers?

I'm seeing homes that have PMI insurance on them, with higher taxes in stricter code enforcement municipalities seem to be more negotiable as well.

 The real answer to that question is that the banks will do whatever they deem fit as far as portfolio allocation in order to remain as profitable and compliant as possible. The rhyme or reason might seem ambiguous, but the more short sale transactions you close, the more you get inside the head of the bank. If you can land a job as a processor or negotiator you really can get a glimpse inside the strategy of the bank. As previously mentioned, Chase bank plays the role of the servicer for many investors and services many different types of portfolios. During my almost 2 year span with Chase, i was the active negotiator on well over 300 short sale transactions. If you understand how the back end functions, you will approach your submission way differently.

 The relationship between the listing agent to the seller is kind of like the relationship between the negotiator to bank. The reason why there are two agents is because title is split between equitable title(borrower) and legal title(bank). A good negotiator will do their job, be diligent with the file and not lay down to an agent who wants to be aggressive. On the same token, a negotiator and the department as a whole is incentivized on how many files they close. So by default it is in their best interest to be as cooperative and "on the ball" as possible. Remember there is usually a VP that manages a dozen supervisors which each have a dozen regular negotiators on their respective teams. Its these departments' duty to burn and turn as many of these short sale offers that are coming through the door in a legal and trackable manner. As you would probably imagine there is a sophisticated internal system that utilizes charts to tell the story on a file and if required, approval by upper management and credit officers when loss ratios are higher. So the waived amount definitely does matter. Its what determines who has enough authority in the chain of command to write off how much loss. Think of the department like one big machine with multiple moving internal parts, just like any sophisticated machinery. The files would be the fuel or the feed that requires processing in order to truly be able to utilize it as a resource. Every file is treated just like the next, whether the sale is in California or Rhode Island, with its proper set of protocols and procedures. The beneficiary(bank) in this particular situation has the say-so as to what they will accept as a proper settlement. If you understand how things function, you can definitely have the upper hand.

Its all about submitting a thorough and complete file that tells a story and submits enough documents to prove your case. You always want to demonstrate that you have done the best to market the property to earn as much as possible and through your experience & research have arrived at a figure that you feel makes the most sense during that period of time in the market. Short sale have been around for over a decade but they became highly fashionable in 2009 because we were in a recovering economy. As previously mentioned these banks are nationwide so the connection for the bank to the streets is a BPO agent thats supposed to be local and familiar with the market . A broker just like you and I gives their opinion on what they think the homes is worth. Since this BPO will be the figure the bank utilizes as their opinion of what the property is worth, the BPO resembles an appraisal and documents the analysis just like one. You can dispute a BPO just like you can an appraisal if you feel you have evidence or information that suggests against what's reported. Using these rights to your advantage, plus by being there when the BPO agent is there during the time of the inspection, you can totally make a significant effort at controlling your fate. Its not illegal for you to be there and have a conversation about all the deferred maintenance on the property with the BPO agent at all. Usually an experienced agent will know that the BPO is good for 120 days and every four months is basically another opportunity to bring in a new deal that is appropriate to the new BPO figure. They will also know that they're fully entitled to submit their own property inspections and bids for upgrades/rehab cost that will help make the file look stronger. Don't expect your negotiator to be nice and share the BPO figure with you. If the property has been on the market for a significant period of time, thats another key factor that a VP will look at before approving a file. The longer it sits, the more likely the approval of a low offer. This is an ideal instance for an offer thats low, but just above the tolerable threshold of approval. Seasoned agents know that the bank won't approve an offer if the benefit doesn't outweigh the cost of just letting it go to foreclosure, so they use their offer as a poking stick just to see where the bank is at with their figures. Most banks will counteroffer once and it is your responsibility to come in with your best & final offer. Judging by how far off your offer and inspection report are from their BPO and counteroffer, you will know more or less how to proceed at that point.

Make sure your files contain the following always:

1)MLS listing showing you have had the property on the market for a while and haven't been able to sell it at the demanded figure, so therefore you need approval on a lower offer to make it work.

2) Inspection report documenting everything that needs to done to the place to bring it up habitable standards. Most of these short sales are bruisers with significant amounts of deferred maintenance. Since its difficult to truly compared distressed properties with one another due to different types of distress, you compare the ARVs to the BPO figures, and then subtract the cost of rehab/improvements that your inspection suggests in order to get your true offer amount. This way you're injecting a dose of logic as to why you arrived at that figure and why it makes sense for the bank to take your offer.

3) Listing agreement obviously because you are the agent on the deal. Show that you have had the property up for sale at the prices they recommend and that its simply just not moving at that price.

4) Contract of course stating the price, terms and conditions of the deal. All cash closings tend to be favorable no matter which way you look at it simply because its a faster closing. But at the end of the day a deal is a deal and who cares how you buy it. The bank shouldn't provide any priority to a cash deal over a financed one so pay attention to things like that.

5) Proof of funds or letter of pre approval to show that you have the financing aspect covered without a problem.

6) If you're purchasing with an LLC, the negotiator will ask you for an Articles of Incorporation anyway. Be proactive and submit it ahead of time to show that you advocate transparency.

Always remember that you can't rely on the negotiator's logic and incentivized structure because at the end of the day the negotiator gets significantly less for each closed file than you, so you have more to lose. Its your deal, you need to chew it up and put it in their mouths' to swallow if you want things to go a certain way. Just be sure you're always submitting proof to explain yourself and you should be good.