I Need Help Structuring a Short Sale Offer

[Paul Huntley]

I wanted to know the best way to structure an offer to the bank (before the BPO is ordered) for a Short Sale. Here is an example:

1st loan balance: $600,000 (Bank of Amer.)
2nd loan balance: $200,000 (Wells Fargo)
IRS lien: $10,000
Repair cost estimate: $10,000
Market Value of property (based on Comps): $530,000

My goal is to structure a back-to-back closing between the seller, me, and an end buyer.

In this example, my end buyer is willing to buy the property for $500,000.

What would be the best way to structure an offer that the bank will accept to ensure that I make a decent profit. My total anticipated closing costs would be 15% of the purchase price.

Any help would be appreciated

[Scott Hubbard]

Originally posted by Paul Huntley:

I wanted to know the best way to structure an offer to the bank (before the BPO is ordered) for a Short Sale. Here is an example:

1st loan balance: $600,000 (Bank of Amer.)
2nd loan balance: $200,000 (Wells Fargo)
IRS lien: $10,000
Repair cost estimate: $10,000
Market Value of property (based on Comps): $530,000

My goal is to structure a back-to-back closing between the seller, me, and an end buyer.

In this example, my end buyer is willing to buy the property for $500,000.

What would be the best way to structure an offer that the bank will accept to ensure that I make a decent profit. My total anticipated closing costs would be 15% of the purchase price.

Any help would be appreciated

First, I do not touch deals with more than two liens. Secondly, the 2nd mortgage will pose a problem too. In my experience, getting a lender to settle for $4 or $5K on an outstanding loan of $200K can be a difficult sell. Third, your negotiating an MLS deal which in my experience rarely works. Commissions will eat into your profits. Now add a $10K IRS and your really cutting it close.

With all that said, if your going to set-up a deal, I would start at a 65% offer to FMV.

After the BPO, if they do not meet your offer, then counter at 20%.

Based on the numbers of FMV ($530K) and the your end-buyer sales price of ($500K) plus the IRS and second lien holders, comissions, and closing costs, you will not likely be able to make enough profit if they do not accept your original offer or at least close to it.

$530K x 65% - $10K in repairs = $335K Your Offer

B of A will counter at BPO value:

You will then counter (.80)
So, given comps are at $530K x .80 = $424K Your Counter

$424K - $500K = $76K Gross

A to B Transaction:
$76K - $26K (commissions @6%) - $2k closing costs - $11K for hard money funding @ 2.5 %) = $37K

B to C Transaction:

$37K - $10K in Repair costs - $15K (3% commissions for end-buyer) - $2K closing costs = $10K

In my opinion, this is a lot of work for $20K forget $10K. If you can convince your end-buyer to pay for the repairs and you can get the agents to reduce their commissions by 1% each, then you have much better numbers. Also, if your using your cash instead of flash funding, then you also have a workable deal.

Unless you have an end-buyer committed to this deal already and you can save some costs on commissions, the margins are just too tight. This would be a much better deal FSBO!!