How to determine how much to pay for a short sale?

Question

Let's say I find a great traditional shortsale where the asking price is $250,000. Can I go below that asking price and still get the deal accepted by the bank? If so, what research can I do that might help me determine what price to offer that will have a reasonable chance of being accepted?

Thank you kindly!

Joel Owens · Answer

I haven't completed many bpo's lately but have completed close to 1,000 over the years (can't remember the exact number).

Fees for bpo's have gone down tremendously the last few years which is why I don't do them anymore.It is important for the BPO that and interior BPO is completed and not just an exterior so that repairs are taken into consideration. Also it makes a difference is the house is outdated.

If it is functional but outdated it will become an expense for the buyer down the road with upgrading to sell to the next buyer.

For instance if a home is 1 to 2 years old and you buy you can get away with owning a few years and reselling without pouring a bunch of money into it.If you buy a house that is say 5 to 10 years old and resell in a few years you will most likely have to spend substantial money updating for resale.

On the bpo's now they actually make the 3rd party bpo broker/agent (who does not have the listing)sign an electronic from when submitting the report that they have not been influenced nor have they had discussions with any parties relating to the value of the property.

The buyers broker,buyer,listing broker,and seller all have an interest to see the sale happen.The BPO person getting paid for a report is just an objective 3rd party.

You want to make sure and not overpay for a property.For instance you put in an offer and wait 2 months for acceptance.Meanwhile the market has declined 6% since then and your deal is no longer that great.

It's critical to know with a short sale how many mortgages and liens are present.The more to negotiate the more of a long shot of getting approval from all parties and hitting the value needed.

Bill Patterson · Answer

Hi David,
The value and what a lender will approve really has nothing to do with the price that the property is listed at.  Like the others have mentioned, a BPO will be done and that will be the main basis for the lender's approval.  I would ask your Realtor to do a CMA with 5 sold comps within the past couple of months, 5 pending comps and 5 comparable listings.  Make sure the agent includes REO's & Short Sales if available.  That will give you an idea of where a lender's BPO agent "Should" come in with a value. I wouldn't be afraid to offer 10% less than that value.  Be prepared for a few months wait.  Short sale approval time seems to be getting shorter, but an average of 3-4 months is good to plan for.
Good Luck!
Bill

J Scott · Answer

There are generally two types of short sales:

1. Those approved by the bank before they are listed on the MLS;

2. Those not yet approved.

The ones that are approved by the bank are likely approved at the price at which they are listed.  So, if you offer that price or above, you'll likely get an acceptance from the bank.  For those, you may be able to offer lower, but the closer you come to the approved price, the more chance you have of getting an acceptance.

For those that haven't yet been approved at a specific price, there is no way to know if the listing price is something the bank would accept, let alone something lower than list price.  In fact, I've had cases where I've offered 10% more than list price and the bank still didn't agree to the sale.

In general, you can ask the listing agent what the BPO price was, and whether s/he thinks there's a reasonable chance a specific offer will get accepted, though there's no guarantee they will have any idea (though they'll probably be honest, since their goal is usually just to get a sale done for their buyer).

Maryann L. · Answer

Put in offers on property that no BPO has been done yet or the BPO is outdated and has to be redone.  Lenders want market value for the property, but does that mean you can't make $$.  Of course not.

If a property is valued at $300,000 depending who owns the note, they may take up to 80% of the BPO price. So $300,000 - $60,000 the lender may take an offer in the ballpark of $240,000 - Again, WHO owns the note is an important part.  If it's a VA loan or FHA loan you won't get 80%...it may be more like 90%.

On the above scenario I may start at $230,000 just to see if I can open the lines of communication with the lender.  If you get a buyer in at $280,000, you know you can feasibly move your offer up to possibly $260,000 or more depending on what you want to yield for your net profit.

Most of the times you will not know what the BPO comes in at, but some negotiators will just tell you.  BOA will counter an offer within a ball park of what the BPO comes in at usually.

Good luck.

J Scott · Answer

If there is no BPO yet, then certainly the short sale hasn't been approved.  This means that the price that the property is listed for -- even if you offered full price -- may not be satisfactory to the lender.

As far as not knowing the BPO price after it's done, it depends on who does the BPO.  In many of the short sales I see, the listing agent does the BPO, so she certainly knows what it is.  But, I guess if the bank has a third-party do the BPO, they may not want to reveal that information.

David Smith · Answer

Thank you so much for the detailed response!  I'm planning to look at a shortsale tomorrow with my realtor and asked her to ask the selling agent what the BPO was.  Her response was:

"Hi, a bpo comes in when they have an offer and they do not reveal what it is, I have a short sale working on the beach, neither chase nor b of america will share with me, the listing agent, what the bpo is"

Is that correct?

How to determine how much to pay for a short sale?

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