How much price flexibility on short sales

Question

I'm a newbie and wanting some guidance on short sales. I've been looking at a few that are posted on MLS. They don't seemed to be reduced hardly enough that I can tell. I am wondering how successful I could be a low balling these.

I have one I'm looking at that was built in 1999 and is about 2200 sq ft, 2 story. The structure looks like it is in really good condition. It definitely needs some new flooring/paint and some minor repairs. So far nothing seems like it needs major work.

I am thinking after repair value is in the $175k range depending on how you trick it out. They have it listed for $165k. Not much incentive in my opinion.

I know there is no magic answer but , how much can you usually successfully bid those down? Considering all the houses in the neighborhood have gotten new roofs, I think I'd have to be around $120k. It seems like quite a bit to knock off.

Any tips?

Chris Sweeney · Answer

J Scott has hit all nails on their respective heads. It's all about the BPO. In February we closed on a high-end short sale at less than 70% of ARV with 6 figures equity. I forfeited by commission (since I was buyer and buyer's agent and needed arms length) so the listing agent snagged my commission and when the BPO got assigned to an agent in her office, she spilled the beans. The beans needed to be spilled to the BPO agent as J Scott mentioned are accepted offer amount, repairs, hardship letter (if legit. hardship), low comps. My first offer was 73% of BPO and accepted offer was 90% of BPO. Fortunately BPO was $250k less than market. I'd ignore the list price. More importantly I'd run the comps and see what it will likely BPO at and then see if 90% of that BPO is attractive to you.

J Scott · Answer

There are two issues you have to deal with: 1. You need to get the seller to agree to your price. Generally, this isn't too difficult; these days, sellers have a lot of incentive to accept low-ball offers, as they are generally not going to be on the hook for the deficiency or the taxes. So, if the listing agent is half-decent, the seller will probably accept any offer; 2. You need to get the bank to agree to your price. This part is harder. The bank will order a BPO (a watered-down appraisal down by an agent/broker) and will base their acceptable sale price on what the BPO identifies as market value. Usually, banks will accept about 88-92% of the BPO value, though if the property has been listed for more than 90 days, you can get discounts down to 82% of the BPO value. A couple tips that might help: - If you can get information to the agent doing the BPO -- like pictures, repair estimates, etc -- you may be able to influence the BPO lower; - If you suspect that the BPO is high, the lender will generally allow you to submit bids to indicate that the property needs a lot of work -- the bids will need to support your offer price and you'll generally need at least 3 bids.

Rob K. · Answer

The two MLS's that I deal with have a box that says "subject to short sale?" and either a Y or N. That way you can search for short sales, or exclude them. If you're a buyer that would like to move into a house in a reasonable time, you would want to make sure that you are not looking at any short sales. I'm not familiar with other MLS systems as to whether or not they have this feature.

Will Sifert · Answer

Yes, you explained it very well and I understand completely now. Thanks!

J Scott · Answer

Will - These are the same people. Some seek out real estate agents and get their properties listed as short sales (they may or may not be current on their mortgage) and some don't seek out an agent to sell. The ones that don't seek out an agent to sell either go into foreclosure or respond to one of your (or someone else's) direct mailing and picks up the phone to call you. If they call you, you convince them to do a short sale and then they have to get the short sale listed with an agent in order to get the process started. But, in this case, you'll be working with the agent and the agent will take your offer to the bank, even though technically they will need to list the property on the MLS. So, the properties you're seeing listed on the MLS are either sellers who approached the agent themselves (or the agent found them) or they are already under contract with an investor. Does that make sense?

Will Sifert · Answer

I am noticing everyone here talking about short sales that are listed with agents? I am unfamiliar with this, is there a place in the MLS to search for short sales? How exactly does this work, the person knows they can't afford their house, need to sell it, but that they wont be able to sell it for more than what they owe so they contact a real estate agent and let them know that they are upside down, hence being listed as a short sale? I'm interested in short sales, but my understanding so far is that I get pre foreclosure leads, find the people who are starting to go through the foreclosure process who wont be able to get current on their payments, want to sell, and are upside down. Is there another sector of people who continue to pay their mortgage, but know they need to sell and that they are upside down, so they list their house as a short sale? Also, if I deal with someone who hasn't listed their house with an agent, to go through a short sale with them will we have to get an agent involved? Thanks in advance!

Dena Marinelli · Answer

Be careful of that BPO from another agent. Banks will most surely order one, to make sure they can just foreclose and try to mitigate as much of their losses as they can. If the BPO price is higher than what the list price is, it could become a huge headache for the buyer that is interested.

Brian Burke · Answer

It somewhat depends on the market in your area. If the market is totally dead, you might get these houses at a deep enough discount to flip them, and certainly a good enough price to acquire them as rentals. If there is even a flicker of activity in your market, it will be an uphill battle to get a simple carpet & paint rehab cheap enough to make a decent profit flipping it. Owner occupants and buy/hold investors that can tolerate paying close to, or at, market value will outbid flippers in most cases, or the banks will not approve the low price in favor of waiting for a higher offer. If you are a buy/hold investor these may be good opportunities for you. If you are flipping, your low offers will have better odds of acceptance on properties than need more work than the simple carpet/paint rehab.

Wayne Brooks · Answer

I sell short sales as an agent, and negotiate them for other realtors as a 3rd party negotiator. Right now they are looking for 90% of market value, less any needed repairs. You won't get one typically at the discount we look for when flipping/rehabbing, unless you find one in really bad shape, that's not financable, and is maybe a deterioating asset.