Understanding Short Sales

A short sale is a sale of a home that is worth less than the mortgage owed.   Because these properties are often listed at a price lower than their values, you may be able to get a good deal, if you have a tremendous amount of patience.   The problem is that the only motivated people in the transaction are the agents and the buyer.  If you decide to make an offer on a short sale, it will generally be submitted by your agent to the seller for acceptance, subject to the short sale lender’s approval.  This can take months, so I tell the buyers, “This will take a lot of time, so don’t call me up, whining about it.”  There really is nothing you can do to speed up their decision.

It is very important to structure the purchase contract such that it gives the buyer an out of the contract if an acceptance is not obtained within a certain time-frame.  Also, it is best to have the different time-frames for inspections, putting the deposit into escrow, obtaining the loan, and so on begin at lender approval of the deal rather than at seller’s acceptance.  We have a very good short sale addendum that is required for every short sale transaction.

It is very important to have a short-sale property inspected by a professional home inspector.  Many times the upside-down seller has not maintained the property.  Very rarely will the short-sale lender agree to pay for any repairs, so it is a good idea to get a contractor’s bid to repair the items so you will know if  the cost is unaffordable.

The short-sale lender will come after the buyer and the agent for money.  One of my buyers said, “Tell them to go pound sand!”  The lender stopped asking him, but then they came after me for some the commission.  If there is more than one lender, the sale is even more tedious.  Unless the lender in first position comes out with what is expected, they will try to cut down on proceeds going to the junior lien holders.

Someone purchasing a short-sale property should just be prepared and patient and don’t get mad (they don’t care!) and a good agent comes in handy, too.

 

Making That Offer on Your Dream Home

You have been looking at homes for a few months now and you believe you have found your dream home.  The asking price is $850,000; how much should you offer?  Here are a few tips about handling that offer:

  • Because you have seen a number of homes, compare the homes you have seen with this one and you will probably have a good idea if the asking price is in the right range.  Your Realtor should be able to provide you with a list of comparable homes that have sold within the last six months and you can derive the list price to sales price percentage.
  • Write the offer to be accepted, not to get a counter offer.  If you are aware of the listed prices and the sales prices, make an offer that is reasonable…one that will make the seller wonder if you will go away if he does not sign it.  If you are within 10% of the asking price, you will have a good chance of coming to terms in today’s market.  In brisker markets we need to be within 5% of the asking price.  If the property is offered below market value, you may consider going over the asking price.  It has been my experience that “low-ball” offers are rarely successful.  Most likely, the owner will either not respond at all or will counter back at full price or will come down only a little bit.  One time I presented a low offer on an investment property.  The owner said, “Get out of my house!”  Needless to say, that deal did not go through.  Because an owner is often insulted by such offers, they are seldom made.  Also, instead of writing an offer of $800,000 for a home priced at $850,000, consider writing it for $815,500; at a glance it is not so obvious how far off the price is and your offer has 5’s in it, just like the asking price.  Ask your agent to find out which title, escrow, and termite companies are acceptable to the seller so you won’t receive a counter offer just spelling out the services to be used.
  • Ask your Realtor not to give too much advance notice to the listing agent that you will be writing an offer.  Because the listing agent represents the seller, he will want to get the highest price for his client.  Nine times out of ten he will be on the phone calling everyone who has shown an interest in the property to get a bidding war going and before you know it there is another offer on your dream home.
  • Ask your Realtor to present the offer in person to the seller and seller’s agent, if at all possible.  The reasons that personal presentations are more successful are:  1.  Your agent will be able to tell the seller all about you and your family and your qualifications and  2.  Your agent will be able to read the seller’s “body language,” which is key to successful negotiations.  3.  Your agent will be more likely to walk away from the table with an acceptance or counter offer.  One time I was presenting an offer to a listing agent because the Seller was out of town.  There was another offer to be presented after mine.  The agent told me what the seller’s terms were and they included price, closing date and amount of the earnest money deposit.  She went on to say that a counter offer would be issued the following morning.   Because I knew what the Seller would require, I went over to the buyer’s house (it was probably after 10 PM) and we re-wrote the offer per the seller’s terms and submitted it to the listing agent.  If we had waited for the counter offer, we would have been competing with the other buyer, but because our offer was exactly what the owner wanted, he signed it without countering back to the other buyer.
  • Be sure your offer is accompanied by a loan approval, proof of funds to close the escrow and a copy of your earnest money deposit.  Because of the difficulties of obtaining a purchase money loan today, most sellers will not even consider an offer without verifying that the prospective buyer is qualified to purchase their homes.  If you are paying all cash provide verification of the funds to close the escrow with your offer.
  • Give the seller time to consider your offer.  When a seller feels backed into a corner, he will often say “no”.

 In closing I would like to add that if you really love a certain home and it is within your means to buy it, go for it!  I have had a few buyers who never got over “the fish that got away”.