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An approved Short Sale only means that the bank has agreed to accept a price less than the outstanding mortgage ... in lieu of holding-out and likely approaching or reaching a foreclosure status. It also means that instead of taking months to approve a short-sale transaction, the bank will likely move ahead within about 30-days ... and may even finance the property at that level.
Otherwise, there is nothing 'magic' or even necessarily competitive about a short-sale price. Further, banks are not in the Real Estate business, but, are motivated to keep delinquent properties off their books. One should carefully analyze the prices of comparable properties and not simply assume that the bank has any special market knowledge. Offer what you believe the property is worth, regardless of the "approved" short-sale price. Provide details that will enable the bank to see that you understand the value of the home, better than they do.
Offer what you believe the property is worth, regardless of the "approved" short-sale price. Provide details that will enable the bank to see that you understand the value of the home, better than they do.
In what form would you provide details. We were under contract for a short sale house once before and all listing agent accepted was standard contract. I had a feeling bank didn't even knew anything about that house or real world at all
Otherwise, there is nothing 'magic' or even necessarily competitive about a short-sale price. Further, banks are not in the Real Estate business, but, are motivated to keep delinquent properties off their books. One should carefully analyze the prices of comparable properties and not simply assume that the bank has any special market knowledge. Offer what you believe the property is worth, regardless of the "approved" short-sale price. Provide details that will enable the bank to see that you understand the value of the home, better than they do.
I've always wondered about situations like this. I understand the bank wants to get rid of the property as soon as possible, but they also want to get as much for it as possible. The price still comes around at or very near to market value. When people say they got a good deal, how is it truly a good deal when what they bought it for was roughly current market value? I can see the 'good deal' coming into play if the market is steadily increasing in that area. The sale price might have been agreed on at 100K, but by the time of closing, the house might have a value of 120K.
I've always wondered about situations like this. I understand the bank wants to get rid of the property as soon as possible, but they also want to get as much for it as possible. The price still comes around at or very near to market value. When people say they got a good deal, how is it truly a good deal when what they bought it for was roughly current market value? I can see the 'good deal' coming into play if the market is steadily increasing in that area. The sale price might have been agreed on at 100K, but by the time of closing, the house might have a value of 120K.
Short sales tend to be lower than market mainly because the sale is "as is," there is no negotiation for repairs, and there is nobody to disclose flaws or problems because the bank never lived in the house. What you are getting is what you see, nothing more, and your only guarantee that things are right is your inspection, which of course you can back out if you think the repairs will be too expensive.
And finally, short sales have a tendency to drag out, particularly if there's a second lender involved and it gets really messy. My only short sale purchase was the biggest hassle buying a house I ever had, but I did get a good deal. According to the appraisal I got it for $6.5K under market.
I'd rather buy a house from real people who have to disclose defects, people who I can file a lawsuit against if they left out a defect that somebody who lived in the house would have known. With a short sale you do not have this option. Same thing for REOs.
Short sales tend to be lower than market mainly because the sale is "as is," there is no negotiation for repairs, and there is nobody to disclose flaws or problems because the bank never lived in the house. What you are getting is what you see, nothing more, and your only guarantee that things are right is your inspection, which of course you can back out if you think the repairs will be too expensive.
And finally, short sales have a tendency to drag out, particularly if there's a second lender involved and it gets really messy. My only short sale purchase was the biggest hassle buying a house I ever had, but I did get a good deal. According to the appraisal I got it for $6.5K under market.
I'd rather buy a house from real people who have to disclose defects, people who I can file a lawsuit against if they left out a defect that somebody who lived in the house would have known. With a short sale you do not have this option. Same thing for REOs.
Thanks for the thoughts. I guess I just see so many people talking about short sales taking 6+ months to complete. If you are currently renting, 6 months of rent will severely outweigh the 6.5K you saved on the house (at least here in the Denver area where rent is usually well over 1K a month). I guess it also depends on location. 6.5K off a 100K house is a significant chunk of change in savings. 6.5K off a 300,000K house isn't much at all.
I forgot another reason why short sales often go for less than market. Few people who want to buy a house want to wait an indeterminate period to discover how long it will take to close. I had $5K in it and I'm an investor. The interest I would get on that same $5K in my money market account would be trivial so I didn't care. I liked the house, I had an accepted purchase contract so the house was effectively off the market, and I had little to lose by just playing along.
If you want to move into a house you can't afford to wait 2, 3 or even 6 months to close, so my guess is that short sales are probably more often bought by investors. Less demand means lower prices.
The house was a bit above $200K. Three percent under market is still less than market, and it more than covered the necessary repairs to get the house ready for rental. Really it was my best deal other than the jerk I was buying it from -- who seemed to sabotage progress at every opportunity. I don't know WTH his attitude problem was but all this time he was still paying his mortgage payments.
The key to buying a short sale is to not have any problem caring how long it takes to close and not having any significant money tied up, while at the same time you have the property tied up so they can't sell it to anybody else until they settle with you one way or another. The bank of course can just refuse to approve the sale and there it goes.
In what form would you provide details. We were under contract for a short sale house once before and all listing agent accepted was standard contract. I had a feeling bank didn't even knew anything about that house or real world at all
You could start with comps and also add sales prices of nearby properties (as reported on the County Tax Appraiser's web site). Banks bureaucrats typically only know the original appraised value and/or the loan value remaining on their books. IMO, this is one reason banks typically take so long to approve a short sale.
In one of the short sale that I was involved in, bank accepted offer of 10% less than approved. Closing took months and market changed. Couldn't get the 2nd lien holder to agree with contract price. Ending up splitting the difference with what 2nd lien holder requested.
SS always have all sort of twists.
I hope no one ever used the word "approved" on you, while there was a second mortgage still to be worked out.
In my experience it is rare for a lender to transfer approval to a new buyer after issuing written approval. I've had two cases recently with short sales in first right of refusal condo complexes where an existing owner exercised first right after the approval letter was issued and in both cases, the lender refused to transfer the approval to the new buyer. The process had to restart at the beginning and in both cases the banks came back with a higher number the second time. Just because a bank approved $X for the last guy doesn't mean they'll do it for a new buyer.
In addition, every approval letter I've seen has a "must close by" date usually around 30 days from issuance.
I hope no one ever used the word "approved" on you, while there was a second mortgage still to be worked out.
You put your finger right on the biggest problem: the second lender. And that was the main problem with my short sale.
The way it was explained to me is that when there is a second mortgage they are secondary to the first mortgage. If the house goes into foreclosure there will not be enough money to pay the second lender so they get the short end of a stick and nothing else. That makes second lenders very touchy to deal with because they are teetering on the edge of getting nothing.
Now that is what my Realtor told me so don't sue me if it's wrong.
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