Real Estate - Can we talk short-sales?

[AD720]

I could use some advice on buying a "short-sale" property...pitfalls, things to watch for, etc?

I already have heard that when making an offer we will need to put up some earnest money.

Anyone deal with short-sales?

[jmsremax]

I did when I was a real estate agent. Short sales can be diamonds in the rough or a complete disaster.

First thing to remember is a short sale is sold as is. Now that doesn't mean the property is in ruins, but buyer beware. Shorts sales are the last attempt to sell the property before foreclosure so it's in the best interest for both the bank and the home owners to sell it.

One of the things you will want to ask is if you are responsible for any of late payments from the current owners (and/or interest) or back taxes on the property if you were purchasing the home. You NEED to get a reputable home inspector, possibly someone who specializes in foreclosures/SS (I am sure they are out there).

Make sure you already have your finances in order and you are pre-qualified for up to $XXX,XXX because there isn't much time between short sale and foreclosure. The bank will want you to close ASAP and if the property is something you feel is a good deal then you don't want to miss your opportunity to buy it because you failed to see if the bank will even give you a loan. I know people that put your typical 10-20% down to purchase a SS, others more....that will depend on your credit score. Good luck with your search and hopefully you find a great deal.

[Ashcan Bill]

Also if there's an HOA involved, check to see if there are any assessments or back fees due on the property. Usually the bank will refuse to pay for these, and you don't find out about them until the close of escrow.

[wayner123]

I bought my home on a short sale. It's different than traditional sale. There will be a TON of back and forth between your lender and the bank and also the title company. The main things to look for are:

1. Just because a house says it's a short sale doesn't mean it truly is one. A lot of times (at least around here in Central FL) the house is upside down. So the real estate agent knows that the asking price will have to be below what the owner owes. So they list it as a short sale. They usually wait until they have an offer, THEN they go to the bank which holds the loan/title and go from there. So it can take 6-12 months before you actually hear whether or not your offer was accepted. Mortgage companies are so swamped with requests that it seems to take forever. If the house you are looking at already has done the correct short sale papers, ask to see them. Just because the house is listed at $XXX,XXX doesn't mean the bank who holds the loan approved that amount.

2. Get a well respected home inspector and make sure they are familiar with short sales. It might be a bit more expensive in the front end, but it's worth it. As short sales are sold as is.

3. Insult them with your offer. Don't be afraid to offer 65% of the asking price. Like I said above, they most likely listed the house without doing the correct short sale front work they needed to. Your offer will at least get the ball rolling.

That's all I can think of right now, and I know I have left off some things. I'll try to reply with things to add later.

[SvilleKid]

Originally Posted by wayner123

1. Just because a house says it's a short sale doesn't mean it truly is one. A lot of times (at least around here in Central FL) the house is upside down. So the real estate agent knows that the asking price will have to be below what the owner owes. So they list it as a short sale. They usually wait until they have an offer, THEN they go to the bank which holds the loan/title and go from there. So it can take 6-12 months before you actually hear whether or not your offer was accepted. Mortgage companies are so swamped with requests that it seems to take forever. If the house you are looking at already has done the correct short sale papers, ask to see them. Just because the house is listed at $XXX,XXX doesn't mean the bank who holds the loan approved that amount.

He got close to what I think is THE most important issue: MARKET VALUE!

Just because a short-sale price is put out there, it doesn't mean that the short sale price is below market value. Get you own appraisal. Make sure the appraiser considers the marketing time and value trends of the subject's immediate and general market. If it is a short sale, IT IS UPSIDE DOWN. Otherwise it wouldn't be short. It is in the bank's best interest (and maybe the homeowners too, if they are on the line for the deficiency), to get as much of the loan back if possible. Thus, they might be asking a price that is above the market value. In an economy where property is still depreciating or static at best, you cannot afford to pay more than value. Without appreciation in value, it will take a long time to get back equity if you enter the sale upside down yourself.

[jmsremax]

Originally Posted by SvilleKid

He got close to what I think is THE most important issue: MARKET VALUE!

In a static or depreciating market it's hard to pin point "market value".

The best way to figure out what you should pay will be based on a home inspection, appraisal, and a comparative market analysis of other properties with similiar features. If there are any issues that arise from the inspection then deduct it from the price you are willing to pay and add or deduct any features from the property you are interested in to the ones in the CMA. Then take note of what the selling price was and the listing price. Determine what the % of the listing price was actually paid. Hopefully your agent has already informed you about these tools and again good luck.

[SvilleKid]

Originally Posted by jmsremax

In a static or depreciating market it's hard to pin point "market value".

The best way to figure out what you should pay will be based on a home inspection, appraisal, and a comparative market analysis of other properties with similiar features. If there are any issues that arise from the inspection then deduct it from the price you are willing to pay and add or deduct any features from the property you are interested in to the ones in the CMA. Then take note of what the selling price was and the listing price. Determine what the % of the listing price was actually paid. Hopefully your agent has already informed you about these tools and again good luck.

I have to strongly disagree with you here. An agent IS NOT, and cannot take the place of an appraiser. A CMA IS NOT, and never will be an appraisal.

Unless an agent is expert on home construction, repair costs, market acceptances of depreciation and obsolescence, a student of governmental regulations and laws and their effects on value, an expert in determining highest and best use analysis, plus versed in considering dozens of other factors and their value effects, he/she cannot start to rise to the level of an appraiser.

A qualified appraiser takes all the things you speak of in consideration. All the other professions you have names take only one or two of the factors in consideration. That's why they are what they are, NOT appraisers. How do I know??? Because I am an appraiser, and have been one for over 30 years. Agents/brokers owe their legal allegiance to their principle, and can act only for the benefit of that principle, and are thus, by definition, cannot be un-bias. Not a slap at agents, it's just legally how it works.

While there are a lot of agents out there that are very good at what they do, unless they are qualified and certified as appraisers, they cannot give you an appraisal, and they are even less qualified to determine Market Value than a home inspector is. Sorry. Why is it called a CMA??? Because legally, it cannot be called an appraisal because it does not meet the requirements of an appraisal.

And, NO, it isn't hard to "pinpoint" market value. That is, if you are an appraiser worth your billing.

[jmsremax]

Originally Posted by SvilleKid

I have to strongly disagree with you here. An agent IS NOT, and cannot take the place of an appraiser. A CMA IS NOT, and never will be an appraisal.

Unless an agent is expert on home construction, repair costs, market acceptances of depreciation and obsolescence, a student of governmental regulations and laws and their effects on value, an expert in determining highest and best use analysis, plus versed in considering dozens of other factors and their value effects, he/she cannot start to rise to the level of an appraiser.

A qualified appraiser takes all the things you speak of in consideration. All the other professions you have names take only one or two of the factors in consideration. That's why they are what they are, NOT appraisers. How do I know??? Because I am an appraiser, and have been one for over 30 years. Agents/brokers owe their legal allegiance to their principle, and can act only for the benefit of that principle, and are thus, by definition, cannot be un-bias. Not a slap at agents, it's just legally how it works.

While there are a lot of agents out there that are very good at what they do, unless they are qualified and certified as appraisers, they cannot give you an appraisal, and they are even less qualified to determine Market Value than a home inspector is. Sorry. Why is it called a CMA??? Because legally, it cannot be called an appraisal because it does not meet the requirements of an appraisal.

And, NO, it isn't hard to "pinpoint" market value. That is, if you are an appraiser worth your billing.

First off when did I ever say not to use a home inspector and I never said a CMA was an appraisal. Second, home buyers should use all the tools out there to assist them with purchasing a home.

I would take a home inspector over an appraiser any day in my experiences with both. My reasoning, all the appraiser I've dealt with worked for the town or bank. I have yet to see an appraiser give an estimate that a buyer thought was reasonable and this goes back to 2006 when the market was still going up. Also, appraisals are done annually for town and cities and the price they derive will also determine your property taxes (may not be annual in other states, but in MA it is). We had clients going to town hall meetings to fight over home appraisals because their estimates were still going up even when things were headed south. I do not trust them at all. Again, this is merely in my experiences.

At least with a CMA you are able to see what people were willing to spend on a home and what % discount or premium they paid over listing price. To me, this is a good way to derive a market value....what people actually paid since buyers and sellers are the market not an appraiser. Please note, CMAs are merely a starting point and from there you get a home inspection and then deal with the appraisers to help figure out a price that seems reasonable. My process for my clients was a CMA, home inspection, and you are pretty much forced to get an appraisal from your lender anyways. However, none of my clients paid more than 90% of the value the appraiser came up with on a property they were interested in.

Sorry Brad for jacking your thread.

[forgop]

Never pursued a short sale, but after talking with my agent after buying a house a year ago, the only thing it sounds like you can have when attempting to buy a short sale is a lot of time. If you are under any sort of time constraint that you need to operate under, forget it. Sounds like a short sale is more like a long sale in that it can take months upon months to actually get one to go through.

[jmsremax]

Also, don't let a pushy seller's agent rush you into anything. The few times this scenario played out with the buyers I was representing it turned out they were trying to prevent a home inspector from finding any issues with the property. The worst was this one house that seemed like a winner until the home inspector noticed the house wasn't tied into the street sewerage and water lines. The estimated cost to get the home tied in was about $70,000ish because they would have to dig up the street, break apart the foundation, pay for the pipes, and pay the town a fee to install.

[wayner123]

Originally Posted by forgop

Never pursued a short sale, but after talking with my agent after buying a house a year ago, the only thing it sounds like you can have when attempting to buy a short sale is a lot of time. If you are under any sort of time constraint that you need to operate under, forget it. Sounds like a short sale is more like a long sale in that it can take months upon months to actually get one to go through.

That is not the case in every short sale, but 99% of them are that way. We were blessed enough to have gotten a short sale that a previous buyer had put a bid in on 6 months earlier. The people who put the bid in, found another house in the meantime. But most of the short sale work had been done. As it should be. These agents listing houses as shorts sales, without an offer from the bank piss me off. In those cases, your offer is what gets that 6-12 month ball rolling.

[AD720]

Thanks for the info guys.

Really, what I am worried about is that it is number one on our list and at a price we can afford but we ARE on a deadline as our current lease is up at the end of August.

I'll try to find out about the paperwork being in and what the bank offer is.

[BigCat]

I bought on a short sale. We got a great deal on a home that was in good shape - just in need of updating. We made a low ball offer in March and did not find out whether it was accepted until June. We closed in July. I was told that the timeline was pretty standard. There was actually no back and forth with the bank. After we executed the purchase agreement with the owners, it went to the bank for approval and we just waited. We knew they were having a half-assed appraisal performed on the home (I forget the correct term for it now) to determine whether our offer was acceptable. Apparently it was. The closing went off without a hitch and we've been very happy. I think we only put up $1000 in earnest money.

On the other hand, a friend of mine got jerked around a lot with a short sale that eventually fell through. I think how smoothly the process operates depends a lot on the lender and whether there are other mortgages on the home that will require the cooperation of more than one lender. Logic would dictate that the banks are losing money on these properties every day they sit on an offer, but they seem impervious to that logic. Hopefully your realtor is familiar with the process and knows enough about the lender that has to approve the sale to get it through. Good luck if you make an offer.

Edit - I posted before I saw your most recent post. If the rental market is like it is here, you may easily convince your landlord to go month to month. I was in the same situation and mine agreed to do it just to keep a tenant she knew would pay in the place. Just a thought.

[AD720]

Originally Posted by BigCat

I bought on a short sale. We got a great deal on a home that was in good shape - just in need of updating. We made a low ball offer in March and did not find out whether it was accepted until June. We closed in July. I was told that the timeline was pretty standard. There was actually no back and forth with the bank. After we executed the purchase agreement with the owners, it went to the bank for approval and we just waited. We knew they were having a half-assed appraisal performed on the home (I forget the correct term for it now) to determine whether our offer was acceptable. Apparently it was. The closing went off without a hitch and we've been very happy. I think we only put up $1000 in earnest money.

On the other hand, a friend of mine got jerked around a lot with a short sale that eventually fell through. I think how smoothly the process operates depends a lot on the lender and whether there are other mortgages on the home that will require the cooperation of more than one lender. Logic would dictate that the banks are losing money on these properties every day they sit on an offer, but they seem impervious to that logic. Hopefully your realtor is familiar with the process and knows enough about the lender that has to approve the sale to get it through. Good luck if you make an offer.

Edit - I posted before I saw your most recent post. If the rental market is like it is here, you may easily convince your landlord to go month to month. I was in the same situation and mine agreed to do it just to keep a tenant she knew would pay in the place. Just a thought.

That is what is doing my head in.

I think that may be an option, I'll have to touch base about that. I'd rather pay landlord our rent plus even a little extra to not have to pack up, pay for a storage unit and stay in corporate housing for who knows how long

[Smokin Gator]

I have purchased five or six short sales in the last 14-15 months. Much of what I could offer has already been said... but I want to reiterate one point... if you are under any kind of time restraints, as it sounds like you are, I would be very hesitant to get in on a short sale. The quickest one I had was about 6 weeks. The longest was almost 7 month. I would also strongly advise not to put ANY earnest money down until the bank has accepted all of the terms. What I usually do is put down 10-15 percent within 48 hours of the bank signing the short sale addendum. That much tends to get their attention. Also, if it is with Bank of America, Citimortgage, or Indy Mac I wouldn't even bother. They take forever and through endless roadblocks into the situation.

One very positive aspect of a short sale versus a foreclosure is at least you are pertty much guaranteed to get a clean title. Foreclosures, on the other hand, have gotten to be a real crap shoot. If you don't really know what to look for in the title history it can get ugly!!!

[rizzle]

Originally Posted by Smokin Gator

I have purchased five or six short sales in the last 14-15 months. Much of what I could offer has already been said... but I want to reiterate one point... if you are under any kind of time restraints, as it sounds like you are, I would be very hesitant to get in on a short sale. The quickest one I had was about 6 weeks. The longest was almost 7 month. I would also strongly advise not to put ANY earnest money down until the bank has accepted all of the terms. What I usually do is put down 10-15 percent within 48 hours of the bank signing the short sale addendum. That much tends to get their attention. Also, if it is with Bank of America, Citimortgage, or Indy Mac I wouldn't even bother. They take forever and through endless roadblocks into the situation.

One very positive aspect of a short sale versus a foreclosure is at least you are pertty much guaranteed to get a clean title. Foreclosures, on the other hand, have gotten to be a real crap shoot. If you don't really know what to look for in the title history it can get ugly!!!

Bolded for emphasis. I found one near my house a couple of months ago that I would have bought on the spot. Long story short, Bank of America holds the paper on it, this thing has being in short sale / foreclosure/ auction for 2 years. It has currently been taken off the market...again, because the owner's attorneys are trying to work something out with the bank...again. I would venture a guess that they're holding all the "bad" foreclosures that BoA is accused of against them as a bargaining chip.

I ain't got the time for that shizz.

[colimo]

We bought our house 2 years ago as a short sale,

Biggest issue was time and the back and forth....contract was accepted dec 8, did not close until march 31, day before foreclosure sale which had already been postponed a couple of times, lenders take forever to work through these. and ours was quick by comparison to some others.

expect the unexpected, as in additional $$ for something or other, once we had the deal done with the seller and 1st mortgage lender, the title company discovered a second mortgage on the property, who even though they would have been foreclosed out, refused to release unless they got something...ended up doing a 3 way split (us and both realtors) of a nominal amount just to get the deal done.

Do not let the sellers agent or yours talk you or force you into using a "3rd party short sale negotiator" such as an outfit called "BGS3" they dont know what they are doing, are a rip off (you pay part of their fee in closing costs) and actually end up raising the price.

All that said, it can be a good deal.,,good luck

[Ratters]

Originally Posted by colimo

expect the unexpected, as in additional $$ for something or other, once we had the deal done with the seller and 1st mortgage lender, the title company discovered a second mortgage on the property, who even though they would have been foreclosed out, refused to release unless they got something...ended up doing a 3 way split (us and both realtors) of a nominal amount just to get the deal done.

Had the exact same thing with mine, though the bank (BofA) actually approved it in a month, but it was the third go around with people dropping out with the wait. Day before closing found out there was a second, even though I asked, and they wanted $3k to approve. Ended up splitting it with the realtor and seller. But other than that mine went really smooth and I love the hell out of the house. One nice thing about short sales is the houses are still lived in and cared for. I looked at a lot of forclosures but they were all beat to hell or ransacked. Good luck on finding something you like.

[althekillr]

Any recommendations on the best resource(s) to find short or foreclosed residential real estate in any specific location?

most are location specific. the national companies don't do a good job. if you are in a state where foreclosureradar.com covers, they are very good and reasonably priced. realtytrac is junk.

[AD720]

I wish we had the luxury to just say forget this one, but it's in our budget (barely), in the area we want and has everything on our checklist. Everything else is either too much money, too little house or too far away from where we are looking. We've got a solid 4 months, 120 days.

I'm leaning toward putting in an offer, with a very small amount of earnest money and just keep looking. Worst case, we withdrawal the offer and lose it.