$70,000 below asking price? 20% off? Those must be the magic numbers, because they are the types of offers I have been getting on some of my Destin Florida short sale listings. For example and illustration, I have a Destin short home listed in at $420,000. The two most recent comparable sales were $430,000 and $425,000. The buyer’s agent presents me with an offer for $350,000. Hmmmm… will the short sale lender accept $350,000? I doubt it.
There are “magical” numbers floating around the internet that short sales sell for 82% of list price, or 80% of market value, or 85%. You get the picture. I can tell you right now- except for certain HUD and other short sales, there is no standard “percent off” that will guarantee you can buy that property for x amount off. I can tell you this- what mostly works is…. drum roll… market value (or pretty darn close!)
Remember, each short sale, whether it is serviced by Bank of America or Wells Fargo or Chase, likely has a different secondary market investor. The secondary market investor, for example, Merrill Lynch, Bank of New York, etc., for the particular mortgage loan, will have different criteria for what it desires to agree to a short sale. There is no “one size fits all”.
Don’t forget to take into account that the investor does not just look at the contract price. They look at what they will net at closing. So after paying some closing costs, such as real estate commission, state conveyance tax, doc stamps on deed, tax prorations and past due homeowners association dues, the investor might only net $300,000 on that $350,000 offer. Are you getting the picture? In addition, if they do use a standard “percent off” calculation for certain short sales, they are not going to use the list price. They are going to use their independent appraised value- which might be higher than the list price.
So if you are going to offer an amount substantially lower than market value for a short sale, be prepared. You’re either going to end up paying closer to market value or you're not going to get the home.
It's Wendy!
Wendy Rulnick, Broker, CRP, CRS, GRI, ABR Rulnick Realty, Inc.
Call toll-free 1-877-ITS-WNDY (1-877-487-9639) or local 850-650-7883 ext 204
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Hi Wendy... so many buyers and their agents who are unfamiliar with short sales fail to understand that it is the investor who owns the mortgage that is making the decision, not BofA, WF or whomever the servicing company is. That is why not every WF short sale, for example, has exactly the same parameters and why there is no "magic" numbers or percentages.
Great post wendy :) You may recognize me from Short sales superstars... LOVE THE SITE, BTW
it's true, I deal with both sellers and BUYERS of short sale. Buyers usually think - this is a short sale- i can STEAL it... don't get me wrong, sometimes you can!
...But that's far and few between... more likely than not you are going to have to pay close to FAIR MARKET VALUE.
I LOVEEEEEEEEEEEEEEE fighting for a great deal for my buyers, but it doesn't always work. I can usually walk into a place in my market and "just know" what it's worth. The NET has to make sense for the bank or it will not be approved. I do what I can to support my buyers price, but there is only so much MAGIC i can work!!! I tell them: don't forget the other buyers out there who may just love the house and are willing to pay market value (and in this market, IS ALREADY a good deal! especially in Stamford, CT - Fairfield County!!!) - Just because it's WORTH IT!!!! :) There is a fine line between a good deal, and "you are just being unrealistic/insulting" and we as the professionals have to guide them as much as possible. Ultimately, we work for them, so we have to try! :)
www.nicolehelps.com
Wendy,
I could care less what the list price is! List price depends on the professionalism of the lister and reasonableness of the seller.
If you want to succeed, your offer must be justifiable!
Short sales are now so common that compairtibles are known.
I'm appaled at the listers that are not willing to reasonably counter unsuppored low offers.
(Loans originated by IndyMac are a diffrent story!)
Bill
Hi Wendy ~ I agree with Steve's comment. Investors have a bottom line number and it doesn't always jive with the closest comp that a BPO uses. We have seen banks walk away from a short sale offer and choose to foreclose on a home instead. It's just mind boggling.
From the desk of David Dee,
Wendy, many consumers believe that since it's a shortsale that they can get a huge discount. It comes down to pricing as usual.
However, I have seen cases here where investors are negotiating the shortsale with the bank directly at a 'deep' discount. Once it's negotiated they put it on the market at market value. The spread between these numbers will be their profit. It's sort of like a double closing. For example
Deep Discount: $320,000 (price agreed by bank on the shortsale)
Market Value: $370,000 (price marketed at FMV to new buyer)
Profit: : $50,000 (amount before commission, etc)
Have you run into these types of scenario in your market? I saw it once on a listing here. If banks are selling at market value and how did they get it to be negotiated at below market value? It's something new and just wondering if you've encountered such a case in FL.
Math is really an important part of the short sale listing. It does not always seem that way, but when you get to the negotiating part of the short sale,you really have to have your numbers dialed in!
Wendy, we see buyers agents all the time that think short sales are 50 cent on the dollar! More often than not, I advise the seller to counter offer the buyer to the price that we feel will be sufficient for a short sale approval.
I appreciate that folks want to get the best deal that they can. Stealing is another matter. Excellent post.
MB
Wendy, Some folks spend too much time watching late night TV! Now I have seen some short sales on the market where paying 29% of list price would still be too much. Of course we all know it's all about the market value. The list price means nothing unless it happens to be right. I'm sure your's is.
What i can't stand are the listing agents that list short sales at 50 to 60 cents on the market value dollar just so they can get 20 low ball offers to present to the bank. My buyers see it and get all excited at the "great deal". Then I have to explain to them the facts. What a waste of time.
Hi Wendy - he had somebody trying to insist that they should get at least 50% off because that's what it is somewhere else in this country - well not here (probably not in most cases) and not in that case.
Nice way of telling it like it is. These folks that think they have to get a smokin' deal. in the end, they waste everyone's time.
Wendy, there are a number of so called investor experts that just want to bid low prices based on listing price only. No clue as to value. I had one that wouldn't go for an incredibly priced property (sold above asking price). Instead he bought a very over priced property at 60% of listing price (still above value). Oh, by the way, he's in foreclosure now.
Those percentages (80, 82, or 85%) are not of the list price which is irrelevant, but the percentage of the bpo. I've even put in some of my listings (if true) "Bank has APPROVED this price" (what the list price currently is) and "NO waiting if offer is submitted at this price" Unbelievable how many times an agent will ask me if the bank will take less and then submit an offer 20-30% less than the bank approved price and expect an immediate answer...besides NO
David Dee - I have heard of these flipping scenarios but I stay away from them. Blue smoke and mirrors.
Bill A- I agree, one should always counter, you never know. It's just all the energy into it - educating - when that should have been done up front.
Jeffrey - I am not surprised.
Bryant - Of course my price is "spot on"!
Gabe - I call it "tunnel vision".
Interesting I posted a member only post last week, asking if selling agents countered short sales. I only do if it is ridiculous.
There is bad information out there and buyers are using it to justify the offer. But, why waste your time if you know the comps and know it will not pass a BPO.
Wendy, your Destin, FL short sale buyers must be related to buyers up here in VA....either that or they all read the same thing on the internet.....It seems that all buyers whether in Destin, FL or Roanoke, VA want to make 20% off offers....once the seller is mad there usually is not any negotiation.
I think some of your buyers have moved down to Tampa.
I can not understand where some of these offers are coming from. Just got one at $25k for a $99K listing that when the market was booming was over $300k. Yikes!!!!!!!!!!!!!!!!!!!This guy was making a 75% off offer. Fun and games! What are they thinking?
So Wendy, I'm curious, how do you normally advise your clients on a short sale when a low ball offer comes in? Do you advise them to take it to get the ball rolling with the bank? Or do you counter it?
Investor buyers who offer 50 cents on the dollar are living in a dream world and a waste of everyone's time. (My apologies for my candor.)
Often, despite any explanation, realtors and buyers do not want to understand that Short Sales are "Get a Deal" ...they ARE the deal....pass or play...or be on your way....experienced listing agents like you know that lenders do not HAVE to take whatever they write....they just think they do.
In my short sale training courses I watched and read upon, it was always the magical number of 70% of the BPO price as the net. So on a 100k house, they would be fine with a 70k net. However, like you stated, the net to value of BPO differs by SMIs.
Whenever I get a lowball purchase offer I just ask for the comps that support their offer. Hopefully they found someting I can use!