How To Buy A Short Sale – Writing the Offer

By | April 19, 2010

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How To Make An Offer On A Short Sale

So you’ve driven around the block a few times, checked out the neighborhood and the schools, done your homework, checked it twice – and you’re ready to make an offer on a short sale.

Here are some simple rules to follow:

Don’t be afraid to ask for a good price, but don’t make a lowball offer.

Banks are a lot of things, but they’re not stupid – and they’re good at math.  If they’ll make more money via foreclosure or letting the house sit on the market a little longer, they will not be afraid to tell you to jump in a lake.

Many banks have standing rules for their negotiators to dismiss offers that are significantly under fair-market value.  That said, it can take months for a bank to figure out what a property is worth on the open market.  Just because you’re able to get a contract signed by the seller (who’s not making any money on the deal in the first place) at an ultra-low price doesn’t mean the bank has to accept it.  They are even likely to counter higher than the list price if they determine it was improperly priced in the first place.

In a depreciating market, it’s important to think ahead.  If you’ve got a house that’s worth $200,000 today, and you think it will be worth $193,000 in six months, then by all means ask for $193,000 – but asking for $165,000 might be a little steep.

Write the contract ‘as-is with right to inspect’.

All short sale contracts need to be as-is.  That means that neither the seller nor the bank will be required to make any repairs to the property, but you have the full ability to inspect the property and cancel the contract if the property needs more work than you anticipated.  See a leaky roof?  Incorporate the cost to repair (NOT replace) into your offer price before it’s sent to the bank in the first place.  Don’t expect the seller to fix anything.

Make sure you leave lots of time for the bank to respond.

I hear the same things from buyers every week:

“I don’t understand what’s taking the bank so long.”

“Don’t they know they’re losing money every day this house is on the market?!?”

“Just call them every day until they HAVE to do something!”

Fact is, banks do know that the faster they respond the more money they’ll make, they do know that buyers are likely to walk away and buy something else if they dally – and they do know that they’re going to make damn sure they’re not able to recuperate more money from the seller or that a short sale is the last, best option on the table before they approve it.  They’re already losing hundreds of thousands of dollars on many of these properties.

Also, there are lots of people who have to approve short sale payoffs – although you make your offer to the servicing or originating bank, that bank probably sold off the mortgage long before the loan went into default.  In lots of cases there are second mortgages that need to be paid off in order to release the lien.  In many cases, people who aren’t paying their mortgages also aren’t paying their taxes or homeowner’s association dues.  These are all parties that need to be willing to sign on the dotted line.  It’s not going to happen in two weeks. In most cases, these aren’t things that are going to happen in two months.

Be flexible.

Above all, be flexible.  Banks will totally ignore your timeframes.  They’ll dismiss crazy contract clauses.  They’ll reduce closing costs and commissions.  They’ll nickel and dime you.  Be prepared to go the extra mile in order to get your deal closed.  It’ll be worth it.


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