Buying a Short Sale – How Much Should You Offer?

Buying a Short Sale?  Let’s take the Mystery out of what to Offer

I can’t take it any longer!  Everywhere I read there is a ton of misinformation circulating about short sales.  One of my students called today, I’ll call her Lisa (not her real name), and said she was buying a short sale with a bank owned property. If the property was already bank owned or Real Estate Owned (“REO”) the bank has taken it back at the foreclosure auction so a short sale couldn’t be done. When the banks own the property they can sell it at any price they want and selling it below what the final judgment was is certainly possible, but it is not a short sale. We straightened this out, so we were talking the same language of short sales and following is what happened.

How to buy a short sale

I had Lisa send me the HUD-1 from the Short Sale Package her Realtor® had put together and had charged the lender $1,500. It probably took the Realtor® about 1 hour and included just what the lender requested. It also included a 6% commission to this agent, which combined was about $8,640 for the purchase price of $119,000. In the hundreds of short sales I have been involved with, I have never seen a bank accept anything but a 5% or lower Realtor® commission. So I was immediately suspect that the agent hadn’t done short sales very much – maybe never. The closing agent got in on the deal by up- and over-charging about $4,000 on various items.

I listed what I thought Lisa should not pay and she called the closing agent who reduced the charges by $3,690 immediately. I still wasn’t happy with the charges on the HUD-1 but I really got bent out of shape when the agent called saying the bank called and said they were too busy to get a Broker’s Price Opinion (“BPO”) and Lisa would have to pay for it. The agent back-peddled and said the seller would pay half, but Lisa would have to pay the other half. The real killer was the cost was supposed to be “about” $350! I have never seen a BPO cost over $125 and I have never seen a bank allow the seller or buyer to pick the agent to do the BPO, because it is the absolute prime spot for fraud.

I asked to get on the phone in a three-way call to the Realtor® or closing agent. When the closing agent heard I was on the phone, she immediately said the issue with the BPO had been resolved and Lisa didn’t have to pay anything. What a coincidence! We were told that another Realtor® did the BPO and it came in at $145,000.

I decided to ask Lisa more about the property and she told me it was a 3/2/1 that was priced at $145,000 and that she was told to offer $119,000 because the agent told her the bank would take that price. Sure the bank would take $119,000 that’s 82% of the amount owed on the property! The bank would have actually taken it down to $94,250 if Lisa had known better.

Here is the biggest secret in the Loss Mitigation industry – the lowest amount a lender can take without “special circumstances” and approval by a committee is 65% of the BPO! Sure the lender would take 82% from Lisa, and they would also have taken 70% without batting an eye.  Misinformation caused Lisa to offer $119,000 versus $101,500 she thought about offering, or a staggering $17,500 “mistake”, because the Realtor® didn’t know what she was doing or did know what she was doing.

In all my reading and information I have seen about short sales, the gurus make the lowest price a lender will take a “great mystery” because either they don’t know or they want to do the short sale for their students. You now have an enormously powerful insight into the banks’ inner most thoughts to use when you are buying a short sale.

I went further with Lisa about the ARV of the property and she said it was in move-in condition and she thought it was worth $150,000. I politely asked her why it hadn’t sold at $145,000 after being on the market for four months. What Lisa told me was all about the condition and how cute the property was – the very reason NOT to buy it because the purchase is now emotional, not good business judgment.

While Lisa’s case is not unusual, what I learned at a guru’s boot camp truly astonished me. I was asked to attend for no cost and asked to be an information speaker at break-out sessions in exchange for attending at no cost. I agreed to attend, and at the end of one “training session” I asked the guru if he had ever used a tactic that I always use and that is a level above doing a simple short sale. He said, in a whisper, “Of course” that’s all we do, “But I can’t make that into a course and I couldn’t do students’ short sales for them – whether they work or not we get paid”. Well that did it for me, I apologized and left before the next session started.

The method I use is a very effective tactic that overcomes 80% of all the hassle and grief of doing a short sale and gives the buyer tremendous exit strategies besides simply buying the property. So what I decided to do was write about short sales so that investors have a chance to discover how to do short sales properly and more importantly, learn additional exit and “entry” strategies, for example what to do when the seller is uncooperative or another investor has a contract on the property.  You can find out more about in my mentoring program here at http://davedinkel.com/mentoring-program/.

To your limitless success,

Dave Dinkel

Real Estate Mentor Program Founder

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