Real Estate Blog - The Secret to Knowing The Sales Price a Short Sale Bank Will Approve

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The Secret to Knowing The Sales Price a Short Sale Bank Will Approve

Short sale buyer's agents in Sacramento are wising up and asking more questions upfront about my listings before showing them to a buyer, but I still get the goofy questions about homes that are new to the market such as: Is this short sale approved by the bank? Some banks such as Wachovia and Wells Fargo are putting systems in place to preapprove the sales price but most banks do not. It takes an offer from a qualified buyer to get a response.

I've had only one bank this year tell me that the price on my Sacramento short sale wasn't satisfactory, and that same bank came back 3 months later to accept an offer at that price. That bank, of course, was Bank of America.

Banks are accepting the short sale offers I submit. However, the offers I submit are generally much higher than my list price. As a Sacramento short sale agent, I realize that the market generally supports 2 prices: the list price and the expected offer price.

Simply put, banks want market value. Depending on the bank, however, banks may accept an offer that is priced somewhere in the range of 5% to 12% below market. What is market value? Market value is based on the comparable sales.

When I list a Sacramento short sale, I always pull the comparable sales, and I consider the pending sales, too, because pending sales are indicative of which way the market is moving and will become the sold comps at closing. Most of my short sales are listed about 10% below market value. This tactic brings multiple offers, which tends to push up the offers closer to market value. I advise my short sale sellers to accept the offer from the most qualified and dedicated buyer at a price that is closest to market value.

The problem isn't whether the short sale bank will accept the price, it's whether the price will appraise by the buyer's lender. Sometimes, buyers write offers that are too high. In one instance, I had to tell a buyer's agent that she may want to submit an addendum at a lower price. She had offered, let's say, $350,000 on an Elk Grove short sale listing that was priced at $300,000. I suspected that the comparable sales would not support such a high price and we'd have a problem getting it appraised at that price. So, her buyer lowered the offer to $330,000.

Sure enough, the buyer's appraisal came in at $329,000, and the buyer coughed up the $1,000 difference in cash.

Tip: Before you sign a purchase offer for a Sacramento short sale, ask your agent to give you the comparable sales for that neighborhood and to interpret that data for you. Because often, the listed price means nothing. Some agents ask their sellers to sign listing agreements at prices far less than market value, hoping that the short sale bank will give away that home for free, when the bank will do no such thing.

Lots of home buyers don't understand this, and many can't wrap their heads around the fact that some prices are plucked from thin air. They see a home on the market at a certain price and wrongly assume that they can buy that short sale at that price, when they can't.

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Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. DRE License # 00697006.

The Short Sale Savior, by Elizabeth Weintraub, available through bookstores everywhere and at Amazon.com.

Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.

Posted by Elizabeth Weintraub, Sacramento Short Sale Agent, 916.233.6759, Lyon RE on 10/23/2009 09:09 AM

Comments (33)

Elk Grove Short Sale Agent in the Regional (Localism) Channel

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Originally posted at: Elizabeth Weintraub • Sacramento Short Sale Agent • Land Park: The Secret to Knowing The Sales Price a Short Sale Bank Will Approve

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33 Comments on The Secret to Knowing The Sales Price a Short Sale Bank Will Approve

OCT

Elizabeth: By the way some short sales in my market are priced, you would think the banks are having a fire sale. No regard for market value. Then the listing agents gripe about the evil banks not approving their sale. Start with a CMA and you'll be pleased 99% of the time. After all, as long as Bank of America is in business, there is room for insanity.

I knew you were smart! This is exactly the strategy I have been using since we started the uphill battle in earnest in this market. Eventually, perhaps brokers will begin teaching this to their agents so they can get SOLD!

I am ever amazed by several things. First the number of short sales in your market is overwhelming to me and secondly, you have it down to a science. I can't imagine being either a buyer interested in buying a short sale or a seller needing to sell short and not calling you. I sometimes wonder about list prices when they are too far off from a CMA (either high or low) and seriously wonder if the agent does one at all or maybe just lets the seller pick the price.

The only thing I have seen over the last few years is the time frame we use for comparisons you are right on using pending instead of properties that sold several months ago. It is all about the market today.

Elizabeth - although I do not do many short sales, this is the strategy that I have learned works, both on the listing side and the selling side.

Another great blog post by Elizabeth

Market value (or higher) is ALWAYS what to shoot for Elizabeth. Great advice coming from an expert in this area.

As Tammy said - I a really am suprised about the number of short sales in your market. I wonder if the sellers are just too scared of the stigmatism of a short sale in my immediate market. We don't have that many come on the market...but then again we don't have much coming on the market right now anyways. Any other advice for Buyer's agents writing on Short sale listings? (maybe you have already written a post about it)

We see similar things happening with the foreclosures listings we have in the areas surrounding our market. Some of the banks we work with will price the houses below "market value" and we end up with multiple offers. Sometimes we have buyers in multiple offer scenario who will submit ridiculously high offers (with financing contingencies). Once they secure the property - they use the appraisal to get the price back down again.

Interesting post, Elizabeth. Thanks for sharing this information.

Cheers,

Robin

Elizabeth, There are many that will tell you the price makes no difference with a short sale. But of course they are wrong. The price is everything. Get it high enough and the short sale will be approved. It's not complicated. Well done!

Elizabeth - I only occasionally run into an offer too high for the buyer's lender. When it happens, it can be a mess to resolve.

Thanks for chiming in, everybody! I'm pleased to say that I've closed over 30 transactions so far this year, and more than half of them were short sales. That doesn't even take into consideration the dozen in escrow or my couple of dozen or so of short sales waiting for approval. It's been a mad house in Sacramento. One thing I have learned well is how to price short sales to sell and to close.

Oh, and Cara, I did write an article about short sale offer tips.

It's great to hear other short sale experiences! I also am finding more agents are 'understanding' the short sale process. Not that it makes the wait fun for anyone, but atleast they expect the delayed approval process and fewer buyers are 'walking'. I have closed around 20 short sales this year and hope to double that next year!

Awesome information. No you can't steal a short sale.

It is critical to kwow the market value of that house in that neighborhood.

Great post Elizabeth! "They" say that short sales are a giveaway. Not! It's market value due to demand. Due diligence gets the home.

You're exactly the type of agent that a good loan rep loves working with...you get it done. Thanks for the post!

Hi Elizabeth -- I wish every buyer and seller understood your last point about the random price that will go nowhere. Exceptional post. Your posts are always informative and fun to read.

OCT

Hi Elizabeth - Great Blog. just a couple of points:

1. "Simply put, banks want market value. Depending on the bank, however, banks may accept an offer that is priced somewhere in the range of 5% to 12% below market. What is market value? Market value is based on the comparable sales."

Keep in mind that banks want market value and they base their market value on their BPO results, which in turn, not necessarily represent market value! ;) This is a very important thing to remember as a lot of agents make this mistake.

Also, the 5% to 12% is based on your market area. It also usually deals with net, not purchase price.

2. "Sometimes, buyers write offers that are too high. In one instance, I had to tell a buyer's agent that she may want to submit an addendum at a lower price."

Since I am the master of this, can you please explain if you really did it this way? You sent a purchase offer with a 350k offer along with an addendum in the reduction of price? Or do you do what I do and verbally counter the offer and have the buyer's agent re-do the offer?

I also agree with your tip. I, however, do not agree to highest and best as it causes more problems than it resolves. I rather negotiate up than down on a short sale.

Thanks for taking the time to write this.

Elizabeth

All my escrows right now are short sales and each one poses a different challenge.

I represent buyers. Our offer is higher than list price. First buyer backed out. The short sale lender actually approved a lower price than our offer. The first buyer backedout, We move into first position, and revised our offer to reflect the approved price.

I represent sellers. Offer is at lower than list price. Short sale lender demanded a higher offer based on a BPO. Although I have comps to prove that current offer is reaonsble and at market value, I had to persuade the buyer to raise their offer. Fortunately, they did. The bank? Bank of America!

Elizabeth, very good advice, we have no "rules" just information to share with each other about what works. In the old days, there were similarities between lenders about the short sale process...NOT today. Thanks for sharing your experience and wisdom.

Thanks for the tips Elizabeth, I'm writing my first short sale today.

This post is a great testiment that you really know your stuff! Thanks for sharing it with us!

Elizabeth you really know this subject many. The listing agent need to list the property where it will general offers. Buyer's agents need to do their homework, making sure the offer made is reasonable and will be acceptable to the bank yet at the same time mot going outside the appraisal range. These are key elements to a successful short sale.

Hi Satar: To answer your question, most of the neighborhoods where I sell short sales in Sacramento are conforming -- suburban areas such as Elk Grove or Natomas are easy to comp, so the BPOs aren't really out of line. I did sell a short sale in Galt where the BPO came in less than the list price, which was much much less than the offered price. But we got the bank to take the higher offer based on the comps that I supplied. In fact, I sold that home 4 times at the higher price, and both FHA and conventional appraisals came in at value.

In Land Park, where values can vary greatly from block to block or even on homes sitting next door to each other, I gave the comps to the guy doing the BPO and explained the boundaries that defined this particular area within Land Park.

As for the offers that come in too high or otherwise are written incorrectly, I generally give a verbal like you and ask for a new offer. I would not want to send a higher offer to the bank with an addendum lowering the price. When I say "submit an addendum at a lower price," I need to clarify that after it was accepted, we did draw a new contract.

You make excellent points here ... thanks for your efforts! I think I speak for all people in all the land when I say, "We appreciate you!"

Very informative post. I appreciate the advice you passed on the AR.

Thanks for the response an the clarification. If you were able to pull off short sales while submitting a higher offer with an addendum to lower the price, I want to be the fly on the wall in your office! ;)

In regards to:

"...most of the neighborhoods where I sell short sales in Sacramento are conforming -- suburban areas such as Elk Grove or Natomas are easy to comp, so the BPOs aren't really out of line."

That is true. We have something in my area that I call "Fast food track housing". They have four different models and build them in a huge community using the cheapest resources and contractors. So you can choose model A, B, C or D. The only difference is the upgrade options.

Now, the BPO will need 3 active and 3 recently sold comps. Sometimes, if the data is not available (or even overlooked or even if a short sale/REO comp in a non-distressed area), then the BPO will use a nearby community which might not reflect the true market value of the home being appraised on. The bottom line is that the bank's assessment of the property is based on the BPO. Whether or not that value reflects market value or not, has yet to be determined.

It sure would be nice if the banks would just give us the rules they want us to play by....it is hard to play the game by rules we don't know.

I count my lucky stars that I don't have to deal with Short sales. Thankfully, our market is not saturated with ss's or foreclosures. I'd be pulling my hair out trying to figure all of this out. I haven't worked a short sale is quite some time. If I ever do have to, I"m calling you, lol. (seriously:)

I have many people asking if we have approved short sales as soon as listings come on the market. You gave a great explanation.

OCT

I lay it out clearly for my seller. My job is to get you an offer within a week so we can submit it to the bank and get the short sale process started. I usually price my shortsales at least 10% below market. We usually get multiple offers that bring it up close to market price.

OCT

Hi, Elizabeth. Great tips for all. I love reading everyone's techniques throughout CA and beyond. Do you have any experience with the short sale incentives that were/are part of the MHA program? Seems that most lenders do not know how to deal with these.

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