Ten Pitfalls of buying a short sale home - Part 2 of 2
Here's Phil's second part about some of the issues with short sales as they pertain to the prospective buyer. Many of these problems can be minimized if both the listing agent and the buyers agent are knowledgeable about short sales.
6. The sixth pitfall of buying a short sale home?
The price is often artificially low.
Let me tell you a story. To prepare to sell bank owned homes, I began doing a lot of broker price opinions for banks. (We have now done over 1300 broker price opinions, or BPOs) A while ago we were pricing a home that was listed for sale. We were puzzled by the price on the listing. It was a full $100,000 BELOW market value. The file was brought to me by my team for review. I researched carefully. It was listed as a short sale, but it clearly was ONE HUNDRED THOUSAND DOLLARS under market value. I reported the same to the bank. Did that short sale go through? I don’t know, but I doubt it!
7. The seventh pitfall of buying a short sale home?
The bank won’t tell you how low they will go until they have an offer.
Think about this for a minute. A bank’s business is to acquire capital and lend it out at interest. Now they are being asked to forgo interest. Forgo any return at all. In fact, there will be loss of principal. That is so completely against everything a bank is supposed to do.
So now the conversation, from their perspective is, how much are you willing to lose? The answer is - NOTHING! We are not willing to lose anything. If we have to lose anything at all, we want it to be as little as possible.
So they will not tell the listing agent how low a price they will accept. So a listing agent is in a terrible dilemma. They have to price it low enough to get an offer quickly. But they do not know if the bank will accept an offer until they GET an offer.
8. The eighth pitfall of buying a short sale home?
Sometimes the price changes upward after the transaction is signed and agreed to.
I sold a condo to a first time buyer. We agreed to pay full asking price - $170,000. Two months later we were told the price would be $172800. A month later the price went to $192,000. Although I had fully explained to my buyer that this might happen, he still walked. It felt to him like he was being jacked around, and he didn’t like it.
9. The ninth pitfall of buying a short sale home?
The seller is not motivated enough to do all that needs to be done and loses interest.
Remember the seller is getting no money from this sale. But they still have to do all the showing stuff. Leave the house when a buyer wants to go through. Keep the house clean and ready to show. Have strangers tromping through your private space, looking at all your private stuff.
Above and beyond that, the lender has a lot of demands on the seller. A few years ago the seller applied for a loan to prove they could make the payments. Now the seller has to apply to prove they ARE NOT QUALIFIED for the loan. It is still an onerous process. Except now all the numbers, all the facts are emotionally depressing.
Sometimes the seller says, forget it. Or, just as bad, they simply give up doing all the things necessary to get a sale to closing.
10. The tenth pitfall of buying a short sale home?
The house gets foreclosed on before the short sale closes.
I knocked on a door the other day to inform the occupant that their home was now owned by the bank and I had been assigned to get the house vacant, secure it and put it up for sale. “That is impossible”, she said. “We have a sale. It is approved. It is going to close in a few weeks.”
But in fact, the bank had foreclosed and she was no longer the owner.
Remember that a short sale is already behind in payments. Somewhere in the period of time the bank is working on deciding whether to approve the short sale the auction date comes and goes. From that time on, it is the bank’s decision whether to let one of the postponed auction dates go through, or to continue postponing it. Sometimes they let it go and the house gets foreclosed on.
If you have questions about your short sale situation, give me a call!
Phil Leng
Keller Williams Kirkland
Cell: 206-409-6600
Office:425-285-3200
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