How Much Can You Save / Short Sales And REO’s
I originally published this back in February of 2008 it may still be informative to many. Buying short sales remains exotic, confusing many agents and totally baffling most consumers.
If you're hoping for a number, you can stop reading, I can’t tell you.
If you are hoping to steal the property, you can stop reading, it won’t happen.
If you're hopping to buy the property for 50% of current market value, you can stop reading. If you’re hopping to buy it for 50% of what it once sold for, you’re foolish only today’s market value is relevant.
If you're hopping to wait and buy the property for less direct from the bank you can stop reading, it won’t happen.
The first thing you need to understand, is that banks only accept short sales when they believe it is in their best interest! Banks do not voluntarily accept losses. Banks will try to limit their losses.
So what can you expect, what should you offer. The answer is simple, but not numeric! Except to pay current market value of the property, less the antisapated cost of foreclosure and sale by the bank and a "fudge factor!" This "fudge factor" covers the cost that will accrue in addition the cost of foreclosure and sale, if the bank has to take the property.
If you attempt a purchase requiring a short sale at ridiculously low prices your chances of success are unlikely.
If a seller accepts an unrealistically low offer for submission to the bank, they may well lose the house and incur considerably more expense and credit problems.
With the banks taking as long as they do to rule on short sale offers the seller may not have time to find another buyer. Make sure your offer is reasonably close to current market value.
There is an ignorant school of thought that says wait until the "auction" or until the bank owns the property this is a fallacy! A bank with an REO, Real Estate Owned, non-business property owned by the bank, has already incurred both the cost of foreclosure and the previously unknown "fudge factor," cost that they might have discounted in a short sale. Once a bank is in title you can now expect to pay full current market value!
Historically, it was possible to get banks to discount their REO's, but not today. With so many foreclosures banks with many mortgages in any given subdivision and several REO's, can't discount them. If the bank accepts an offer below current market value, that sale becomes a comparable for the rest of their REO's in that market lowering the property values of the remaining properties and those similar homes of their other customers!
(We use to teach the same thing about new homes. For a Builder, like today’s banks to accept a low offer is self-defeating! But, when the need to sell is great they often accepted large if not huge concessions. Today’s banks may well grant such concessions when they have a large number of REO’s.)
One final thought on what to offer. To you, today's buyer, the value of the properly you are considering has nothing to do with what the seller paid for it 1,2,3,4, 5 or 6 years ago!
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