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Short Sale Tip: Adjusting Price/Lender Threshold for Repairs

By
Real Estate Agent with America's Home Rescue (2008 & 2009 NAR Convention Speakers)

Having worked Short Sales from an investors perspective for nearly 2 years, we had initially learned to negotiate and buy low, sell high.  One of the tips we initially learned from the "Investor Short Sale Gurus" was to do everything we can to capitalize on needed repairs.  Tell the appraiser and the bank that the house is in such a state of disrepair, and that they would be absolutely crazy to take the house back through foreclosure, we were told.  Well...........that didn't work over 95% of the time.  In fact, many of the loss mitigation reps got to where they were telling us to stop trying to get them to take 50 cents on the dollar.  They were never going to do it!  They said why not just put on your "Realtor hat", bring them a retail Buyer, and the bank will pay the commission.  Brilliant!!  49 properties at $5,000 average commission, verses $25,000 on an investor deal, if I get lucky.

But, I still had the question about repairs.  How do I truly take into consideration the amount of repairs that are needed in a Short Sale.  In truth, what you think is worth $5,000 in repair costs, the bank thinks is only worth $500.  Their excuse was always "If the house needs repairs, then it should be reflected in the appraisal we order."

Many of you have been to our seminars and you know that after 6 years of tracking and documenting expected net thresholds for over 300 Short Sale transactions, we teach Agents how to effectively determine what the bank needs to net at closing, based on the type of loan being shorted, before they even take the listing.  Over the past 3-5 years, most lending institutions have expected net proceeds on their Short Sales of no less than, on average, 85-92% of the current market value.  FHA is 82%.  VA is 88%.  While FHA and VA thresholds are in "stone", Conventional net thresholds change according to current market conditions.  Here's a big tip if your property requires repairs.  This has worked for our team and our coaching members for over 3 years now.

For every $5,000 in repairs, take 1% point off of the base net threshold of 85%, and then gross up to arrive at your expected list price for MLS.

Note:  In order to better assist Agents in the mathematical aspects of their Short Sale transactions, we have written and added a 25-page Short Sale Math section to our ever-so-popular Short Sale Instruction Guide, otherwise, considered by many real estate Agents to be their "Short Sale Bible".

For more information, please visit www.ShortSaleSolutions.biz.  Also, don't forget about the ALL-NEW Online Traning Course, which has math scenarios for FHA, VA, Conventional loans with 1 lien, and Conventional loans with 2 liens.  Only $39 a training session.

Comments (1)

Johnathan Smith
Coldwell Banker DiTommaso Realty - Staten Island, NY

your right and thinks for the tip

Aug 13, 2008 04:02 PM