First time buyer - shortsale a good idea? (contingency, arrears, auction)

[CoastieTX]

I'm a first time home buyer and recently put in an offer on a home, but have a few questions. Here's everything in a nutshell:

Last fall, a home I was interested in was listed for $329K. I offered what I felt was a very fair $300K because the home needs between $10K and $20K in cosmetic repairs, depending on how nice you want to go (flooring, painting, minor repairs, etc). These would not be unnecessary upgrades - these items are in unacceptable condition. The house immediately next door, which is very similar and needed no repairs, just sold for $330K within a month of being listed. So that reinforced my belief my offer was a fair one, or at least a good place to begin negotiations.

My $300K offer was rejected and the sellers countered at their full asking price of $329K. I lost interest, the house never sold, and in six months, the listing expired. This house is a single level home in a very desirable area and there's no reason it should not have sold, except for the price. It has been my experience in this area that nicer, single level homes on the city's south side always sell if the price is fair. The market here is quite healthy and similar homes which need no work easily sell in the low $300Ks.

It is my understanding my initial offer was rejected because the sellers took out a second mortgage, were having difficulty making their payments, and expected a buyer to pay above market value for their home and solve their problems. Now, the lenders have taken possession of the home, the family has moved out, and it is scheduled to go into foreclosure in 90 days unless it can be sold through a shortsale. It was just relisted for $310K.

I was told by me realtor's coworkers that a realistic offer for a home being sold shortsale is about 90% its fair market value, which I believe is around $300K. So I offered $270K.

Here's where I have a lot of questions:

1. Was my $270K offer too much, too little, or just right? I have no idea because I'm unfamiliar with these shortsales and how much loss the lenders are willing to absorb, and I'm totally at the mercy of what my realtors are telling me. How do I know the lenders wouldn't be willing to absorb a much greater loss, and I could buy the house for less? What would a shortsale/foreclosure savvy buyer have offered?

2. Why do the sellers have to reject or accept my offer before the offer is presented to the lenders? After all, the lenders now have the house and it's the lenders I will be negotiating with.

3. Mine was the first offer to be placed, and it's my understanding the lenders must negotiate with me before they look at a different offer. Is this accurate?

4. I'm being told I can expect no concessions from the lenders like closing costs, money for repairs, etc. Is this accurate?

5. If the home inspection reveals problems I don't want to deal with, can I walk away from the whole thing just as easily as a regular home sale? It's going to take about 8 weeks before the lenders get my offer. If, during that time, I find a different home, can I easily walk away from the deal? Do I only get my $2000 in earnest money back if the home fails inspection or I can't get financing (although financing won't be a problem)?

6. I've read shortsales "aren't for the faint of heart" but according to my realtor, from my end, the only thing that's considerably different is the fact the process will take longer and I'll be getting a good deal. Why do these shortsales have a bad reputation, then?

7. Of course, I don't want to be stuck paying any unpaid debts to the lenders if I take possession of the house. I'm interested in the house if I can get a good deal on it. Are the lenders really willing to cut their losses and give me a good deal, or is there something I'm missing here? Some of this sounds too good to be true.

Basically, what I'm asking is "Does this sound like a good deal?" Or should I be running away from this? If I could buy the house for $270K, I'd be happy, but is what I'm doing extremely risky and is my realtor not disclosing all the facts? Would you recommend this process to a first time home buyer?

Any advice would be appreciated.

Thanks.

[Daddys///M3]

1. I believe that your offer was a good starting point to negotiate. I can't say where the owners and lender will want to go from here, but all they can do is say no or counter.

2. Until the home is foreclosed I believe that the home still belongs to the homeowners.

3. With short sales I believe that the seller would have the standard 3 days to accept, reject, or counter depending on what you put in the offer as far as that goes. The bank may have up to 30 days or more to grant their final approval.

4. Not necessarily. Some banks will give concessions. It depends on the offer I suppose.

5. You'll want to ask a Realtor this question. I'm a loan officer. However, I think it would depend on what you put in the offer, i.e. "contigent on home inspection".

6. From a professional standpoint they are a nightmare. The main reason is the length of time the transaction may take to complete, and the difficulty getting a hold of the people at the lender.

7. There will be no unpaid debts. The previous owner is the one that is responsible for all the debts via the deed. The bank would likely be responsible for any taxes or HOA fees that may be in arrears.

What you are doing is not risky, and the banks are willing to do this because banks earn money on interest. If their capital is tied up in a property then they are losing money. It is better to lose $50 than $150, and that's how the banks are looking at it,

FWIW, I just closed on a short sale purchase for a FTHB with an FHA loan. I originally took the application in December. They put an offer in towards the end of January. The bank was actually rather easy to work with, and I closed it 22 days after receiving the banks final approval.

Good luck!

[Captain Bill]

[quote=CoastieTX;2997358]

1. Was my $270K offer too much, too little, or just right? I have no idea because I'm unfamiliar with these shortsales and how much loss the lenders are willing to absorb, and I'm totally at the mercy of what my realtors are telling me. How do I know the lenders wouldn't be willing to absorb a much greater loss, and I could buy the house for less? What would a shortsale/foreclosure savvy buyer have offered?

Any buyer would have to know the market that you're in to be able to determine what the value of the house is to them.

You can make any offer you wish to make. You are not at anyone's mercy. The realtor is to provide you with sufficient information for you to make the decision on what you want to pay for the house, and what you want to offer. You can offer as little or as much as you wish. The lender may negotiate, and they may just refuse. They are all different. There is no book that the lender has to follow.

You need to sit down with one realtor and get the comps and decide how to proceed.

2. Why do the sellers have to reject or accept my offer before the offer is presented to the lenders? After all, the lenders now have the house and it's the lenders I will be negotiating with.

If the home is a short sale candidate, then the listing agent must state that in the mls listing. The offer must include the short sale addendum. The listing agent presents that offer to the lender along with the information that the lender wants from the homeowner. The offer does not go to the seller to make a decision. The seller can see and have a copy of the offer, but the lender makes the decision.

3. Mine was the first offer to be placed, and it's my understanding the lenders must negotiate with me before they look at a different offer. Is this accurate?

Not correct in a short sale. The bank can look at all the offers they want to and make a decision based on what is best for the bank.

4. I'm being told I can expect no concessions from the lenders like closing costs, money for repairs, etc. Is this accurate?

Absolutely correct. You will pay all the closing costs and repairs. You will buy the home AS IS. You will have the opportunity to do your inspections and back out of the deal if you can't accept the home as is.

5. If the home inspection reveals problems I don't want to deal with, can I walk away from the whole thing just as easily as a regular home sale? It's going to take about 8 weeks before the lenders get my offer. If, during that time, I find a different home, can I easily walk away from the deal? Do I only get my $2000 in earnest money back if the home fails inspection or I can't get financing (although financing won't be a problem)?

You can walk away anytime before the bank accepts your contract. Just tell your agent that you want to withdraw your offer.

You would have a contingency on financing and the inspection. If you can't get financing, (provided you are diligent in trying to get it), and if the house doesn't pass your inspection, you can walk. There are forms for that. You will get your earnest money backi.

6. I've read shortsales "aren't for the faint of heart" but according to my realtor, from my end, the only thing that's considerably different is the fact the process will take longer and I'll be getting a good deal. Why do these shortsales have a bad reputation, then?

The difference is that it takes a long time, from 6 to 8 weeks; the banks may be considering multiple offers; you buy the home AS IS. You may or may not be getting a good deal. You have to know the market, and know you're getting it at an acceptable percentage below market value. Your perception of market value and the lenders perception may be different.

7. Of course, I don't want to be stuck paying any unpaid debts to the lenders if I take possession of the house. I'm interested in the house if I can get a good deal on it. Are the lenders really willing to cut their losses and give me a good deal, or is there something I'm missing here? Some of this sounds too good to be true.

The lenders are not concerned with giving anyone a good deal. They think in terms of dollars for the lender, and are trying to get a house off their books. It is up to the lender how much of a loss they are willing to accept. If they don't get sufficient offers, then some may let the home go to foreclosure, and if it doesn't sell at foreclosure, they'll take it back and sell it on the open market as an REO.

Basically, what I'm asking is "Does this sound like a good deal?" Or should I be running away from this? If I could buy the house for $270K, I'd be happy, but is what I'm doing extremely risky and is my realtor not disclosing all the facts? Would you recommend this process to a first time home buyer?

I don't know what facts the realtor could be holding back. S/he should inform you prior to writing an offer that the bank will not provide any cash to closing, that it can take 6 to 8 weeks, and the home is being sold as is, and you'll be able to walk if you can't get financing or the home doesn't pass the inspection. Not anything more to disclose. If you'll be happy buying it at $270, that's what counts.

[Sandy Nelson]

Coastie,

I can't give an opinion as to whether the price you offered is a good offer or not, but the bank will certainly get heir own BPO (Broker's Price Opinion). Banks who end up owning property might forgive some of the seller's debt to save money versus foreclosure, but they will not give deals to buyers at their own detriment. You can offer what you'd like, but if he bank doesn't consider your offer market value, they will likely counter back, or ignore it.
Here is what your agent can do to help get your offer accepted: Include a market analysis of similar neighborhood homes that have recently sold in better condition, and then document the repairs needed with photos and repair estimates to support your lower than market value offer.
The bank will not make any repairs, but you could (and should) submit an inspection addendum that will bet you back out (with earnest money refund) if the home needs more repairs than you had thought.

Good Luck!

Sandy

[bentlebee]

I think you should stick to your offer and try to find out if there were other offer made. We closed on a short sale yesterday and sellers realtor came back with a counter offer which we denied (we were only told by the realtor abou the counter offer, never saw it on paper) and we ended up with the house for our offer price. Seller got a judgment and still owns the investors of the lender (Country Wide) an amount that if you would add our sales price to the judgment, the sales prices would be a realistic low price. So actually we had a great deal and no one else in this community with similar Town Homes has paid such a low price as we did and ours is one of the last units to be build since the builder had a sales office trailer in that spot. Also we have a conservation lot with pond view and no neighbors , all almost new appliances and other upgrades.
You have to make sure you don't get emotionaly involved with the property other wise you have a chance you going to pay more than you are intentialy wanted to pay, but you sound like an experienced first time buyer. Good Luck.

[Gretchen B]

Originally Posted by bentlebee

I think you should stick to your offer and try to find out if there were other offer made. We closed on a short sale yesterday and sellers realtor came back with a counter offer which we denied (we were only told by the realtor abou the counter offer, never saw it on paper) and we ended up with the house for our offer price. Seller got a judgment and still owns the investors of the lender (Country Wide) an amount that if you would add our sales price to the judgment, the sales prices would be a realistic low price. So actually we had a great deal and no one else in this community with similar Town Homes has paid such a low price as we did and ours is one of the last units to be build since the builder had a sales office trailer in that spot. Also we have a conservation lot with pond view and no neighbors , all almost new appliances and other upgrades.
You have to make sure you don't get emotionaly involved with the property other wise you have a chance you going to pay more than you are intentialy wanted to pay, but you sound like an experienced first time buyer. Good Luck.

Great advice from everybody. Just a couple of things to add: Not all sellers are willing to accept a judgment for the deficit on the amount owed on the loan. Some sellers prefer to just walk away and let the bank foreclose. And some lenders prefer to take the process all the way to auction. If an auction date has already been set, it's extremely difficult to get a lender to agree to a short sale - most prefer to go ahead with the foreclosure at that point.

Also, make very sure that your agent has included verbiage in your contract which covers you for things like the inspection period not starting until the bank has officially agreed to the short sale. Also, you should be able to cancel the contract any time prior to the short sale agreement being executed between the lender and the seller. And an "out" if the inspection reveals problems you don't want to deal with. I'm sure a number of states have these items covered in a standard pre-printed "short sale addendum" (Arizona does), but I'm sure each state is different. Be sure your agent has you covered for items such as the above. If in doubt, consult a qualified real estate attorney.

And, yes, if you have the patience, and your agent has the expertise, short sales can be good deals. The best to you!

[olecapt]

Originally Posted by CoastieTX

I'm a first time home buyer and recently put in an offer on a home, but have a few questions. Here's everything in a nutshell:

Last fall, a home I was interested in was listed for $329K. I offered what I felt was a very fair $300K because the home needs between $10K and $20K in cosmetic repairs, depending on how nice you want to go (flooring, painting, minor repairs, etc). These would not be unnecessary upgrades - these items are in unacceptable condition. The house immediately next door, which is very similar and needed no repairs, just sold for $330K within a month of being listed. So that reinforced my belief my offer was a fair one, or at least a good place to begin negotiations.

My $300K offer was rejected and the sellers countered at their full asking price of $329K. I lost interest, the house never sold, and in six months, the listing expired. This house is a single level home in a very desirable area and there's no reason it should not have sold, except for the price. It has been my experience in this area that nicer, single level homes on the city's south side always sell if the price is fair. The market here is quite healthy and similar homes which need no work easily sell in the low $300Ks.

It is my understanding my initial offer was rejected because the sellers took out a second mortgage, were having difficulty making their payments, and expected a buyer to pay above market value for their home and solve their problems. Now, the lenders have taken possession of the home, the family has moved out, and it is scheduled to go into foreclosure in 90 days unless it can be sold through a shortsale. It was just relisted for $310K.

I was told by me realtor's coworkers that a realistic offer for a home being sold shortsale is about 90% its fair market value, which I believe is around $300K. So I offered $270K.

Here's where I have a lot of questions:

YOu are doing fine. A little naive...but doing fine. The seller really had no useful response except that made. Otherwise he had to go short which starts a multiple month negotiation with the bank. You would be long gone before that settled he firgured.

1. Was my $270K offer too much, too little, or just right? I have no idea because I'm unfamiliar with these shortsales and how much loss the lenders are willing to absorb, and I'm totally at the mercy of what my realtors are telling me. How do I know the lenders wouldn't be willing to absorb a much greater loss, and I could buy the house for less? What would a shortsale/foreclosure savvy buyer have offered?

That is a point of view question. You want the house becuase it is where you want to live? Or you want the house as a good investment? Those lead to different behaviors.

2. Why do the sellers have to reject or accept my offer before the offer is presented to the lenders? After all, the lenders now have the house and it's the lenders I will be negotiating with.

They don't. In fact most offers today go to the lender without the seller accepting or rejecting. It is a local thing. The lender does not have the house. Still owned by the seller.

3. Mine was the first offer to be placed, and it's my understanding the lenders must negotiate with me before they look at a different offer. Is this accurate?

Nope. Simetimes on shorts they deliberately stall to see what next week brings. There is no requirement on the offers other than the agent presenting them to the seller quickly.

4. I'm being told I can expect no concessions from the lenders like closing costs, money for repairs, etc. Is this accurate?

Utter nonsense. Everything is up for grabs..."you want the first born son? Well how about a middle child?" Virtually all short/REPOs here give closing costs. Lenders generally won't do repairs but they all will buy them off.

5. If the home inspection reveals problems I don't want to deal with, can I walk away from the whole thing just as easily as a regular home sale? It's going to take about 8 weeks before the lenders get my offer. If, during that time, I find a different home, can I easily walk away from the deal? Do I only get my $2000 in earnest money back if the home fails inspection or I can't get financing (although financing won't be a problem)?

Read the contract. That includes the lenders addendum. Don't like parts counter them out. The practice here with investors is to make large sets of offers knowing that only a few will or can be accepted. Our peerless leader recommends at least 5 or even 10 offers for every one expected to be accepted.

6. I've read shortsales "aren't for the faint of heart" but according to my realtor, from my end, the only thing that's considerably different is the fact the process will take longer and I'll be getting a good deal. Why do these shortsales have a bad reputation, then?

Short sales don't yield. You spend three months and get told no at the end. No way to bring it to a timely conclusion. Out of about 6,000 shorts on our market we closed 130 last month. you do the numbers.

7. Of course, I don't want to be stuck paying any unpaid debts to the lenders if I take possession of the house. I'm interested in the house if I can get a good deal on it. Are the lenders really willing to cut their losses and give me a good deal, or is there something I'm missing here? Some of this sounds too good to be true.

It often is too good to be true. There is no direct connection between a short sale price and what the lender will actually take.

Once concluded the deal is as good as any...once concluded.

Basically, what I'm asking is "Does this sound like a good deal?" Or should I be running away from this? If I could buy the house for $270K, I'd be happy, but is what I'm doing extremely risky and is my realtor not disclosing all the facts? Would you recommend this process to a first time home buyer?

Any advice would be appreciated.

Thanks.

The real risk is that you spend a lot of time and energy and don't get the house. Happens all the time.

Once concluded a shrort sale is as good as any other transaction .

As an aside...not the best set of responses on this one. Many wrongs. We should do better than that.

[Daddys///M3]

Originally Posted by olecapt

Short sales don't yield. You spend three months and get told no at the end. No way to bring it to a timely conclusion. Out of about 6,000 shorts on our market we closed 130 last month. you do the numbers.

One of those was mine! Recorded on the 26th. It only took about 45 days from inital offer to funding and recording.

Originally Posted by olecapt

As an aside...not the best set of responses on this one. Many wrongs. We should do better than that.

I made sure to disclaimer and say things like "I believe" in my responses. If I was wrong in the advice I gave I would love a little education.

[bentlebee]

Originally Posted by olecapt
Short sales don't yield. You spend three months and get told no at the end. No way to bring it to a timely conclusion. Out of about 6,000 shorts on our market we closed 130 last month. you do the numbers.

How many get closed if they are normal sales contracts, I know for sure it's not a 100%. A lot of mortgages are denied, so tell how many you close after the went inot contract. I'm curious.



I know everybody all the times is mentioning you need a short sale agent. I did my first short sale and din't have any representation and the risk is mine, but in the whole process I can't see when or why I should have had a realtor or what difference he/she could have made. I had another contract on a short sale and after the contract expired for weeks and I asked over and over (to sellers realtor) if the bank had come up with an answer and never heard back i asked in an email to get my deposit back and told the realtor that we won't put in the same offer but lower if the bank would even react since all the news is negative about the economy and the housing market. The agent didn't react until I asked again and I even told her that I found it strange that the sellers all of a sudden had paid of 3 years of property taxes, which she wasn't aware off. She called the bank again and they excepted our first expired offer since the large amount of property taxes was paid off but as I had mentioned our offer would be $ 10K lower since writing the contract. I've told them over and over and now I'm hearing back to when to get my deposit back or if the bank will accept the lower offer. We think we are having a good offer on the table since it is a cash offer. Sellers agent has responded on our last 4 emails and there is no contract so we will wait a couple more days and than we will go to her broker. To sad this was the agent I was so positive about and even with the higher expired contract she stopped responding as she had done so well in the beginning. The worst part is that the sellers are left with probable the same communication as we have with the realtor.( realtor has personal problems which she has to solve first) The only difference is that we are waiting for our deposit but the sellers are looking to a foreclosure in the future with having kids and an uncertain future whcih is way worse, but that doesn't make us go with the higher offer just because we are feeling sorry.

[palmcoasting]

Quote:
2. Why do the sellers have to reject or accept my offer before the offer is presented to the lenders? After all, the lenders now have the house and it's the lenders I will be negotiating with.

They don't. In fact most offers today go to the lender without the seller accepting or rejecting. It is a local thing. The lender does not have the house. Still owned by the seller.

I'm finding this a little curious. And Captain Bill said the same thing about the seller not having to sign the contract. But. The seller still owns the property. Without their agreement and signature the property/deal can not go through. You could be doing all this work and then the seller says... nah, screw it, let them foreclose instead...I'll live here for months without paying anything, I'll file bankruptcy and let the foreclosure take that much longer. Why would you want to do that? Problem solved if you have the seller sign the contract, no? The bank can't do squat without power of attorney for the seller and I really doubt people are giving that up.