When is a Short Sale a good deal ?

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When is a short sale a good deal?Short sales can snag a great property for a buyer at ascreaming deal…sometimes. Short sales can take months and months before the bankaccepts an offer, it can be one of the most frustrating purchases you can make,and it isn’t always your best deal. If you would like more detailed informationabout Short Sales, read on…
Buyers make the mistake of assuming because it is a shortsale it is automatically their best deal. Sometimes they’re right.  Many times the seller owes such large amounts to the bankand the bank(s) price the home based on what they are willing to take, not whatthe current market dictates.   
So, in a nutshell here is how the typical short sale works:

• Seller decides/needs to sell, they owe more onthe home than they can sell it for. Maybe they bought at the top, maybe theyborrowed against the home – either way their loan is too high. 
  
•  The seller goes through an arduous process to getthe bank to agree to allow a short sale
• Bank agrees to a short sale, home is placed onthe market.
•  Some sellers continue to maintain the home,others do not
• Short sale homes are sometimes not available toshow very easily, or are not listed with the local brokerage ( have to wonderabout their motives – to sell it or squat until they are booted out?)

Pricing:

• Most banks won’t tell the Seller or the Agentwhat they feel an acceptable price is, and it is left up to the agent to listand price the property to sell.  
•  Some agents price the property to reflect marketvalue, some go just below and some properties are priced like a K-Mart blue light special.
•  Banks will conduct a BPO – Broker Price Opinionof what the property pricing should be. This is based on closed sales within agiven area. This number can depend on which properties the broker uses forcomparison.  Did they use a good range ofsold properties or just the distressed ones?

The process:The short sale process can take months and months tocomplete. There is no standard processing time or procedure the banks follow.  Many times the bank will not even look at anyoffers for weeks and weeks. The Buyer’s agent has no ability to communicatewith the bank – the listing agent often has spotty communications with thebank.  You place the offer and wait, andwait and wait. 
Many Buyers get anxious and become tired of waiting. They walk awayand find another property. In Utah, earnest money is not required of the Buyeruntil acceptance by the bank, so it is easy to walk away.  The banks don’t always use logic when choosingthe offer they like.  You could give thema full priced cash offer closing in 3 weeks and they might choose a lowerfinanced offer closing in 5 weeks because it serves their purposes better – or maybethey are just too busy and approve the first one they grab off the pile ontheir desk! Plan on longer than you think it will take. Don’t give up yourrental until you have bank acceptance and loan approval.  
Things to ask:When you are working with an experienced buyer’s agent, theywill do the research to find out if this property is viable. Here are some ofthe questions your agent should get answered for you prior to gettingemotionally invested in a home:

•  Where is the bank in the short sale process
• Do they have any offers currently?
• Are they planning on submitting multiple offers
• Have they had past offers and how has the bankresponded?
•  Is this home priced in a reasonable range tomake it a good deal and worth the wait?

If the short sale process has just started, the bank is lesslikely to take a low ball offer and will be more likely to try and get thehighest price possible.  If there areoffers in currently that can make the possibility of your offer gettingaccepted lower. Sometimes the bank will work with the first offer until it diesor closes, then move on to the next.  Ifthe seller is planning on submitting multiple offers you know you will havesome competition to face and should offer accordingly. How the bank hasresponded to past offers can be an indicator of how long the process could take.  If the home is in a $700,000 neighborhood andis priced at $850,000, chances of getting a screaming deal price are slim andnone – at least not right away.
Things to avoid:·         Click the links below to see some of the Short Sale pitfalls to avoid:Nolo Legal - short sale fraud scams  AOL - Short Sale flopping 5 common buyer short sale mistakes