I read a question recently about what buyers can do to have a better chance of succeeding with a short sale purchase.
One buyer thought that a bank may consider a list price or higher offer in their favor. However, list prices on short sales are practically meaningless. Many list prices are set to draw in a buyer so the seller can start negotiations with their lender.
Unfortunately, there is very little a buyer can do to affect the outcome of a short sale offer. The buyer should check recent local closed sales for similar homes (“comps”), and submit an offer that is reasonably close to market value. If a bank is willing to proceed with a short sale, that is essentially what a bank will do too. They will order a “BPO” (Broker Price Opinion) to find out the market value of the home. A buyer’s offer will be compared to that value to determine if it is a reasonable price to accept. So the closer the buyer is to that value or higher, the better the chance of acceptance.
The buyer’s agent can try to be proactive in the process, but the listing agent is the one who really drives the process with the seller’s lender. The buyer’s agent should try to determine if the short sale listing has a reasonable chance of closing. Some things the agent may be able to check are:
- Is the listing agent experienced with short sale negotiations, or do they have a professional negotiator involved? A track record of closed short sales is a good sign.
- Will the listing agent have to negotiate with more than one mortgage holder? More than one is not good.
- Will all offers be sent to the bank or only the first accepted by the seller with others only in backup position? The latter is better.
- Is the seller paying mortgage insurance? If so, the insurance company will also be involved and reduce odds of closing.
- Can your agent find out if the seller has a real hardship (may be difficult due to confidentiality)?
- How much is the lender going to be short on the loan?
Like traditional home sales, there are other contractual terms the buyer may consider to sweeten the offer, especially if other buyers are competing for the same home. Consider a high earnest money deposit, perhaps up to 3% instead of the typical 1%. If paying all cash (another plus), banks like to see at least 10% earnest money. Consider inspecting the home prior to your offer and if no issues, waive the inspection contingency.
However, even with these approaches, the odds of a successful short sale are low. The buyer is at the mercy of the lenders involved. Even if they agree to the sale, the seller may not like the banks terms and back out. I recommend first trying to find a traditional sale, or a bank owned property where chances of success are far higher.
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