Buying a Short Sale Is Not the Same as Shopping at the 99 Cents Only Store

By
Real Estate Broker/Owner with Broadpoint Properties Cal BRE #01324959

Buying a Short Sale

Buying a Short SaleI love the 99¢ Only Store. Have you ever been there? I guess that they have them all over. When I was in Mexico in June, I even saw that they have their own version of the store. I love the fact that you can fill up your shopping cart with things that you may need (and you may not need) and the whole thing will never cost more than about forty dollars. When my kids were a little bit younger, I would take them there for a special treat and tell them that they could select three things-anything that they wanted (rated G, of course). Wow! Am I ever a big spender!

You can always get a deal at the 99¢ Only Store. But, can you always get a good deal when buying a short sale? The answer is, quite simply, no.

In 2007, the market took a huge dive. Banks were nowhere near prepared to deal with the sheer number of borrowers who were underwater and unable to make their payments. Loss mitigation departments had few employees. There were limited short sale submission procedures, and investor note holders did not have guidelines and procedures in place. Perhaps, at that time, you could make a low offer on a distressed property and get the banks to accept it and provide short sale approval.

Now, however, when buying a short sale, I am not seeing the banks accept lower offers with any regularity. Mortgage servicers hire individuals to provide the BPO on the distressed property and then are required by their investors to take a net amount equivalent to a certain percentage of the BPO value. And, this percentage is not 50 cents on the dollar.

I know that there are a lot of investors out there who want to buy up these properties for cents on the dollar. I know that many want to buy in bulk and then flip the properties for a profit. Most of the mortgage servicers, however, seem to now be looking for a retail buyer.

Many servicers have even improved the quality of their loss mitigation departments in order to deal with the volume. Bank of America and GMAC now use the Equator system to streamline their short sales. Wachovia has a great program available in certain cities. And, plans are under way for some additional short sale efficiency programs.

So, will the bank accept your 99 cent offer on a distressed property a few blocks away? They might... but you may be better offer filling your cart with bargains at the local 99¢ Only Store than getting an awesome deal when buying a short sale.

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Ambassador
635,898
Janna Scharf
Keller Williams Realty Coeur d'Alene - Coeur d'Alene, ID
Coeur d'Alene Real Estate Pro

How right you are!  I have noticed that the lenders are holding to their price tighter than even a year ago.  It's unfortunate that so many of the BPO's are being done by agents who just aren't qualified, causing problems for closings.  But that's a topic for another day.

Sep 01, 2010 08:05 PM #1
Rainmaker
905,837
Jane Peters
Power Brokers Int'l - Los Angeles, CA
Connecting you to the L.A. real estate scene

I never thought of short sales as bargains, just pains in the neck.  On my last one representing the buyer the bank went after the seller with a deficiency judgement.  I think it may had something to do with the fact that the seller worked for them :(

Sep 01, 2010 08:35 PM #2
Rainmaker
591,134
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Melissa,

I would have compared short sales with bargaining with an indecisive garage sale'r.

Bill

Sep 01, 2010 09:55 PM #3
Rainmaker
613,264
Don Sabinske
Don Sabinske, Sabinske & Associates Inc. - Zimmerman, MN
Sabinske & Associates Inc.

I don't think that the "banks", i.e., investors are willing to lose their shorts to give anyone a "deal".  Many short sales are Fannie Mae-insured, and they aren't giving their investments away anymore. 

Sep 01, 2010 11:15 PM #4
Rainmaker
408,098
Regina P. Brown
California Coast & Country Homes, Inc. - San Luis Obispo, CA
e-Pro Realtor

Melissa, I like how you compared short sales to the dollar store!  cute analogy

Sep 02, 2010 02:16 PM #5
Rainmaker
84,067
Simon Mills
Mills Realty - Toluca Lake, CA

There are no bargains dealing with short sales.  In fact many of them fall apart because the lender will not negotiate only to end up foreclosing and then selling for less as an REO.  I have found that many bank decisions make no financial sense.

Sep 02, 2010 07:06 PM #6
Rainer
48,001
Victor T. Gurrola
Remax Realty 100 - Diamond Bar, CA
Diamond Bar Real Estate Professional

I have found that if you submit your own BPO/current appraisal to the negotiator justifying your offer it should be accepted. I have never had an offer rejected due to price we have about a 60/40 ratio of Short sales to REO's in my market (So.California) so the short sales sell for the same price if not less.

Sep 02, 2010 07:35 PM #7
Rainmaker
542,073
Eric Michael
Remerica Integrity, Realtors®, Northville, MI - Livonia, MI
Metro Detroit Real Estate Professional 734.564.1519

Short sales are still bargains, to a point. I mean, they're still Way cheaper than they were a few years ago, probably priced lower than a regular house for sale that's occupied with people who just want to sell, and more than likely in considerably better shape than a bank owned property. Everything being equal, probably a buyers best deal.

Sep 02, 2010 08:05 PM #8
Rainmaker
457,050
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
Destin FL Real Estate

Melissa - Reminds me of the offer I got this week, $90,000 for a fair market $145,000 house.  It didn't happen. Enough said.

Sep 02, 2010 08:23 PM #9
Rainmaker
45,404
Peggy Noel
RE/MAX Commonwealth - Chesterfield, VA
Bouchard, ABR, CDPE, SFR

Melissa - I can't tell you how right on your post is.  This happens with short sales as well as traditional sales.  Buyers have heard that the market "sucks" and the think that if a property has been on market for 90 days a 99cebt store mentality shows that they are savvy investors.  I spend a god part of my first visit with clients educating them about the listing price/sales price ratio in their preferred area and also try to teach them that the "deals" are in the hugely reduced listing prices and are not found in cents on the dollar purchase offers that are sure to be rejected.  Thank you for a great post!

Sep 02, 2010 10:10 PM #10
Rainmaker
911,662
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Don't try to tell an investor that Melissa. They want consumers to believe you can just throw around low ball offers and it will be no problem. As you mention many lenders have caught on and are not just letting properties go way under market value anymore.

Sep 02, 2010 10:18 PM #11
Rainmaker
516,704
Mary Douglas
United Country Ponderosa Realty - Red Feather Lakes, CO
REALTOR, Red Feather Lakes, Colorado

Hi Melissa, I thought everything was more expensive in California -- but I've only seen Dollar Stores here - 99cents? Wow :)

Sep 02, 2010 10:43 PM #12
Rainmaker
558,671
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

I find that many consumers/buyers are under this impression and also feel that even when foreclosure asking prices are so incredibly low, that they can even then lowball the lowball price already.  Education and knowing your local market are critical.

Sep 02, 2010 11:30 PM #13
Rainmaker
1,305,179
Carla Muss-Jacobs, Principal Broker/Owner
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% o... - Portland, OR
Buyer Focused ~ Buyer Results

Flippers are going to run into the 99cent shopper too.  Just because they bought it for 99cents, in this market, doesn't mean then can sell it for any more.  Great analogy and nice post Melissa.

Sep 03, 2010 12:12 AM #14
Ambassador
897,445
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Realtor - Ann Arbor Real Estate

I enjoyed this post in many ways, Melissa.

If the short sale is priced right, and the offer is close to that then no worries on the BPO.

If it is too low, you are waisting your time, the buyers time and everyone involved in the transactions time.

 

Sep 03, 2010 08:59 AM #15
Rainmaker
96,993
Mindy Sylvester
MVP Realty - Naples, FL
Naples Fl Real Estate

Reading this at first, I thought "is this really necessary?" but you wound up nailing it. Thinking back on recent months, there have definitely been a few interactions with prospects that left my head spinning...people who really seemed think there was a huge inventory of "nearly free" homes I was sitting on, or some secret list I had access to. Something off the books, some huge archive where all the "real" deals were. 

I never realized until today they were all symptoms of the same problem.

Sep 03, 2010 11:50 AM #16
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Melissa Zavala

Broker, Escondido Real Estate, San Diego County
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