Author Topic: Our offer will put owner in short sell territory: Offer anyways?  (Read 6385 times)

Hannah

  • Stubble
  • **
  • Posts: 115
  • Age: 32
  • Location: Raleigh
    • Cookbook Authority
My husband and I just visited a For Sale by Owner property. It is listed at $69K, but after reviewing the comps and the home condition, we wouldn't want to purchase for more than $40K and I have to guess that would be in the neighborhood of a bank's appraisal. During the visit, I learned that the place had a mortgage, and Based on the last sell price I would have to assume that a $40K offer will put the owner about $30K underwater. I guess that would mean a short sale.

Would you fool around with making the offer or just walk?

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5219
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #1 on: August 11, 2014, 08:03:14 AM »
What makes you think the mortgage is that high?  Did you estimate by taking a percentage of the last sale price?  You could be wrong.  It never hurts to ask or at least check the public records, if that information is available. 

If you are correct, the seller probably knows the property is overpriced but is hoping for a miracle.  Yours might be the offer that convinces the seller to approach the bank to do the short sale or the seller may just be hoping that someone bails him or her out and is willing to wait.  Based on what you have stated, I would consider making the offer, armed with all the comparable sales.  Making the offer will likely elicit a lot more information about the seller's situation and perhaps start a productive conversation.  If the seller says no, then you know you have an unrealistic seller that is just fishing. 

Dicey

  • Senior Mustachian
  • ********
  • Posts: 14865
  • Age: 63
  • Location: NorCal
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #2 on: August 11, 2014, 08:12:37 AM »
Short sale or not has no bearing on what you should offer on the house. You want to pay market price or below. The seller's situation should not influence your decision. The key question is are you paying the right price for the house?

FWIW - We bought our house on a short sale last year. It took eight months to close. During escrow, the first lender sold the loan and the new lender was a complete nightmare. Plus, we were paying market price. It wasn't a steal, but it's a lovely house which suits our family's needs and DH now walks to work. But eight months was a long time to be in limbo.

Hannah

  • Stubble
  • **
  • Posts: 115
  • Age: 32
  • Location: Raleigh
    • Cookbook Authority
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #3 on: August 11, 2014, 08:22:50 AM »
It took eight months to close. During escrow, the first lender sold the loan and the new lender was a complete nightmare. Plus, we were paying market price. It wasn't a steal, but it's a lovely house which suits our family's needs and DH now walks to work. But eight months was a long time to be in limbo.

Length of time is our primary concern. 40K is the right price (maybe slightly below market value), but we've heard a lot of horror stories of short sales taking forever, and this one isn't even approved.

As another reader mentioned though, an offer might start a more productive conversation. The estimate is based off of 30% of principal payed from a 98K purchase 7 years ago.

Field123

  • Stubble
  • **
  • Posts: 102
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #4 on: August 11, 2014, 09:36:24 AM »
I agree with the previous posters that the owner's situation shouldn't really play any consideration in how much you offer. The offer should be at or below market value and if he balks... then move on.

Now, if the owner is indeed in a hopeless - facing foreclosure situation - there may be an opportunity to get creative. You could offer him some nominal amount, say $2-3,000 for a quit claim deed. Then when the bank brings the foreclosure suit, you will be a necessary party and have a great opportunity to negotiate with the bank. My money says that they would be thrilled to make a deal to salvage their interest in the house. Worst case scenario you can't reach a deal with the bank, you still get to live in the house while the case runs through the court system.

Jack

  • Magnum Stache
  • ******
  • Posts: 4726
  • Location: Atlanta, GA
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #5 on: August 11, 2014, 10:04:29 AM »
Worst case scenario you can't reach a deal with the bank, you still get to live in the house while the case runs through the court system.

Be careful giving this kind of advice; different states have different laws about that sort of thing. Assuming the OP lives in North Carolina (rather than some other Raleigh), the foreclosure process is non-judicial and might only take about 2 months. Some states are even quicker.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28289
  • Age: -999
  • Location: Seattle, WA
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #6 on: August 17, 2014, 10:42:52 AM »
It took eight months to close. During escrow, the first lender sold the loan and the new lender was a complete nightmare. Plus, we were paying market price. It wasn't a steal, but it's a lovely house which suits our family's needs and DH now walks to work. But eight months was a long time to be in limbo.

Length of time is our primary concern. 40K is the right price (maybe slightly below market value), but we've heard a lot of horror stories of short sales taking forever, and this one isn't even approved.

You can put in a short sale offer and continue looking/offering on other houses while waiting on that.  You don't have to put it in and sit and wait and do nothing.  You can always withdraw your short sale offer.  In fact, when I write my short sale offers, I put a normal EMD, but a token amount up front and "remainder to be deposited with title upon short sale approval" so not much money is tied up at all.

In other words, despite the length of time (which you don't know how long - or short - it'll be), it can't really hurt to get it in the system and processing.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Daleth

  • Handlebar Stache
  • *****
  • Posts: 1205
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #7 on: August 17, 2014, 11:02:25 AM »
Now, if the owner is indeed in a hopeless - facing foreclosure situation - there may be an opportunity to get creative. You could offer him some nominal amount, say $2-3,000 for a quit claim deed. Then when the bank brings the foreclosure suit, you will be a necessary party and have a great opportunity to negotiate with the bank. My money says that they would be thrilled to make a deal to salvage their interest in the house. Worst case scenario you can't reach a deal with the bank, you still get to live in the house while the case runs through the court system.

I'm not a real estate lawyer (though I am a lawyer), but my understanding is the OP having a quit claim deed would make not a whit of difference to the bank. The bank has the FIRST lien on the house. That means they can foreclose regardless of who else might have a lien or other interest in the house. IOW having a quitclaim deed doesn't give you any leverage, because it doesn't stand in the way of their foreclosure.


escolegrove

  • Stubble
  • **
  • Posts: 164
    • Reluctant Landlord
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #8 on: August 18, 2014, 01:58:01 AM »
I would offer what ever the market amount is and go from there. Some seller bring money to the table etc.

We have done 4 short sales, and have another under contract. They are truly my favorite type of transaction. We have been able to get great deals. They have closed between 52 days and 8 months. Every state is different. To date we have not had to pay any money until our offer has been accepted by the banks. The process depends on the bank the situation and even the realtor and their experience. If you can't be patient, this isn't the type of sale for you. If your willing to be patient it could be a great opportunity price wise.

Hannah

  • Stubble
  • **
  • Posts: 115
  • Age: 32
  • Location: Raleigh
    • Cookbook Authority
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #9 on: August 18, 2014, 07:36:08 AM »
It took eight months to close. During escrow, the first lender sold the loan and the new lender was a complete nightmare. Plus, we were paying market price. It wasn't a steal, but it's a lovely house which suits our family's needs and DH now walks to work. But eight months was a long time to be in limbo.

Length of time is our primary concern. 40K is the right price (maybe slightly below market value), but we've heard a lot of horror stories of short sales taking forever, and this one isn't even approved.

You can put in a short sale offer and continue looking/offering on other houses while waiting on that.  You don't have to put it in and sit and wait and do nothing.  You can always withdraw your short sale offer.  In fact, when I write my short sale offers, I put a normal EMD, but a token amount up front and "remainder to be deposited with title upon short sale approval" so not much money is tied up at all.

In other words, despite the length of time (which you don't know how long - or short - it'll be), it can't really hurt to get it in the system and processing.

This is a great suggestion, Thanks!

We certainly have the time to be patient, but I hate the idea of losing a few grand when the sale would never go through in the first place. A few hundred I am okay risking though.

Hannah

  • Stubble
  • **
  • Posts: 115
  • Age: 32
  • Location: Raleigh
    • Cookbook Authority
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #10 on: August 18, 2014, 07:39:50 AM »
I would offer what ever the market amount is and go from there. Some seller bring money to the table etc.

We have done 4 short sales, and have another under contract. They are truly my favorite type of transaction. We have been able to get great deals. They have closed between 52 days and 8 months. Every state is different. To date we have not had to pay any money until our offer has been accepted by the banks. The process depends on the bank the situation and even the realtor and their experience. If you can't be patient, this isn't the type of sale for you. If your willing to be patient it could be a great opportunity price wise.

I'm glad to hear from someone who actually likes short sales. I have consistently been warned away, which is why I tossed the question out there. We can definitely be patient, but we obviously have a lot to learn about investing.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28289
  • Age: -999
  • Location: Seattle, WA
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #11 on: August 18, 2014, 10:06:54 AM »
This is a great suggestion, Thanks!

We certainly have the time to be patient, but I hate the idea of losing a few grand when the sale would never go through in the first place. A few hundred I am okay risking though.

You'll absolutely get the EMD back if you end up finding some other place and withdrawing your offer before the bank accepts the short sale.

I would offer what ever the market amount is and go from there. Some seller bring money to the table etc.

We have done 4 short sales, and have another under contract. They are truly my favorite type of transaction. We have been able to get great deals. They have closed between 52 days and 8 months. Every state is different. To date we have not had to pay any money until our offer has been accepted by the banks. The process depends on the bank the situation and even the realtor and their experience. If you can't be patient, this isn't the type of sale for you. If your willing to be patient it could be a great opportunity price wise.

I'm glad to hear from someone who actually likes short sales. I have consistently been warned away, which is why I tossed the question out there. We can definitely be patient, but we obviously have a lot to learn about investing.

If you've got the time, they can be awesome.  I think they're great for investors who want a pipeline of properties coming in, as long as you're not in a rush.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Fishingmn

  • Bristles
  • ***
  • Posts: 334
  • Location: Twin Cities
  • You never have to recover from a good start
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #12 on: August 19, 2014, 04:40:57 AM »
You can put in a short sale offer and continue looking/offering on other houses while waiting on that.  You don't have to put it in and sit and wait and do nothing.  You can always withdraw your short sale offer.  In fact, when I write my short sale offers, I put a normal EMD, but a token amount up front and "remainder to be deposited with title upon short sale approval" so not much money is tied up at all.

In other words, despite the length of time (which you don't know how long - or short - it'll be), it can't really hurt to get it in the system and processing.

Every market may be different - in the Twin Cities this may have been possible 3+ years ago but listing agents and banks got tired of this practice. Now days almost every short sale listing requires the buyer to do their inspection up front and sign that they will wait at least 90 days before having the right to cancel and get their EM back. At that point, since the buyer has already put skin in the game by paying for the inspection they are more likely to wait out the banks and sign an extension.

Regarding the OP's question - being underwater doesn't mean there's a short sale. A short sale is granted only when there's a hardship that would preclude the owner from continuing to be able to pay their mortgage. Plenty of sellers have had to bring money to closing over the past 5 years to sell a house that they owe more than they received.
« Last Edit: August 19, 2014, 04:43:33 AM by Fishingmn »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28289
  • Age: -999
  • Location: Seattle, WA
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #13 on: August 19, 2014, 11:26:41 AM »
Every market may be different - in the Twin Cities this may have been possible 3+ years ago but listing agents and banks got tired of this practice. Now days almost every short sale listing requires the buyer to do their inspection up front and sign that they will wait at least 90 days before having the right to cancel and get their EM back. At that point, since the buyer has already put skin in the game by paying for the inspection they are more likely to wait out the banks and sign an extension.

Why doesn't the buyer just do the "inspection" by themselves and sign that they've done it, then do a new one with a paid inspector once the bank approves?  Of course if a few months have passed you have the right to inspect to make sure nothing's changed.  Then you don't have to pay out of pocket for an inspection on a property that may never get approved.

Regarding the OP's question - being underwater doesn't mean there's a short sale. A short sale is granted only when there's a hardship that would preclude the owner from continuing to be able to pay their mortgage. Plenty of sellers have had to bring money to closing over the past 5 years to sell a house that they owe more than they received.

Good point.  Either way though, whether it's a short sale or the owner has to bring money to the table, OP shouldn't base their offer on what the seller owes, but on what it's worth.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Fishingmn

  • Bristles
  • ***
  • Posts: 334
  • Location: Twin Cities
  • You never have to recover from a good start
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #14 on: August 19, 2014, 05:21:51 PM »
Why doesn't the buyer just do the "inspection" by themselves and sign that they've done it, then do a new one with a paid inspector once the bank approves?  Of course if a few months have passed you have the right to inspect to make sure nothing's changed.  Then you don't have to pay out of pocket for an inspection on a property that may never get approved.


Won't work (in my state) as you are removing the Inspection Contingency after doing the initial inspection. There is no "right to reinspect" and certainly no out from the contract.

escolegrove

  • Stubble
  • **
  • Posts: 164
    • Reluctant Landlord
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #15 on: August 20, 2014, 01:36:44 AM »
We have an offer now on a short sale in California and hopefully will get another on in dec. I have never put any money out till I have had banks approval. While they require 45 days they don't eve accept a check until it's been approved. In my areas the bank won't "let" you inspect till you have approval.

I would definitely talk to a realtor who is familiar with short sales. I like them because they give me time to plan. I also can low ball them and see what happens. The only time it was stressful was hand we needed a house to move I to because of a last minute move.

I know a lot of people dislike them because of the BS and red tape/paper work. They also are slow. I live them for this reason. It's brain equity not sweat equity ;) good luck!

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28289
  • Age: -999
  • Location: Seattle, WA
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #16 on: August 20, 2014, 08:33:17 PM »
Why doesn't the buyer just do the "inspection" by themselves and sign that they've done it, then do a new one with a paid inspector once the bank approves?  Of course if a few months have passed you have the right to inspect to make sure nothing's changed.  Then you don't have to pay out of pocket for an inspection on a property that may never get approved.


Won't work (in my state) as you are removing the Inspection Contingency after doing the initial inspection. There is no "right to reinspect" and certainly no out from the contract.

What happens in your state when the house is materially different during final walkthrough before signing closing docs?
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Fishingmn

  • Bristles
  • ***
  • Posts: 334
  • Location: Twin Cities
  • You never have to recover from a good start
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #17 on: August 21, 2014, 06:36:34 AM »
What happens in your state when the house is materially different during final walkthrough before signing closing docs?

You would get into a legal battle over the term "materially"

The reality is that if you get to final walkthrough you are probably moving forward with the house. To try and cancel a sale at that point means you've already invested in at a bare minimum the inspection and appraisal which has put you out $600-1,000. The normal types of things one might see as issues at a final walkthrough would be handled before closing and the sale would proceed. Certainly exceptions are possible.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28289
  • Age: -999
  • Location: Seattle, WA
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #18 on: August 21, 2014, 08:16:13 AM »
And do you know of any real examples of where a buyer wanted to inspect months later, after a short sale approval, and the seller didn't let them, and specific performance became an issue?
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Fishingmn

  • Bristles
  • ***
  • Posts: 334
  • Location: Twin Cities
  • You never have to recover from a good start
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #19 on: August 21, 2014, 08:39:25 PM »
Nope - but I don't know of any deals where a buyer got out a fully executed contract at the last minute either because they wanted to try and do a new inspection at the last minute.

If I was the listing agent for a short seller I would certainly explain their options to try and force the buyer to perform.

I have personally sued a buyer who tried to cancel at the last minute (not over an inspection) and they ended up forfeiting their $5k earnest money so there's a good chance that a seller can win something on a specific performance claim.

Hannah

  • Stubble
  • **
  • Posts: 115
  • Age: 32
  • Location: Raleigh
    • Cookbook Authority
Re: Our offer will put owner in short sell territory: Offer anyways?
« Reply #20 on: August 22, 2014, 05:45:42 AM »
Thanks for the advice everyone. My friend, who is both a real estate agent and a small-time house flipper advised us that our ARV was too high. He estimated it at 80K rather than 90K, but he is bullish on the neighborhood in the medium term.

Anyways, we've put in an offer at 28K with our walk away point at 33K, and have heard nothing from the seller. I will follow up though.