Short sale vs. market value.

[dls]

I took a quick look at a short sale place in Ballard Saturday:
http://www.redfin.com/WA/Seattle/7741-2 ... ome/166011

I hadn't planned on stopping, just saw the sign and stopped on a lark. The agent said the house was a short sale for $521K, but the appraised value was $580K (might have been $570K, memory fades). So, if the appraised value is reasonably close to actual current market value, why would a bank sell it for less than what they might reasonably expect to get. Is the short sale price typically set low just to sell a place and cut a bank's loses?

[sampai]

I'm in the middle of a short sale. My offer is about 73% of the 2006 sale price, there are two banks involved, and the property is in perfect condition. Yet, I'm quite sure that this will close in a few weeks because the two banks are co-operating.

Why are the banks co-operating? Because my offer is fair. The property listing sat around for several weeks at about 80% of the 2006 price, with no offers. So my offer, at 73% of the 2006 price, probably looks good to the banks.

In part, banks as an industry have screwed themselves by making short sales difficult and bureaucratic. That ensured that short sales would not get good offers. The banks are now much better at this, and are trying to make short sales easier; but it'll take a while for them to see better short-sale offers as a result.

Also keep in mind that banks do not want to foreclose and end up owning property; that is toxic to their balance sheet. So they want to short-sell and avoid foreclosure.

Make an offer that you think is fair. And let the banks worry about whether they should accept it. It's a good idea to knock at least 10% off the asking price. Also, use The Tim's to make sure you aren't offering too much.

When I started this process as a first-time buyer about a month ago, I barely knew the difference between drywall and escrow. I certainly didn't know about short sales; all I wanted was to take advantage of a plunging market.

If I can do this, anyone can.

Make an offer that you think is fair, that will protect you from price drops for a few years. Then let the chips fall where they may. If you get the place at your price, then great! If not, stay in your rented home.

[hesotriflin]

Hi Sampai,

It would be good if you could keep us updated on how your transaction goes. I had the thought that banks would forestall short sales and see what this govt bailout is all about. Why should they foreclose now at 70%-80%, when they can sell the house to the govt for 100% of the value

[sampai]

I'll let you know if and when I close. Or don't.

[sampai]

Both banks have approved the short sale! They want to close quickly; so I'll be closing within the next 3 weeks.

[rentalbliss]

Good for you we just walked away from a short sale we wanted to buy. Our offer was %10 less than asking and about %20 less than 2006 price. This was in Snohomish county and already had 2 offers that never closed so it was already approved short sale, and the 2nd mortgage holder agreed to take close to nothing. Still we had to wait over a month just for a contact person from the lender. Needless to say we took back our offer (cold feet, recession, true bubble believers) and house is now back on market for 1k more than our offer.

[sampai]

Just FYI, I did close this. So short sales do happen, even with two banks!

[Charles Dean]

I've been getting the impression over the last couple of weeks that banks have become far more willing to do short sales than they have been for the last year. i think reality has finally set in.

[EastSider]

[sampai]

I wasn't actually looking for a short sale. I just looked at properties on Redfin, noticed some that had dramatic price drops, and asked Redfin for a tour. Redfin told me they don't do "short sales." That was the first time I'd heard the term.

Since Redfin wouldn't show me the property, and I didn't have a buyer's agent, I simply called the listing agent and asked him to show me the place. Impressed by his professionalism, I then hired him as my buyer's agent for the property. That proved to be invaluable in negotiating with the banks, because I'd cut out one middleman (the buyer's agent) and thus saved myself time.

If you want to specifically find a short sale, look for large price drops, or do a keyword search for "Short Sale", "lender approval", or "lienholder approval" on Estately.com. Ask the listing agent how many short sales he's done; if he's experienced with that, and you feel comfortable, then hire him as your agent. You're really negotiating with the bank(s), not the seller(s); so it helps to have one person who can speak on behalf of you and the seller.