Short Sale Properties

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Short Sale Properties are a great way to pick up deals, but experienced buyers will tell you not to expect a steal and not to expect it to happen quickly. Short Sale Properties Patience required We’re going to clear up some confusion about the fastest growing sector of the real estate market. Foreclosure properties, short sales and REO properties. Many inexperienced investors or buyers looking for a steal often believe that short sales properties are the way to go. And often times, you can get an incredible deal on short sale properties simply because the bank doesn’t want to hold these properties. After all they’re in the money business, they don’t want to be in the real estate business. Because of the changes in the economy and down turn in the real estate sector nationwide, several banks ARE now in the real estate business, but that doesn’t mean that they’re willing to lose more money than they have to.

Let’s start this chapter by defining three terms that are so often used incorrectly and easily confused for one another. A “foreclosure” property is a property that has fallen into default, because the payments on the note have not been made on time, and the lender has or is getting ready to call the full balance of the note due and payable. A “short sale” property, is a property where the lender may take less than the balance on the note, and sell the property to another buyer. An REO property is property that’s been through the potential short sale and foreclosure process, no one bought it at the courthouse steps or the property owner has given the lender the deed back(often called deed in lieu), and the property is now “bank owned”, where the lender has title to the property and owns it.

This brings us to the first big myth about short sale properties: “I can offer them half of what the property is worth and “steal” the property.” Guys, I’m here to tell you. This ain’t gonna happen. There’s a process for short sales that is incredibly extensive and is structured to keep the bank from losing any more money than they have to. When I fax a short sale package over to a lender, it can sometimes be upward of 80 pages or so long, going over everything from Why the seller couldn’t make the payments to Condition of the property with pictures to Contractor estimates of repair and the actual offer itself. This is also why some short sale properties can take up to 6-8 months or longer to purchase. Let’s go over the process, so that you’ll understand.

When a lender is going through the foreclosure process and decides to entertain “short sale” offers, they look at several factors, the biggest of which is an appraisal or BPO (broker price opinion). This current market analysis or appraisal is done by a professional to determine what the current market value of the property is. At this point every bank has criteria on how much they’ll take for a property by % of the appraised value, anywhere from 85% to 95%. So, let’s say you’re looking at a short sale property that’s valued at $100K. If you’re dealing with a bank whose strict criteria is say 85% of appraised value, and you offer $65K for the property, your offer will never make it to the asset manager or loss prevention department, because it doesn’t meet criteria to get passed on. Take a moment to look at this typical timeline for short sales:

Typical Short Sale Timeline

There are several channels that short sale transactions have to go through to get finalized. That’s why every short sale listing that you see online says “Pending Lender Approval”. The approval process takes months because they do their homework too, including a current appraisal. Can you get a good deal on the property? Of course you will. Are you going to steal the property? Nope. Not gonna happen. Because the lender and their loss mitigator knows that if no one buys the property, it then goes to the sale at the courthouse steps. And if no one bids high enough on the property at the courthouse, the bank will bid high enough to keep the property, and then turn around and list it with a real estate broker on the open market.

To understand the timeline for foreclosure and short sale properties check our distressed property timeline here.

On the open market, on the MLS in most areas, this property will now sit beside all other properties with the same characteristics( condition, size, age, square footage, amenities, etc), and 9 times out of 10, will bring more money than it would have during short sale or foreclosure proceedings and minimize the banks losses. And as slow as the real estate market is, recovery is on the way. And the banks know this. Any foreclosure property, interesting enough to garner your attention, just by being labeled a “short sale” in the MLS, will bring multiple offers. We see it all the time here in the Sandhills of NC.

If the bank is owed $100K on the note, and they know by waiting another 6 to 12 months will bring them 85K for that paper, instead of $65K or $70K, what do you think they’re going to do? They’re going to list it on the open market and recoup another $15K or $20K dollars. This is why many potential buyers that are looking up foreclosures and REO properties online, even from the lender’s website, will just be referred to their local broker that already has the REO or Bank Owned Properties property listed.

Truly, often times, REO properties will turn out to be a better deal than the short sale properties because the lender knows that the short sale process hasn’t worked and no one wanted to bid high enough at the courthouse to recoup enough money for acceptable losses. The property is just sitting on the bank’s books, and sometimes they’re more willing to negotiate on price than they were while they were looking at the initial short sale file.

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Pinehurst Area Short Sales Sandhills Area Foreclosures and REOs