Buying a short sale Condo: How to price offer?

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Condo_seeker_IHB

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Hi Everyone,



I'm currently in the market to buy a Condo in Irvine. Several I've looked at are short sales. How does one price the offer?



I understand looking at the comps, outstanding mortgage the current owner owes the banks is a good reference. Any other things I should factor in when making an offer ?



I'm assuming that I can buy a short sale is that it will go for less than comps ? How low can I go ?



Assuming other alternative to the bank is to do a foreclosure on the property, how much does a bank typically lose during a foreclosure? eg. attorney fees / eviction / holding property etc.



Any tips would be appreciated!!



Condo_Seeker
 
Condo_Seeker, before you decide to put an offer on a condo, can I recommend reading these <a target="_blank" href="http://forums.irvinehousingblog.com/discussion/1702/new-members-start-here/#Item_10">articles</a>. You may change your mind about buying right now.
 
CalGal,



Very true. Prices are likely to decline further. Question is how much ?



I heared someone say: "The bottom of the market will always be behind you". We won't know it's a clear bottom until prices are swinging up again, in which case the bottom is missed anyways. Any thoughts ?



I'm a 1st time buyer, don't need to sell existing home to buy (and I'm very new and honestly, naive about all this!!). I'm quite happy with my rental right now but would like to invest in a condo / get my own place in the near future. Any ideas on good seasonal timing? RIght now vs. summer vs. Fall. ?
 
ugh, don't say "invest in a condo" on this forum.



I would read the Mar 31st post on this blog, it's long but it's very very good. Point is, owning your home does not make financial sense, but it does make emotional sense and is appropriate for someone looking for that type of lifestyle.



Better to buy on the upswing than on the downswing. Furthermore, if you are buying a home and are concerned about timing your purchase with the bottom of the market, i question whether you are ready to buy your own place. Ultimately, a home purchase is a long term commitment into a lifestyle, won't matter that your home is underwater in the short term (as long as you can afford payments), eventually, you should recover.
 
Every short sale is different - there are no general rules. A place to start is to have your agent call the listing agent, to find out the story. Some aren't even accepting offers, right now. Yes, some are at teaser rates - up to $150K less than what the bank has said they will take. Others, are way overpriced, for different reasons. If it were me, I would just submit an offer that I'm confortable with - it only take a few minutes to write up an offer and email it to the listing agent. You never know what the banks will do. Also, if you do open escrow on a short sale, know that they can fall out for various reasons that are different than REOs or standard sales.
 
If you offer approximately 82% of current appraised value, your short sale offer will probably get approved.



I negotiate short sales with various lenders, and this is what I'm seeing.
 
Thank you skek, CalGal, jcaraway, IrvineWorker and SoCalGal for your comments !



Ok...follow up question:



Which type of owners are the easiest to negotiate with / give lowest price :



- REO

- Motivated Seller (possibly underwater, but non short sale)

- Short Sale
 
Let's call them Situation #1, #2 and #3. You're not really going to negotiate with a homeowner who is underwater (#2) or short sale (#3). It's the lender that holds the note with whom you're going to negotiate. How can an owner who's underwater negotiate? He needs the lender's permission to sell the home--unless, that is, you WANT to overpay or he brings money to the closing table. Even a homeowner who understands the situation and is enthusiastic about selling to you still needs the bank's permission to accept less than owed. In #2, the homeowner can bring money to the closing table. In #3, the homeowner can receive ZERO at sale.
 
SoCalGal and skek thanks :-)



How about REOs ? Situation # 1Actually by motivated seller, as skek has pointed out, I meant someone who's taking a loss..but wants out before a short sale or foreclosure.



Skek.. so let's say a short sale is listed at comps. Clearly, it should sell for less..to compensate for the associated wait time and effort on the part of the buyer. How much lower would be a good opportunity ?



Ok..I'm a very raw newbie, please excuse my questions, but if a bank doesnt accept short sale and forecloses on the property, what do they do with it ? Do they typically sell it themselves ? ie. wait for market to go back up since they have more financial muscle to withstand the downturn ? Or, sell it to another REO / financial organization ?
 
If you do consider putting in an offer on an REO, it's very important to talk to as many neighbors as possible, to find out what they might know about any previous damage/repairs to the property. The bank isn't required to give you any disclosures. I would do that for any purchase, but you really must when buying an REO. Not that the neighbors will know everything, but you'd be amazed at what they can tell you - I know this from personal experience. Just be extra friendly, because the REO could be driving down the value of their home. At the current time, the best REOs in Irvine are selling quickly, so it's important to see them ASAP, after they hit the market.
 
My partner and I completed a short sale for a client in late Jan and it went for about 85% of the third party apprasial that the bank obtained prior to accepting the offer.



It took 7 weeks for the bank to respond then they wanted a 10 working day close with no repairs to be done.



Our buyer (very wealthy) had arranged his own financing and his bank required a 30% down at the last minute.



Sales price was just under a mil.



Be prepared if you play in that game.



Regards
 
Condo Seeker wrote: Clearly, it should sell for less..to compensate for the associated wait time and effort on the part of the buyer.



Actually, the lender doesn't look at it that way. At least this line of thinking has never (yet) come into play when I'm negotiating with the short selling lender. As others have said, if you want that particular house, you must simply wait, but you won't be compensated for waiting through a lower sales price...at least not in my experience.
 
So why would a buyer purchase a short sale home at comps and wait perhaps upto several months for it ? When she / he could purchase a similar home for sale from an individual for the same price ?



Is it true that the lender's alternative to accepting the short sale would be to do a foreclosure, in which event they lose a lot of money processing the foreclosure and then packaging up the home as an REO ?



Is it better to wait as lendingmaestro has said till the property becomes a REO
 
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