How Much Under List Price Can You Offer for Short Sales?
Many components go into a short sale
The biggest question in a short sale is the price. How realistic is that list price? For starters, if the seller does not qualify to do a short sale, the list price is not relevant. That's because sellers who do not qualify for a short sale may find their short sale gets rejected. In those instances, the bank won't approve the short sale even if the buyer is willing to pay above market value.
Why Short Sale Pricing Is Unreliable
You cannot hang your hat on the list price of a short sale.
The only thing a list price tells you is how much it takes to get the seller to sign a purchase contract, and sometimes they won't even do that.
In some Multiple Listing Services (MLS), listing agents are required to tell buyer's agents if the seller will not accept list price, but not all MLS companies require that disclosure.
If the list price is too low, the bank will reject the short sale. Moreover, a low list price could be a strategy used by the listing agent and seller to entice multiple offers on the short sale.
In short, the list price of a short sale could mean nothing at all.
How to Figure Out an Offer Price for a Short Sale
You will need to think like a Broker Price Opinion (BPO) agent. Except for a few types of short sales, banks generally do not pay for an appraisal. They also put little credence in the experience of real estate appraisers.
Nor do banks trust short sale listing agents, and with good reason. The short sale listing agent represents the seller, not the bank. The short sale listing agent also wants to sell that home quickly. The price the short sale agent deems is market value might be right on the nose or it could be deceivingly low.
So, the short sale bank will hire a BPO agent and pay that agent less than $100 to produce a BPO. That agent might be a local agent or the agent might live out of the area. But many BPO agents will look at the comparable sales within a half-mile radius of the subject property. They will compare homes of similar age and square footage. You can do the same thing.
The Different Types of Offer Prices for a Short Sale
While there are a number of ways to compute market value, not every BPO agent uses all the tools available to an agent. A BPO agent might only consider the last 3 months of sold homes closest to the subject property. The agent might disregard location, condition, unique factors, and trends such as lower prices on active and pending listings.
Here are the various types of short sale offer prices and why they are different:
- List price for a short sale. This is the price the listing agent and the seller agree upon. It is used to entice an offer. It can be high; it can be low; it can be right on the money.
- BPO agent short sale price. This price is often computed statistically, but without an interior inspection is basically worthless. Even with an interior inspection, BPO prices are not always correct, primarily because the agent might not work in and understand the neighborhood. But this is the offer price the short sale bank will accept.
- Local buyer's agent opinion of value. A neighborhood specialist is probably your second best bet for an honest opinion of market value. This agent will know the history and trends of home buying in that particular neighborhood. If the local buyer's agent price is higher than a BPO value, whether you offer a price anywhere near this value depends on whether you face competing offers and how badly you want the home.
- A local appraiser's opinion of market value. An appraisal will cost you between $300 and $500, on average, but a professional appraiser with experience appraising homes in that neighborhood should produce a valid opinion of value. Still, it is only one person's opinion.
- A buyer's lender's appraisal of the short sale. This type of appraisal is done through an appraisal pool, and the appraiser may or may not be experienced, and might not know the neighborhood. It's basically an appraisal to validate the offer, not to validate actual market value.
The trick to choosing the offer price of a short sale is to figure out how much the bank will want, based on a BPO agent's opinion of value. Your offer price needs to be reasonable. The bank may or may not allow a discount for waiting for short sale approval.
Bear in mind, though, neither your offer price nor the BPO agent's price could have any basis in market value. The amount you pay and market value can be two distinct things. Just prepare yourself for a counter offer from the bank if your offer price is too low.
You should talk with your lawyer about the pitfalls and legal drawbacks to writing multiple purchase offers for a short sale when you cannot afford to buy them all. Generally, ethical agents discourage that practice unless the buyer discloses that fact in the offer.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
Consumer Financial Protection Bureau. "What Is a Short Sale?" Accessed March 19, 2020.
Consumer Financial Protection Bureau. "During My Mortgage Loan Application Process, I Was Given Three or Four Different Valuations. What Do All the Different Valuations Mean?" Accessed March 19, 2020.