The Upside to Buying a Short Sale
There are secret benefits for short sale buyers
Need reasons to buy a short sale? Tell any of your friends that you're buying a short sale, and you will probably get looks of pity and offers of sympathy. Tell your relatives that you're buying a short sale, and they might clasp their hands over their hearts in disbelief. Tell your coworkers that you're buying a short sale and they might laugh at your misfortune. Almost everybody knows somebody who was burned trying to buy a short sale.
But there are benefits to buying a short sale that people don't think about. Most people tend to concentrate on the drawbacks of buying a short sale. Don't get me wrong, there are plenty of reasons to not buy a short sale, the biggest problem being the waiting period. It takes too long to get short sale approval.
However, if you can get over the hurdle of the waiting time, and you can live with the fact the short sale might get denied, you could be a perfect candidate to buy a short sale. If you can find a short sale to buy. There aren't very many of them anymore.
Why Buyers Want to Buy a Short Sale
Buyers typically buy a short sale for the same reason that any buyer anywhere wants to buy a particular home. Because they like the home. It's a simple reason. The fact that it's a short sale might complicate the issue, but the motivating factor is they like the home.
A secondary reason is that the price makes it worth the hassle. That's right. They want a good deal, a bargain, and there are sometimes bargains to be found shopping for a short sale. Some of those sale prices are real and some of them are not. Be careful, though, you could be chasing a dream that will never materialize if the home is priced wrong or the short sale agent has no experience.
How Low Will a Short Sale Seller Go?
Getting a bargain is half the battle. But you are likely to get a better price on a short sale than you are with a regular seller who has equity because most of the sellers don't really care what you pay for their home. There are some sellers who can't get over the fact their home is no longer worth a bazillion dollars. Although they may realize they are underwater, they might say things like, "I'm not giving this home away." These are unreasonable sellers.
Not every short sale seller is reasonable. Some of them are brutally wounded after having survived botched loan modification attempts, and they are not strong enough or healed enough to face the harsh realities of a short sale.
Reasonable sellers know that the short sale is based on bank approval. They realize that the bank is too darn cheap to pay for an appraisal. So, the bank will grease some agent's hand by slapping it with $50 in exchange for a worthless BPO. All you have to do is prepare a BPO the same way a lazy BPO agent will do it, and you've got the price the bank is likely to accept.
That price is probably not market value. It could be under market value or over market value. Lucky for you it doesn't matter too much either way. If it is under market value, then jump on that short sale before somebody else spots it. If you're lucky, the price the seller wants to sell for is the price the bank will take. That could be a very good price for you -- but only if a BPO will substantiate it. That is the key.
How to Do a BPO to Buy a Short Sale
To prepare a BPO like a BPO agent is fairly simple. The first thing you will do is avoid looking at the location or taking amenities/upgrades into consideration. You will compare a home on a busy street the same as you would a home on a quiet street. You might use comparable sales for zero-lot lines or homes that back to the freeway as a measuring tool for homes with acreage. You will not distinguish between fixers or remodeled homes. Here is the basic procedure (it is not the way an appraisal is conducted):
- Run a radius or a map search within a half mile of your subject property.
- Look for similar square footage and age.
- Average the sold sales by adding them together and dividing by the number of homes sold.
- Use that average per square foot cost times your square footage.
How to Buy a Short Sale When the Price Is Too High
If the BPO produces a value that is over market value, and you still really want to buy the home, there is a procedure for this type of situation as well. If the home is truly desirable, you might be in competition with other buyers. There could be multiple offers. So, offer the price that will make your offer the most attractive. Be the highest offer.
The key ingredient that is different about a short sale over a regular transaction is if the appraisal by the buyer's lender ends up less than the sales price, resulting in a low appraisal, you can probably get the bank to reduce the price. Yes, the bank will almost always match the appraised value. If this were a regular short sale, the seller might refuse to lower the price. A seller with equity might say: Forget you, I'm not selling my home then.
But a short sale seller must sell. Plus, the short sale bank has already approved the short sale. If the bank wants to close the transaction, and at this point most banks do, the bank will lower the sales price to match the buyer's appraisal. Because the next buyer, if the bank were to say no, is likely to get the same or similar appraisal.