Buying secrets revealed!
Pstt! Buddy! Wanna hear a secret?
Don't tell no one I told ya, but to be a successful homebuyer, ya gotta
make offers on properties that are likely to sell, and
make offers that are likely to be accepted, fairly soon if not immediately, and without persuasion of the heavy blunt instrument variety
Duh! you exclaim, but with all the hype about the screamin' deals distressed sellers are supposedly giving buyers these days, the fundamentals of making a successful offer are sometimes overlooked.
For example, let's say you know banks want to sell! After all, foreclosures were up 21 percent last year! After all, banks aren't in the business of selling homes! After all, you're more than a match for any huge financial institution that could buy and sell you a million times over!
Except you're not, bunkie. No one is, unless they're in the habit of buying blocks of unsold new Miami condos. And not now that banks have learned how to price their homes. And not now that banks have learned not to dump their homes. Want to make an offer on a bank-owned home? Fine, take a number, get in line and don't call us, we'll call you. Maybe. Just hope we don't lose your offer. Just hope that when we give you twenty-four hours to come up with your "highest and best" offer, we leave the ultimatum on your voicemail, not someone else's. Just hope that, if your offer is accepted, it doesn't come with so many strings attached that you legally obligate yourself to name your first-born after the asset manager.
But at least a bank-owned home will sell. Maybe not to you, but it'll sell. Maybe the way you'll find out it didn't sell to you is when you check your favorite listing Web site one fine morning over your first cup of coffee and see it listed as a pending sale. Whoops!
But what about short sales? Man, those guys have got to be motivated. Foreclosure starring them down a gun barrel. Yeah, yeah, I've heard they have to get permission from the bank, but I've also heard that banks are trying to keep non-performing assets off their books. Besides, banks already have a ton of inventory they haven't even put on the market. This is my chance to wheel and deal.
Except it's not, bunkie. That short sale you just made a low-ball offer on? It’s entirely possible, even probable, that the agent listed and priced the home without even talking to the lender, let alone knowing what kind of offer it would accept. And there are almost certainly two lenders—most distressed sellers bought with no down payment. And the market value of the home is almost certainly less than even the balance of the first loan, let alone the combined balance—most distressed sellers bought at the market's peak—which makes a very tough transaction even tougher.
It’s also possible that the short seller's listing agent hasn’t submitted the “hardship package” that makes the seller’s case that the lender should accept an offer short of the loan balance. If he has, there's a good chance that the package he submitted is incomplete or incorrect. Hardship packages take lots of attention to detail, something agents aren’t known for. And even if he did dot every i and cross every t, it’s possible that the seller may not meet the lender’s criteria for eligibility for a short sale. Maybe the seller owns two other properties free and clear, for example. Or maybe no one knows whether the seller is eligible because the bank has lost the package five times. Or the package keeps getting passed from one cranky, overworked paper shuffler to the next.
To summarize: irresistible force, meet immovable object. Not caring is powerful.
When short sales first showed up in force in this area in late 2007, even agents who should have known better assumed they were screamin' deals because short sellers are supposedly motivated sellers, and I guess some of them are, although I'm not sure why—if they've stopped paying the mortgage, every day they don't sell is another day they're living in their home for free.
No, the big problem with short sales usually isn't the seller—unless he's procrastinated so long that his house goes up for auction on the courthouse steps next week. The big problem is that the seller isn’t the seller. The “seller” is that cranky, overworked paper shuffler I mentioned a few paragraphs ago, the one whose job seems to be not to sell the home but to passively resist selling the house. And that paper shuffler has absolutely no skin in the game. It's not her house. It's not even her non-performing asset. And she knows that in two years she'll be back stocking shelves at Wal-Mart. This is her moment to shine.
And by now she's seen so many low-ball offers like yours that she enjoys putting them at the bottom of the pile where she’ll get to them when she has time—and she never has time. And by now she hates agents because they bring her bogus offers, and your low-ball offer looks bogus, is bogus. Even short sales with ten or twenty offers, some of them very good, often don’t get lender approval—my guess, from looking at the MLS, is that maybe one in twenty short sales in contract actually closes.
By now short sales have such a bad reputation that listing agents often grossly underprice them just to get the credulous and hopelessly optimistic through the door. I’ve seen short sales listed at 60 to 70 percent of their market value. I routinely get excited emails from buyers about the great home they’ve seen on the ‘net listed at a bargain price. When I look at the MLS, it turns out to be a short sale. Gotcha!
And maybe the lender filed a Notice of Default on the home four months ago. The lender can start foreclosure proceedings after 90 days so, unless it's trying to keep another foreclosure off its books, the home could soon be bank-owned. And don’t assume that the lender’s foreclosure department knows or cares that the lender's short sale department has your offer, especially when it's $400k and the loan balance is $500k plus tens of thousands of dollars in delinquent payments and penalties.
Which is a long way of saying that there's a very good chance you’re wasting your time with a short sale. No one’s going to give it away, negotiations (if any) may take months and even then it’s possible the answer will be “no” or that the home will be sold on the courthouse steps while the listing agent is trying to get someone buried within the bowels of World Headquarters to answer her calls. And even if you do get a “yes” from the first lender, the second lender may well sabotage the deal by demanding an additional pay-off, either from you or from the first lender—they’re notorious for that.
But aside from that, bunkie, short sales are a great deal. And while you're flailing away to get that great deal, the real great deal, historically low interest rates, becomes history.