Real Estate Short Sale Guide

If you plan on making an offer on a short sale, you should make sure you have a lot of time on your hands as it can be a long and arduous process.  Agents will usually price homes well below market value to get offers on the home and even pick up buyers name for potential clients (leads!).

If you want to get a great deal on a home without too much hassle, talk with an agent.  Prices range significantly from area to area.

With some many foreclosure properties on the market, unless you are in total love with the location, floor plan and house, that another home cannot offer, you’ll be working extremely hard to get a better deal on a short sale than if you bought a foreclosure property through the courts.

Typically the lender will not disclose their bottom line, so real estate agents can price it wherever they want to generate interest in the property.  So an agent can pick any price and the lender can reject or counter all offers coming in.

Make sure to do your homework on the area and bid the price that you would be willing to buy the home for, regardless of what the listing price is.

Deciding on a price is not an exact science but there are some tools that will help you find a good price.

BPO (Broker Price Opinion) – it’s a generalized opinion or value of the property.  They are ordered by the lender and sent to a 3rd party or BPO company, like First American.   The company will have a list of Realtors in each state and the first Realtor to respond to the request and accepts the offer will get the order.

FMV (Fair Market Value) – This is determined by a Realtor using the MLS.  It is a comparative analysis showing sold comparables homes within the same area and have similar square footage, number of bedrooms, baths and more.  A comparable time line is usually 6 to 12 months for the test.  When you perform the test, take out the two highest and two lowest comps and average the rest.

ARV (After Repair Value) – This is a slang term used with real estate investors and is really the same as FMV.  ARV is more of a guess by using comps that were not sold by a Realtor and can usually be considered as being less accurate.

Usually FMV and or ARV will come in about 10 to 20% higher than the BPO ordered by the lender.  If this is the case, you may want to consider offering 60% of the ARV or FMV value, of course you should also consider the amount of repairs the property needs.

Short sales can be quite confusing.  Banks have been known to discount 90% to 40% of the value but each case is different.  These days, they have way to many non-performing loans than they know what to do with.  As a buyer you would be working closely with your real estate agent.  If you are working with the seller’s agent, be aware that you are not being fully represented as they are a member of NAR which has certain obligations to both parties.  The negotiating part of the short sale can take 2 weeks or much longer (which is more normal)…it just depends.  Although, there is a lot of paper work that the bank will need.

Each lender has different policies and approach each situation differently when it comes to short sales.