Home / Short Sales / What you need to know before buying a short sale. Episode #193
What you need to know before buying a short sale. Episode #193
Hello! Welcome to Todd Miller TV. The title of this video is “What you need to know about Short Sales.” Specifically, you know, why it is that that short sale listing is priced really good? You know, why is it 20, 30, 40 thousand below market value? And there’s 5 key reasons, I’m gonna go through these because it’s important. Now understand this, when you’re looking at houses, maybe your Real Estate agent isn’t showing you all the houses and there’s probably some short sales and they said “Short sales are bad, let’s not look at those. Let’s just go look at REOs and regular traditional sales.” So, I’ve got a list of 5 points here. We’re gonna go through them one at a time. And then you’ll have a good understanding for why they’re/they tend to be below market value. Okay, first of all, the first problem is the “Length of time.” And this results form the banks and the process of them approving the short sale. They can take 2, 3, 4, 5, 6 months to approve the short sale. Most buyers don’t wanna wait that long to buy a house even if it’s in a discount. So what they/so what happens is they’ll change their mind and go buy something else. So in order to incentivise a person to make an offer you have to list the house below market value. That’s one of the reasons. The other reason actually is the buyer. So you have the bank who is maybe waiting 3-6 months to do the paperwork, you have the buyer who maybe they have to move. So actually, not everybody ca go buy short sale. Somebody who’s getting relocated, who has a moving truck, that in 2 months is gonna be sitting here in town with all of their stuff. Short sale is out of the question. They don’t have the time to wait. So potentially, you have buyers that don’t fit that product type so you have a smaller pool of people that could go buy those which means you’re gonna have a lower price on those. The other problem could be the buyer agent. So, Real Estate agents get a commission when they buy a house and what tends to happen on short sales is that when the bank starts negotiating the terms of the deal with the seller and everybody else, they like to cut the commission on the agents ’cause their thought is we’re taking loss, the buyers maybe getting the deal on the house, we want the agents to participate in that loss. So we’re gonna go in and say “Well we don’t like the agents get this much commission. We’re gonna change the commission to make it less.’ Now the agent’s done all these work has sat around helping maybe negotiate a short sale or something and they’re not getting much money. So a lot of agents don’t wanna show ’em, so which have to do is, that means a lower price. Lower price maybe you all incentivise somebody to come in there and do that. The other problem gonna be is the lender. And this is a big problem. This is why. Okay, so imagine that/this smokin’ deal on a house. It’s probably worth 300,000. You’re under contract for 270,000, you’re like so excited, finally it’s ready you know, short sale approval. You submit your loan paperwork and they do an appraisal and the appraisal says “No, the house is you know, worth 300,000.” Then the bank comes back and goes, “Whoah, we don’t want to sell it for 270,000, we want the house to sell at 300,000.” And the buyer’s like “Wait, I’m under contract for 270,000.” Well it’s possible that that could change. So you think you’re getting a deal, all of a sudden you’re not getting a deal, maybe you don’t want the house anymore. So it’s possible that when the bank comes back and throw whatever their number that they’re willing to sell the house for, it’s not whatever the list price was. ‘Cause that list price is a guess. It’s what the agent and the seller kinda think that maybe the bank will take potentially but there’s/you never know. Even when they say it’s approved. You don’t always know. So that’s potential problem. And then finally the seller could be the problem. And this is why, let’s say at the very end of the process, everything happened perfect, they approved the price, everything’s moving forward and the bank comes back and says, “Short sale approved, Oh Mr. Seller by the way, we’re gonna give you a deficiency adjustment for $120,000, you have 10 years to pay it off, and then we’ll be good.” And the seller can say, “wait a minute, I’m not gonna pay you know, $10,000 a year for the next 12years or whatever it is. They just sell that foreclosed because maybe in my state or whatever, if I let my single family residence value owner-occupant foreclosed, they can’t take any action against you know, Deficiency judgment or I don’t have to owe any more money maybe. So sometimes it’s better for the Seller to let it actually foreclose. So there’s five things that can stop this short sale dead in its tracks. And it’s amazing though that our percentage that we have is Real Estates negotiating with a very high percentage of getting this done. We’re really good at it. But those were the things you need to be aware of, and those are the things you need to understand why it’s listed less than market value. ‘Cause all those things could happen and we have to entice somebody to atleast start the process and make an offer, and sort of stick with it and see what we got. So anyway, that is my update for today and hope to see you in another video. Thank!