subject: What Offer Should You Make to the Lender In a Short Sale Deal? [print this page] What Offer Should You Make to the Lender In a Short Sale Deal?
A short sale deal happens when a home owner is on the brink of entering foreclosure. In order to avoid the hassles of dealing with a foreclosure, the lender agrees to sell the property to a third party, even if the selling price is lower or shorter than the market value of the property, hence the name short sale.
As a real estate investor poised to make a good profit from a short sale deal, you need to understand the relative complex procedures involved in these transactions and also what levers you need to push in order to convince the lender to sell you the property in a short sale.
One of the most important aspects of a short sale is figuring out what is the correct amount of money that you should offer to the lender for the distressed property. Too little and the lender will turn you down; too much and you will sacrifice your profit and maybe even end up with no profit at all.
The answer to this question depends on a few issues. Let's expand a little on these factors:
The initial offer as a rule of thumb, your first offer should be as low as reasonably possible. Never begin your negotiation with more than you think the creditor could accept. If you make a first offer for a short sale and the lender immediately accepts you can start looking for mistakes in your plan.
What is your exit strategy?
Before making an offer, deliberate a little on your exit strategy, or what do you plan to do with the property if everything goes as planned. If you plan to sell the property to a rehabber, you should know that rehabbers generally don't spend on a purchase more than 65% of the retail value of the property. So, if a house is worth $100,000 and needs rehabbing, you can expect to receive offers of no more than $65,000. If the house is well kept and doesn't need any renovation, you can sell it directly to a landlord and receive a maximum of 80% of the value of the property, in our case, $80,000.
What is the value of the pending mortgage?
The amount of money the lender needs to recuperate from the homeowner is the second factor which you should ponder when pricing your bid. If the total withstanding value of the mortgage is smaller your offer can also be less substantial
Don't forget to add all your expenses in a spreadsheet, like the fees and commissions that you need to pay for the various transactions, since these smallish expenditures can add up in a substantial amount of money.
Also, devise a realistic roadmap and do everything in your power to stick to the milestones.
Expect the unexpected, nevertheless. Short sales are notorious for the long delays which can appear, caused by the complex and sluggish process of approval by the various lenders involved.
With these advices in mind, remember that there is no fails-safe template for a successful short sale and you need to adapt your actions to every particular situation.
