Short Sale Cash Offer ?

7 Replies

I'm looking at a short sale tomorrow that just came on the market. I spoke w/ the listing agent today and she told me the bank already approved selling at a number. Is this number what the BPO came in at and if I offer lower than that would they just trash my offer? I was hoping to offer about 85% of the number she mentioned and write it as a cash offer. The house if pretty trashed and needs a lot of work and w/ that number she gave it would have to go to a owner occupant IMO.

My experience with short sales comes from one which I closed on several months ago and from what I've read about them and other people's experiences with buying or attempting to buy them, much of which I read here on BP!

So, from your post, I take it that you're saying that the listing broker said that the bank has a number they will sell for AND he/she told you what that number is correct? Yes, it is likely based on a BPO, but its not always going to be simply that they get the BPO back and that's what they'll sell it for, there could be all sorts of other factors involved as well, but the BPO price should be a major factor making up what the bank's number is.

The short sale I bought was a house that had been listed for a couple of months by another agent working for the same RE firm I was working for at the time, she specializes in listing short sales. She had found an investor to buy it and the deal was just a few days away from the closing when the investors hard money financing fell apart and killed that deal. The house had already gone through most of the steps to foreclosure here in WI and once that deal fell apart, the bank had their attorneys get it scheduled for the sheriff's auction, which here in WI, when a property gets to that point, once the court approves it as being ready to be auctioned, its date is set, I think its 6 weeks ahead of the auction date. So, the listing broker had 6 weeks to get another solid offer on the table to get the bank to cancel the auction date or it was gone! The owner of the RE firm heard the story of the first deal crashing and called me about it, knowing that I buy rehab projects and could move fast on buying them. I took a look, ran the comps,etc and really liked it, so I was ready to put in an offer.

This place, for whatever reason, was listed at $95k. The first buyer that fell apart had an offer accepted by the bank for $72k. When I looked it over and ran my comps, I knew I could make decent profit on it if I bought it at the same $72k price, in fact I figured I could even pay a fair amount more and still make a decent profit, there was a nice amount of "room" in this one! Yet, knowing that I was the only party interested in it and that due to the fast approaching auction date, it was unlikely that any other buyers would be coming along any time soon. So, I decided to roll the dice a bit and gave them a cash offer for $63k and some change and I had the cash on hand to pay for it, this wasn't a herd money backed deal or anything goofy like that. Offer was totally clean offer otherwise, as mine usually always are and I told them I could close as soon as they wanted to close, in case they wanted it off of their books in a hurry. Then, we sat and waited. And we waited and waited for a response. The listing broker kept calling her contact at the bank and kept getting put off. Finally, maybe 4 or 5 weeks later, the bank came back, not with a counter offer, but with a very short letter saying simply that they would NOT sell the house for any less than $76K!! (four grand more than the first offer they had earlier accepted!) The listing broker said she talked to her contact and they wouldn't give any reasoning behind the increase in their minimum sale price, all they'd say is $76k-take it or leave it!!! I'm 99.9% sure that the bank likely ordered a second BPO that came in higher than the first BPO and that's what they were basing their minimum sale price on. I knew right away that even at $76k it still should be a nice money maker, so I wrote a new offer for $76k and they accepted it and a month or so later we closed on it!

As far as your case goes, if after your inspection you still think its worth buying, if you want to shoot them a lowball offer, I don't see the harm in trying one, other than the time it would take, etc the worst they can do is say "NO"! The fact that your offer is cash probably won't make much difference because if this place is real trashed, the only buyers they'll ever see are going to be cash buyers. If they simply trash your lowball offer and you still think its a money maker at what they're saying is their minimum sale price, you can still come back with another higher offer at that time.

Thanks Robert, I'm going to offer my best price and we will see where the chips fall. I will see if the realtor knows of the foreclosure date. It's a pretty competitive market around here and this house isn't in the MLS system yet. So hopefully I can get in a good enough offer.

How do you structure your offer? Do you waive your inspection period? I was thinking of asking for a 5 day inspection period that way I can get a few quotes. How does it work if you have an inspection period and the home is occupied? Do I just schedule w/ the homeowner/listing agent a specific time? What if the homeowner is not willing to let me schedule at time? I have a feeling this homeowner won't be very pleasant to work with.

Originally posted by @Jerone Hammond :
I'm looking at a short sale tomorrow that just came on the market. I spoke w/ the listing agent today and she told me the bank already approved selling at a number. Is this number what the BPO came in at and if I offer lower than that would they just trash my offer? I was hoping to offer about 85% of the number she mentioned and write it as a cash offer. The house if pretty trashed and needs a lot of work and w/ that number she gave it would have to go to a owner occupant IMO.

In my experience (which is >20 short sales in the last year) there are a lot of variables. It mostly depends on the bank, but also when the last BPO was, when the auction date is, how much the original loan was, etc. Do you know if it is a local or national bank? If you can afford to offer at the currently accepted price, you'll have your best shot at getting the property accepted, but it still isn't guaranteed. Even with a previously approved price, the banks will sometimes revalue the properties.

If you cannot offer the bank's price, one of two things will happen.

  1. The bank will accept the offer if it is within a certain percentage of the BPO. 85% is pretty low, so I bet you'll be at number 2
  2. The bank will revalue the property. This could be good or bad, depending on your market. Here it is usually bad. This is where JScott's awesome post about Controlling Appraisals comes in handy.
How do you structure your offer? Do you waive your inspection period? I was thinking of asking for a 5 day inspection period that way I can get a few quotes. How does it work if you have an inspection period and the home is occupied? Do I just schedule w/ the homeowner/listing agent a specific time? What if the homeowner is not willing to let me schedule at time? I have a feeling this homeowner won't be very pleasant to work with.

I would request an inspection period if you plan to get an inspection. If you don't, or it's a slam dunk deal with plenty of room, it doesn't matter much. I like to reduce the inspection, though, to show that we can move things along. If the home is occupied, you will need to work with the homeowner, but you can use their agent to help facilitate that.

This won't be a slam dunk deal, so I need to make this offer as strong as possible.

So here's a couple of questions that popped up after thinking about this.

1) When do you submit your earnest money? At the owners or bank's approval?

a) Preferably I would like it to be at the banks approval so my cash isn't sitting in limbo for a unknown amt of time. Does this make a weaker offer?

2) If I put a clause about the earnest money deposit, should I also add something about the inspection? If I ask for the inspection period is there in need in this? I would need the 5 days to get my quotes. Can these start after the buyer or seller's acceptance?

I was thinking something like this in the contract:

"Earnest money will be provided within 48hrs of short sale bank approval."

Or

"Earnest money will be provided within 48hrs of short sale bank approval and a satisfactory inspection approval."

The "satisfactory inspection approval" is super vague, not sure if that is a weakness in the contract and not sure if I really need it if I ask for a 5 day inspection period.

3) If the bank sits on my offer for a long time, can I get out at anytime before they accept? Do I need to put a clause in the contract?


I don't really want to load up the contract w/ clauses, just enough to protect me in case I really underestimated the rehab cost.

Here is the timeline I'm thinking:

1)Submit offer

2)Seller accepts

3)Offer goes to bank.

4)Bank Accepts, deliver Earnest Money within 48hrs, start 5 day inspection period.

5) Confirm my rehab cost w/ quotes. If underestimated then I can back out. Do I just lose the option money (i.e. $100).

6) Everything checks out continue w/ closing.

Sorry I'm new at this.

I usually work short sales from the listing side, and for us to accept an offer it will need:

Inspections within 5-7 days from Seller acceptance, not bank approval.

EM upon seller acceptance, $1-5k minimum

Both of these are simply to deter a buyer from simply walking away, with no penalty, 90 days later when approval is received, and the seller has wasted 90 days, and is that much closer to an auction date. This deters the people who want to put in 5-10 short sale offers, but can only close on one, or were unsuccessful in trying to whole the property. Your purchase contract/addendum will have a time period required for bank approval, 90-120 days, at which time if bank approval has not been received you can either back out with your EM, or extend the approval deadline.

Originally posted by @Jerone Hammond :
1) When do you submit your earnest money? At the owners or bank's approval?
a) Preferably I would like it to be at the banks approval so my cash isn't sitting in limbo for a unknown amt of time. Does this make a weaker offer?

Our local Realtor association has a short sale addendum that addresses this. The default says that EM and inspections to occur upon receipt of the approval letter. Some agents prefer the EM be deposited, in which case we include a clause that says the EM is non-refundable for 90 days unless the bank denies the short sale.

2) If I put a clause about the earnest money deposit, should I also add something about the inspection? If I ask for the inspection period is there in need in this? I would need the 5 days to get my quotes. Can these start after the buyer or seller's acceptance?
I was thinking something like this in the contract:
"Earnest money will be provided within 48hrs of short sale bank approval."
Or
"Earnest money will be provided within 48hrs of short sale bank approval and a satisfactory inspection approval."
The "satisfactory inspection approval" is super vague, not sure if that is a weakness in the contract and not sure if I really need it if I ask for a 5 day inspection period.

Here, EM is deposited as soon as approval is obtained, then inspections are performed. Since the contract has an inspection contingency, you would simply get your EM back if the inspection was not satisfactory. Again, some agents prefer the inspection be done up front. We rarely do that unless it's pre-approved, since there's a good chance the bank won't approve our offer anyway.

3) If the bank sits on my offer for a long time, can I get out at anytime before they accept? Do I need to put a clause in the contract?

It really depends on your state's contract, but you should be able to withdraw your offer if the bank hasn't yet accepted.

I don't really want to load up the contract w/ clauses, just enough to protect me in case I really underestimated the rehab cost.
Here is the timeline I'm thinking:
1)Submit offer
2)Seller accepts
3)Offer goes to bank.
4)Bank Accepts, deliver Earnest Money within 48hrs, start 5 day inspection period.
5) Confirm my rehab cost w/ quotes. If underestimated then I can back out. Do I just lose the option money (i.e. $100).
6) Everything checks out continue w/ closing.

Sorry I'm new at this.

If you back out during the inspection period, due to the inspection, you should be able to get your EM back. Be sure to read your state's contract very carefully, though, or have a lawyer read it over and explain everything to you.