I've been looking in my target area for about 6 months now (all on the MLS because I have access) and haven't had one opportunity show up where the numbers work out.
However, last week I found a short sale on the MLS that definitely warrants more investigation. Ran the numbers with market rents and it actually cash flows in LA (Don't say it can't happen). I contacted the agent to find out some more about the property and she notified me that her client is trying to get a loan modification.
Can someone explain to me what happens if he doesn't get approved for the mod and what my best plan of attack would be to possibly move forward with this property?
So far I drove by the property and the outside looks like it needs some minor cosmetic repairs and some landscaping work. Considering telling the agent that I want her to represent me (I have my license and work in a real estate office so I didn't originally contact her from that angle). Do you think she would be more cooperative if I approached her that way?
Thanks in advance for any advice/input
The important thing to know is that the listing agent can put any price they want down for the short sale (including one that's way below market). The problem is that once they get your offer they must get the lender (or lenders) to approve it. The lenders will hire their own independent BPO (Broker Price Opinion) to gauge the fair market value. If that number is higher than your offer there's a good chance they will come back with a higher number to make the deal go through and your amazing deal won't be so amazing anymore. Instead you will have waited 1-6 months to find that out.
Now certainly there is a chance they will accept it but just know that if the price is not realistic the bank will probably counter.
@Bill Wallace Thanks for the reply.
Do you think putting in an offer subject to an interior inspection would be a good idea to get the ball rolling?
That question brings up a good thing to discuss -
Some listing agents require that you do the inspection right after approving the offer while others will let you do the inspection after getting bank approval. The first group does this in order to show that you are serious and to make sure you won't back out after going through all the hassle of getting the banks approval.
It is MUCH better for you to wait until after you get bank approval as a buyer. That way you won't have spent the $300-500 on an inspection only to find out the bank won't approve your deal. Just keep in mind that if you do it that way it really is more of a take it or leave it arrangement. The seller has no money to make repairs and the bank has already given approval so it's really hard to go back an renegotiate after you already waited on the first approval (although it can be done but it may start a whole new wave of waiting).
Say I'm able to do it the second way. The bank approves the offer, I get the inspection but it comes back with more things than I'm willing to deal with. I can still back out, correct?
Yep - Inspection Contingency allows you to back out for any reason assuming you follow the requirements on the Contingency regarding things like dates and hiring a professional.
Thanks for the advice @Bill Wallace . I really appreciate it. I may have a couple more questions down the line.
Yes, the very reason why we require inspections up front. We want a serious offer, based on current conditions.....not a "oh gee I didn't realize it needed that" reaction later, or a "never mind, we found something else", after the property's been tied for 3-4 months in the approval process.
Thanks for your reply.
Do you have any advice in this situation? As far as working with the agent to see if I can get in the property and see if it's even worth putting in an offer. She seemed very aloof, but wouldn't it behoove her/her client to get the property sold while it's in the short sale stage rather than risk not getting the loan mod?
Jeremy - It's probably better off for the current home owner to get a Loan Modification if they think that's possible. This avoid a short sale on their record while at the same time keeping a roof over their head and still keeping the option of a short sale open if the loan modification doesn't work out.
Sounds like an owner who wants to try and keep their home...whether it's realistic or not is a different story. Unless they're cooperative, there's nothing you can do.
Alright, well I'm going to try and get some more information and see what the real story is.
@Jeremy Billauer If you're an agent and it's listed on the MLS, why can't you get into the property? From what you said, I wouldn't have the listing agent represent you, but I'd let her know that you're a license.
Just to clarify this is a triplex and the owner is not living in the property currently
@William Hochstedler Agent/owner is not letting anyone into the property until they find out about the loan mod. I was thinking having her rep me would give her incentive to get me into the property. It's "on hold" on the MLS right now
@William Hochstedler Banks don't care if you have a property listed while you're attempting a loan mod. They just won't look at the short sale until after the Mod has been decided.
@Wayne Brooks Thanks for the info.
@Jeremy Billauer Sorry if I'm being a pill here, but am a bit confused by what the listing agent is up to. Is "On Hold" an MLS status? I would think that the MLS would have a problem with a listing that's not for sale. Moreover, the terms and conditions of the service should require cooperation with other agents. If the agent is fishing for offers (which she should tell you) and it's such a great deal, I would consider a blind offer. Also why not chum up with the tenants instead of the listing agent to get access?
I guess I'm having a hard time seeing why you would give up the buyer side commission (to the listing agent) because she is being difficult or opaque. It seems that if she is more cooperative if you let her represent you, there are some ethics problems going on. If she's not more cooperative, you're out a few thousand for nothing.
I hear of a lot of agents giving first look to existing clients, but it's always before they publish.
Good luck and keep us posted.
In our MLS there is a perfectly legitimate status called TNAS - Temporarily Not Available to Show.
Yes, the MLS has an "on hold" status and it is used for a variety of reasons in my market. Apparently loan mod being one of them. However, the mls does automatically put the listing as "back on market" after 10 days unless the listing agent re-saves the listing as "on hold", which it seems she has done a few times now.
I will definitely keep you posted.
I think these LA short sales are a good option. My buddy just got one after 3 trys which is about average. He walked into 200k equity with another 200k upside forced appreciation. It took him about a year but well worth the wait.
Hey @Matt R. thanks for chiming it. That's exactly what I need to keep me motivated
You are welcome G. His cost was 450k so far to basically end up with 850k if including future 100k into forced appreciation option. At 850k it is still 20% under all time peak. Practically less than LA rent on a 2 bedroom!
I have a FSBO who is no longer living in the home. She is 2 months behind in payments and she owes 122k, the house is a good house but will not sell at that price right now in the market where I am. Its about 90k now. Realtor told her not to waste her time listing it unless she put in new carpet and painted. She told me the bank has been calling her of course and said something about a short sale but she didn't know what that was.
So bigger pocket experts what should I do? I do not have the capitol for the offer on a short sale, can I wholesale it to someone? and if so how? The seller said she would do anything not to have it foreclose and ruin her credit.
Most short sales fail because the listing agent puts an unreasonably high price on the property, and nobody makes an offer. In my market, a short sale offer that is 15% to 20% below prevailing market prices will be approved by the lender. That's because the bank analysis is always "Will this short sale generate more money than a foreclosure alternative." What they really mean is, "Will this short sale generate a sum of money that is not substantially less than an REO sale, minus costs for holding, repairs, sale and closing, discounted to present value?"
A short sale closing is cash quickly, for sure. A foreclosure is cash in the future, MAYBE in the amount of the appraisal, maybe not. It is a gamble.
Once you understand that, you can make offers on a large number of properties that are overlooked by other investors.
I think it's worth the viewpoint of the end side of the transaction. Assuming it doesn't go short sale and does go REO. The REO asset manager is going to list at fair market value and sell it on the open market. Are they going to list and sell it in 12 months? If that is what the market holds, yes but, if the market in the area is 90 days, and the REO stigma is minimal, denying a short sale at a 20% discount, taking the property into REO and preparing it for open market. All things being equal, that's going to be a full sale in 90 days if current trends continue...and based on today's economic factors, current trends will continue.
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