have you ever experience a bait and switch on a short sale?

21 Replies

House on market and MLS for 175k. my cash offer of 175k is accepted. house under contract with nothing unusual from the bank. 2 months later bank counters offer at 220k WTH???? This is totally unethical and bait and switch tactic. how can you put a house on the market then ask for 45k more?

Since it's a short sale, the bank didn't put the house on the market for $175k.  The seller did. 

When you say your cash offer was accepted, who actually accepted it?  The seller or the bank?  Just based on what's written, I'd guess the seller accepted it initially and then when it went to the bank for review they countered. 

In a short sale, the seller accepting your offer isn't what counts.  They're not the ones being shorted.

Doesn't sound like a bait and switch though.  It's just how short sales work.

@Dave Carella I put a bid of $110k on a foreclosure listed at $97k, and it was flat out rejected so I feel your frustration. I believe that there is something unethical about listing a property well below where you intend to sell it, just to get people in the door.

LOL. Then why put it on the market, then do a analyst? its BS. its wrong  and its a waste of my time which has a value. In addition the Realtor should be at fault for allowing something to go on the market and not know the the true dept. 

Very common....either;

1) the house was listed below actual market value

2) the bank’s bpo is inflated, no consideration for condition, etc.

3) combination of the above 2

@Kyle J. I've never been on the selling end of a short sale, but is there communication between the owner and the bank before listing the property? You would think that would be something discussed before lifting the property
Originally posted by @Dave Carella :

House on market and MLS for 175k. my cash offer of 175k is accepted. house under contract with nothing unusual from the bank. 2 months later bank counters offer at 220k WTH???? This is totally unethical and bait and switch tactic. how can you put a house on the market then ask for 45k more?

 Youve obviously never purchased a short sale. Nothing here is a bait and switch or unethical.  A bank is not forced to allow someone to sell a property at less than what is owed.  This is specifically why it is a Short Sale and not a Standard Sale. Because you have to go in and negotiate with the bank, in which case they may simply say No altogether.  Also for what it's worth...any seller can refuse to sell a property. They dont need to sell it simply because they were offered list price.

Unfortunately, banks will rarely go through the effort to determine an acceptable price upfront, unless it is an fha short sale.  Some agents just put a lowball contract in to “get the ball rolling” in order to get a price from the bank.

I don't agree that it's a bait and switch - a complete PITA and frustrating - totally.

The owner can initialize sale of the property during any point of the pre-foreclosure/default process up until a certain date, as I understand it. They set their price, and accept an offer. The bank still has the final say in what the final acceptable price is. It's completely standard for a bank to potentially give a counter offer. 

I would call the bank personally and ask about the comps and BPO information. They want some money instead of no money, they may work with you on price - unless their price is actually correct and other buyers will go for it.

Just wondering: Is the bank price fair? Was the offer of 175k low? How much does the owner still have on the lien? Short sales are interesting and the ability to maneuver through them seems like it can be tricky.

@Dave Carella

"LOL. Then why put it on the market, then do a analyst? its BS. its wrong and its a waste of my time which has a value."

Which is why most agents always try and explain in detail what a crapshoot a short sale is. I know MANY agents that flat out refuse to buy or sell them. The reasoning..... When the bank changes their mind or decides they don't want to answer for months and months who does everyone remember? The agent.

A short sale is pretty much this in a nutshell

1) Buyer is in trouble and sends hardship to bank

2) Agent does analysis and comes up with price (Which is of course lower than what is owed to bank)

3) Bank says, go ahead and put it on the market

4) Somebody looks at house and puts in offer

5) Seller accepts any offer that comes in because they want out (regardless of how much the bank loses)

6) Bank takes weeks/months to pay for their own evaluation, look at how long on the market, run an internal appraisal, look and do a cost benefit analysis on the loan and property

7) Bank accepts/counters or denys the offer (provided they decide to do anything at all and not just foreclose on the original borrower and take the house themselves)

I have it happen monthly.... "we want 123 Main"

"It's a short sale, do you know what is entailed and the odds of actually getting it are slim (long explanation of the process)"

"We don't care it's perfect"

Then for 4 months I get calls with the frustration building as the time goes on, my answer is the same

"The bank has said nothing yet, we are still waiting. I tried calling and got the same run around I always do"

Then about month 6 while they are talking to people at a local event

"Mike sucks, that guy couldn't even get us into this house we were ready/willing and able. He is lazy and does nothing. That thing is still sitting there with boards on some of the windows now, I will never use him again and I recommend if you want someone who actually knows what they are doing call my sisters friend Cheryl, she just got her license and she is so good"

@Megan Phillips

"I would call the bank personally and ask about the comps and BPO information. They want some money instead of no money, they may work with you on price"

From experience I will say. Expect to be on the phone for no less than 6 hours a day for weeks trying to find the right person. Remember the old tech service "Oh that's a different department" run around. It is nothing compared to a bank process. They can't discuss their clients accounts so it will take you weeks trying to get over that hurdle even with a signed form from the seller allowing you to discuss it. Next they have to establish if it is in the foreclosure department (in which case don't expect answers) or if they are allowing them time. If they are there is a contact there, however you should have another signed form that you will be faxing and notarizing etc before they even say HI. When someone does get back they will have almost no information and tell you it has to go to another group to find that out.

People often say they want to do short sales, but there is a reason there are very few agents that touch them and the ones that do are known in the area. 

@Mike Cumbie

I learn so much I didn't know from an agent's perspective every time I read one of your posts. Thanks again, Mike. Good luck with all the sister's friends.

@Mike Cumbie as a matter of practice, I no longer deal with short sales to avoid all that crap.  Let's also not forget that even if you progress to actual negotiations with the bank, they are going to try to slip in something sneakily to try to cut your commission. Do 20 times more work to get half the pay.

If I get a client (Who I havent done business with before) who is insistent on pursuing a short sale, I send them to another agent.  I dont have time to waste 100, 200 hours on a short sale that isnt going to go through.

@Dave Carella Your agent should have warned you in advance that there was a good possibility of this happening in a short sale.  Not a rare occurrence at all.

@Mike Cumbie your response to @Dave Carella was spot on from this broker's perspective. :)

I used to list, negotiate and represent buyers of short sales back in the hey day of the market crash.  Sure I helped a bunch of people in tough situations, but when I think back to all the wasted hours and effort involved in a short sale, it makes my blood boil.

I would still list one for a good client, but only if the seller agreed to have a local attorney handle the negotiations and closing.  

I'll never make another call to the loss mitigation dept of a bank and I'll never FAX the short sale packet for the 3rd time because they still don't show it in the system.

Let's just say I don't believe the best and the brightest wind up in the short sale dept of the bank.

This appears to be a classic case of an agent not educating a buyer on what a short sale entails. As an investor one should never put all their eggs in one basket or have high expectations that a short sale will work out. Short sales are speculative by nature. Some work out and some don't. 

@Mike Cumbie Did the listing state that the short sale was ‘bank approved’? I see those words, and I’m not so sure it translates well intuitively. The reader takes it as meaning the bank has already approved sale at the listing price. Do we have a subject matter expert that can tell is what it really means?

@Douglas Pollock

"Approved Short Sale" means the bank has at one time approved a price. Lets say buyer put in 100K offer, bank accepted it 3 months later. While waiting an additional 2 months with no traction the buyer said "Forget this" and walked. Now the agent advertises it as a "bank approved short sale". Problem is next buyer wants to pay less than 100K so it may as well not be. If they do choose to pay the same 100K things move along and have a halfway decent shot of going through, provided the time between the banks last evaluation of the property hasn't been more than a month or two. If the new buyer says 100K is too much, it's only worth 92K, then it may as well not be an approved sale, it is a start over.

I have found in my experiences that more often than not, when there is confusion or frustration, its the agent that has caused/perpetuated/exacerbated the confusion and/or frustration.

I can't tell you how many agents screw up a short sale in my portfolio because they were not experienced with short sales. It's almost comical when they have, "Short sale expert" or "Certified short sale specialist" on their signature line in their email and you find out that the extent of their short sale education/experiences was the four hour CRE webinar they had at their home office.

And for those that actually had experiences in short sales, they failed to update their experiences. Meaning, they relied on the old tactics, "If the borrower files BK you will get wiped out" or, "If you don't take what the senior lender is offering you, they will foreclose and wipe you out" or my favorite, "No, I've earned 3%, I'm not cutting my commission at all, you can't make me cut my commission to make this deal work, you cut your proceeds".

It's rarely anything more than the agent managing the expectations all parties and doing the work to find out if there is a deal at the beginning of the transaction. When an agent approaches me and says, "I have a deal where you are the junior lender, the senior is a government loan and is capped at $6,000 for subordinate lien holders. Your owed $X, your proceeds are estimated at $Y, is there a deal for us to make"? When that conversation happens in the beginning, it means they did their research and It makes my job easier to support the deal.

This is not a bait and switch.  The listing agent lists for a price they feel is market value and what the bank may accept.  Then the bank does there appraisal.  If the appraisal is a lot higher, then the bank will counter at the higher price.