I really need some insight. Seller didn't choose our offer.

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I really need some insight. Seller didn't choose our offer.

Chris Hanisco
Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes

Hi everyone! This is my first post. I'm glad to have found your forum!
Myself, my husband and my 2 little boys just moved to the Nashville, TN area from NH. We have some cash from selling our other house and from an annuity we pulled. We have been looking for a house, and found one that we loved. It needed a lot of work, but we're pretty handy and our last house was a fixer-upper.
The house is a short sale (pre-approved) and listed at $82,900. It sat for months at $99,500 and then was reduced by $17k to the current price around February 7th. I found it online, drove by and then had our realtor show it to us the next day. We loved it and put in an offer for full price (cash, no contingencies), but then another offer also came in at $80,000 and they wanted $2900 back in closing costs.
We were then told that the bank was saying bring your highest and best offers - but the selling agent miscommunicated this to our realtor. It was actually the sellers asking, not the bank. We offered $83,500 cash, quick close, no contingencies (except inspections but buying as is). Well, the other buyers offered $90,200 but are trying to get a Rural Development Loan. The sellers took their offer over ours even though foreclosure is supposed to happen on March 1st (in 4 days). The bank has not given a verdict yet.
So, we were really disappointed. We thought for sure we had it since we offered cash above the asking price. I can't understand why the sellers would take a risk of the other offer falling through since the inspections are like FHA and somewhat picky. I already know of 2 things that need to be fixed for it to pass.
We put in a backup offer for $85,000. (We were able to borrow a couple thousand from my MIL.)
Does anyone here have any insight on how often these rural development loans go through? I wish the bank knew about our offer because I think the bank would prefer it - but we're told the bank will only hear about the one the sellers accepted. I keep wishing I had spotted that house a week prior, and we probably would have got it. Hindsight is 20/20, right? :roll:
I'm really bummed out. Any advice?
Thanks so much,
Chris

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Mark UpdegraffBusiness Member
Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 692 votes
16y
Originally posted by Steve Babiak:
As a follow-up to the post from Danielle, I always have to point out that if it does foreclose, you might never get a chance to buy because a buyer at the foreclosure auction might take it before the bank owns it as REO.


then go to the auction! duh :cool:
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  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    16y

    By the way, I should mention that my husband is between jobs. Once he gets working in the same field (in a month we think) we can get a mortgage for more, but we like the idea of having no mortgage, and this house had a ton of potential. I have a home-based food business, but I had to close down during the move. I was hoping to get into a new home quickly so I can get my biz up and running again before I lose all of my customers.

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  • Danielle C.
    Real Estate Investor · Naperville (Chicago), IL · Member since 2010 · 60 posts · 11 votes
    16y

    I can't answer your question regarding the rural development loans, however I can say that if this fails and the house is foreclosed, you can attempt to track it down and purchase that way. You may even end up gettng a discount, depending on the area. I would ask in the REO forum about how to track these types of houses down. If it doesn't sell now, it may end up working to your advantage.

    If not, remember, there will be other homes at good prices. It's a buyers market, especially if you have cash.

    Good luck either way!
    Danielle

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  • Mark UpdegraffBusiness Member
    Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 692 votes
    16y

    Hey Chris, I'm no expert but I'll put in my 2 cents anyway.

    timing is always key, less competition = cheaper closing. that said, sometimes when you're the first in the house and dropping an offer (full price, or close to it) the seller realizes their agent may be off on the price, and they sit back waiting a bit to see what happens. So your ability to not act too eager but yet be strong will always help.

    Also remember, there will always be anther house, another deal, don't get too attached.

    Always make your offer on Shorts as strong as possible. If you're buying "as is" anyway, why even have an inspection contingency - if it is truly "as is" it doesn't matter. If that inspection can get you out of the contract, then you're just as likely to walk / renegotiate, as the other is risky in the financing.

    FINALLY, and probably the most insightful for you. I just learned this, and I'm not exactly how it was worded in the contract, but I will do my best.

    Your realtor should be able to word the contract so that they can't do the "OK, we've got bids, now everyone give me your BEST offers" I believe it was worded that when the seller accepted the offer, they were no longer able to take any other offers. Maybe someone here can clarify, or I can call my RE agent. In your case it may not have mattered... but like you said, timing is key! If you had put that clause in, the seller would have been forced to decide on your offer right then, rather than waiting for more offers.

    hope it helps! It worked for me! I've failed on several shorts in the past, and using this clause, and getting into the house quickly & presenting a strong offer got me a house with substantial equity already in it!

    Good luck!

    Podcast Guest on Show #112
    Updegraff Group Realty4.746 Reviews
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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    16y

    As a follow-up to the post from Danielle, I always have to point out that if it does foreclose, you might never get a chance to buy because a buyer at the foreclosure auction might take it before the bank owns it as REO.

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  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    16y

    Thanks, Danielle. Yeah, when we wrote up the backup offer, we stipulated that it was only good during the short sale status. If it goes into foreclosure, we'll try to grab it. I guess we'll know in a few days, or within a month at least.

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  • Mark UpdegraffBusiness Member
    Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 692 votes
    16y
    Originally posted by Danielle C.:
    I can't answer your question regarding the rural development loans, however I can say that if this fails and the house is foreclosed, you can attempt to track it down and purchase that way. You may even end up gettng a discount, depending on the area. I would ask in the REO forum about how to track these types of houses down. If it doesn't sell now, it may end up working to your advantage.

    There should be a local business publication that you can pick up daily / weekly / or subscribe. You can find the house and go bid on it directly. The judgement amount will be posted (it could be more than the short sale) you'll need ~10% at bidding certified check & close w cash in 30 days... at least in my neck of the woods.
    If not, remember, there will be other homes at good prices. It's a buyers market, especially if you have cash.

    Good luck either way!
    Danielle



    Podcast Guest on Show #112
    Updegraff Group Realty4.746 Reviews
    WebsiteView Page
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  • Mark UpdegraffBusiness Member
    Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 692 votes
    16y
    Originally posted by Steve Babiak:
    As a follow-up to the post from Danielle, I always have to point out that if it does foreclose, you might never get a chance to buy because a buyer at the foreclosure auction might take it before the bank owns it as REO.


    then go to the auction! duh :cool:
    Podcast Guest on Show #112
    Updegraff Group Realty4.746 Reviews
    WebsiteView Page
    1Reply
  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    16y

    Steve - Thanks for your advice. I will remember that if we end up looking at any other short sales. I questioned doing the inspection too, but my realtor felt it wouldn't hurt our position. I see your point. She's just looking out for us because we planned to live there and make it our home.
    Thanks! I appreciate you taking time to help!

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  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    16y

    Whoops, I meant "Mark" above, not Steve. Sorry! Where the edit button? lol

    Although, Steve - thank you also!

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  • Sam M.
    Real Estate Investor · Craigmont, ID · Member since 2009 · 564 posts · 239 votes
    16y

    The short sale offer will often stall the foreclosure auction. That is a tactic often used to buy some more time often done the day before auction.
    The seller wants to sell at the higher offer because the bank will give them a 1099c for the difference between what is owed and what the bank gets in the short sale.

    I believe there is still a program in place that allows you to file it with your taxes and not owe tax on the amount but I am not sure how that works.

    Good luck!

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    16y
    Originally posted by Chris Hanisco:
    ... Where the edit button? lol

    Although, Steve - thank you also!


    You're welcome - and welcome to Bigger Pockets.

    As for the "edit" button, there actually is an edit button or link for a very brief time after a post (say 10 minutes) that you can find to the left of a post that you have made. Beyond that time, you will find an "update" button or link in a similar location. Altering history was permitted in the past, but that led to confusing threads due to changes made after replies had been posted; so, altering history is only allowed for a brief interval, after which you can use the update feature to clarify your original intentions.
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  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    16y

    Sam - Thanks for the info!

    Steve - That makes sense. Thanks!

    0Reply
  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    16y

    Good point by Steve. USDA is a lower down payment loan with fairly typical underwriting. If it goes to foreclosure be there because you are already a cash buyer. You may be able to get it at a lower price. If you are in a Deed of Trust state find your county Public Trustee. If you are in a mortgage state you probably have a sheriffs sale. For either you may be able to get on a list for a small fee of upcoming auction properties. Chances are they may also have online access to upcoming properties, especially if you are in a Public Trustee state.

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  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    16y

    One more thought - if you do go to auction you do not need a realtor, although you may be obligated contractually (or ethically) to that realtor for showing you that particular house.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    Sorry you were disappointed about this house. I've advised many posters here, and I'll advise you, that if you want to try to buy a short sale or REO you need to find a dozen houses you like and make offers on all of them. Then you might buy one. This is a tough, heartbreaking business. Its very nearly impossible to buy any particular house when dealing with these short sales and REOs.

    All that said, there's a chance this will still go to foreclosure. The seller's approval doesn't mean squat on a short sale. I've been there before. Only the lender(s) matter. If it does go to foreclosure, you're in a strong position since you have cash. In addition, you've seen inside and have some idea of what's going on. And, you have a real estate agent who can help you with valuation. I would advise you to find out where and when the sales occur for the property's county. Read up on their web site or speak to someone in the appropriate office. I would try to go to a sale before the one where this property's on the block and see how it works.

    You will also likely be able to bid higher than any investor. We like to make a buck on our deals. You just want a place to live, and you've already slid down the firepole (Ghostbusters) saying you love the place.

    Realize that even if you win you might have some pain. If the former owner's there, they may not leave. You may have to do a "cash for keys" (aka "bribe") to get them out. They may make a mess or even wreck the place.

    The whole short sale may well fall through. I've lost out on my initial offer on more than one property only to get a call later saying its available again.

    But my initial advice stands. Go find a dozen more and make offers on those. I know you said you love it, but ultimately its just a pile of boards and sheetrock, and unless you're buying on the coast in Maui, there are dozens more just like it.

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  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    16y

    Ted - Thank you for the info. Very helpful! I wasn't sure where to find out about the auctions. I found some local auctioneers here that do some, but not all. We would certainly pay our Realtor if we bought at auction anyway. She's a good friend.

    Jon - Thanks for your informative post. We're not just looking for any old short sale house. We are looking at regular listings and this happened to be a short sale. (So I probably won't put offers in to a dozen. lol We're not investors - YET. This is fascinating though and we may start!) I believe it's a pre-approved short sale. The bank had already stipulated the listing prices and when it would be reduced, etc. so I'm thinking that the bank will accept the other offer unless they balk at the fact that it's an RD loan. I wish the bank knew about our cash offer because I think they would have taken it over the other. We have a backup offer in, but it's only good during the short sale period. I didn't want to continue the offer into foreclosure just because I heard about IRS liens and stuff and wanted to research things first.
    Thanks for telling me about how you got calls later when the other sales fell through. That gave me a little bit of hope. :) Also, you're right - we're in a great position if it goes to foreclosure. I hope it does, but I also want to get in there asap. Our rent is killing us.

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  • Scott Hubbard
    Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
    16y

    In my opinion, a pre-approved SS usually indicates the home is FHA/VA.

    As far as the auction scenario goes, if it is an FHA/VA, these actually rarely sell at auction because the minimum opening bids generally are equal to the principal amount of the loan. Therefore, this would be too high a price to be purchased at auction.

    Your agent, if they were experienced, would have asked some questions about the type of loan or have at least done some online research including the principal amount owed.

    If the current loan is conventional, then you have a better chance of getting it at auction.

    If I were in your shoes, I would have my agent do a little research to determine these things. Then, comeback here and post the results to get better direction.

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  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    16y

    For some reason, the bank had already agreed to certain price reductions at certain times. It's all spelled out on a HUD form called "Approval to Participate, Property Sales Information, Property Occupancy & Maintenance, Pre-foreclosure Sale Procedure". The form also says that it was appraised and has a value of $105,000, but the realtor states that nobody ever came in to appraise it. The inside is a mess and needs updating.
    I'm new to this and am just trying to purchase this home for my family. It's interesting though and I'm glad I'm learning in case another SS comes along. :)

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  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    16y

    Oh, and thank you, Scott!

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  • Scott Hubbard
    Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes
    16y

    Based on the $105K appraisal, the REALTOR never should have lowered it to $82900. According to the HUD approval, their NET Proceeds will be a maximum of 86% of the appraisal.

    So the minimum offer would need to be:

    $90,300 + $5,418 (6% commissions) + $1,800 (closing costs) = $97,518

    Any lower offers lower than the above price will need FHA to lower. This process entails a new appraisal an a lot of waiting.

    I had FHA order a new appraisal and it took 4 months.

    If the property goes to auction, then the minimum sale price will be $90, 300 plus auction fees.

    I hope this information helps, Good luck to you and your family.

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  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    16y

    Hmmm. I don't know what's going on then. This HUD form stipulates how much money they need during which dates. It says "Program criteria require that "net" amount payable to HUD as a result of this sale after allowable expenses will be at least $92,400 from 12/1/09 to 1/1/10, $90,300 from 1/2/10 to 2/1/10 and $88,200 until the expiration date of 3/1/10." which is tomorrow.
    We didn't have this when we made the offer for $83,500 cash. We did up it to $85,000 cash.
    We're looking at other houses now, so I guess we'll just let this one go. If it falls through we'll try to grab it at auction I suppose, if we don't have another house.
    Thanks again!

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