Short Sales - How low can you go?

Question

I'm looking at making a short sale purchase on a property that is mortgaged by Citi. This is my first time dealing with a short sale, so I have no idea how low I can go with my offer. The property has been listed for over 720 days with numerous price drops, but I would still like to drop the price even further. Do you more experienced guys have a general formula for determining offer amounts?

Nathan Emmert · Answer

Banks are generally impossible UNTIL you get an offer.  The agent is doing whatever they need to in order to get an offer in and open up the lines of communication with the bank.  We couldn't get them to do a fair market estimate or anything until after we had a contract and offer.

Will Barnard · Answer

There are bno forumulas for pricepoints below ask prices, the ONLY number that matters is a price that makes you money. Are you flipping the home? If so, you should make your offer based only on what the after repair value is, less repair costs, holding costs,. resell costs, and profit margin. The standard forumula for that is 70% of ARV minus repairs, however, that 70% figure may need to adjust depending on your market conditions, and the price points you are buying in. For sub 4100k pruchases, I suggest that numb er get closer to 65%, and for price points in somewhat stable markets above $200k, you can adjust to 75%

Mark Beekman · Answer

Thanks, Nathan.

I just got off the phone with the listing agent and he said that the bank is standing firm on $312k. BUT, the property is listed at $270k!?!? Why would the property be listed  for $40k less than what they'll accept?

Nathan Emmert · Answer

Price drops mean nothing as the property was likely initially listed at what was owed + closing costs versus what it is actually worth.

As for what banks will accept, I think it depends on the bank.  I know with the short sale I did we owed something like $360 ($330 + 30 secondary) and sold for $230 (220 + 10).  Of course right about the time we listed the area we were in was listed as a toxic area that had elements in the ground water causing cancer (just the sort of news you want when you list your home for sale!!) so maybe that influenced the bank some... I can't imagine they'd want the legal liability associated with selling that property after foreclosing!

Generally speaking, a bank will accept a little less than FMV as it saves them money on having to go through the process, maintain it, and sell it themselves... but I wouldn't get too aggressive... maybe 10%?