Making multiple short sale offers
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
If you're only looking to buy one house, is there an issue with making several offers on different short sales and then when one is accepted by the bank backing out on the others (after the seller(s) accept, but before the bank(s) approve). Will this alienate real estate agents or is it commonly done? There seem to be so many short sales than REOs these days I was thinking of employing this strategy.
I would have to disagree with a lot of the posts given, and agree with a few others.
Every market is different, and with that being the case, my comments stem from my experience in CA, NV, and TX.
As an investor making short sale offers from the MLS, I am able to make many. When I do, my offer does not have an expiration date, includes my articles of incorporation, my POF, my corporate resolution, and a COPY of my EMD check. On deals that are not yet approved by the lender, I could be in for a long wait, as such, I would never offer up EMD and have it sit there for 90 days or more, not even 30! As to having multiple offers out at once, it would be rare to get too many approved all at the same time, but if that did happen, I could simply offer it to another investor buyer OR, it could be offered to any number of offers that came in after the seller agreed to my offer. As someone already stated, once a price is apporved by the one who actually makes the decision (the bank), the deal is a lot closer to being able to close and is now readly available to any number of back-up offers. This is one of many ways to "protect" the seller - homeowner in short sale.
Now, I can also see the seller's side of wanting something a bit more concrete from a buyer and not wanting to waste their time or that of their client's. With that, I say my track record, level of experience, and number of deals I have done (all of which can be proven to the list agent) will "prove" my commitment. I have yet to have any list agent require an actual EMD into escrow. In fact, until the deal is approved by the lender, escrow is not even opened. Look at it from the escrow company's point of view - why would they want to spend time and money having an escrow account open knowing their is a strong chance that the deal may not ever close, through no fault of the buyer!!! Having so many escrows open and so many EMD's out would not make any sense to any buyer or any escrow company.
The list agent must also understand, that in most cases, it is they who are responsible for the short pay negotiation (regardless if they do it themselves or hire a third party) and so the success or failure of that short sale mostly rides on ethir shoulders, not the buyers.
In summary, as an investor buyer, I see nothing wrong with making offers on as many short sale deals as you want. I do however suggest that you have all your ducks in a row so that IF it is approved in a timely manner, you do perform (unless market conditions or property conditions have changed giving you a legitimate reason to re-negotiate or back out). Not finding another buyer is NOT a legitimate reason for backing out!
I was thinking about doing something similar too. I don't see why you couldn't. The banks have no problem doing best and highest. So why can't we do the same thing. First bank that says yes gets it. The realtor shouldn't have a problem as long as you close on whichever says yes first. They have to know they aren't getting a commission if there's no sale.
My reasoning for doing it is that I only have so many financing spots available so I can't afford to tie up one of those positions for 2 or 3 months waiting for an answer.
I've been doing HUD but the HUD site is almost completely bare these days.
Put a relatively short acceptance deadline in your offer. Say a week. After a week, your offer is officially dead, but they can contact you if they actually come through.
Good advice from an investing standpoint Jon however from an agent standpoint I would never recommend my seller (of a short sale) accept an offer with a short deadline. We've actually went the opposite direction and write up a counter to buyer stating their EMD is non refundable for 90 days. This buys us enough time to make progress with the bank. To answer the original question I would recommend finding an agent that's comfortable working with investors. As long as you write up a cancellation on the other properties once one is accepted you should be fine.
I don't think you'll get a third party negotiator or really competent Realtor that will do this once they know what you're doing. We wouldn't! This scattergun approach may make sense to you, but ends up wasting the time of the negotiator. As far as making an offer with a week for acceptance, I wouldn't waste my time with an offer like that. There's no way you can get an acceptance in a week.
There are a lot of short sales available, and in my opinion it is a market that most investors overlook. Make an offer that is real, and invest the time with a good negotiator and you can get a smokin deal! We have a couple of investors that we negotiate for, and they are very happy with the deals that we're getting them. However I know that when they make an offer, they will follow through if we can get it for them at that price. They know that we have a very high success rate, and they're not going to have to fight several others for the property.
I have purchased a few short sales and the banks have taken the position that there is essentially no contract until the deal has closed. That means that they are free to negotiate, walk away, etc., until the ink has dried on the closing docs.
In response, I take the position that we are negotiating until we close or one of us decides to walk away. I no longer accept the bank's BPO as the "final offer" but feel free to counter. When a short sale I had been sitting around for for over a year "restarted" with a new negotiator, I "restarted" too.
Regarding your original question, it is important to have a reputation for closing deals. However, having a few cooking and then walking away from one that no longer looks as appealing probably isn't going to hurt you. Another option may be to make offers that you could rapidly hand over to someone else. I've done that a couple of times. The agent didn't seem to mind changing an LLC name on the contract.
I've had REO's and short sales that came my way from back up offers I submitted started looking appealing when another buyer walked away.
Happy shopping.
Teresa
The seller's acceptance on an short sale offer means absolutely nothing. The only signature that matters is the bank. The seller accepting the offer is a necessary, but not sufficient step toward an actual deal.
If you're the one negotiating a short sale directly with the seller and the bank, it may be acceptable to have the deal in progress for months and months. As a buyer's who's just making offers on what's on the MLS, its unacceptable to have a committed offer outstanding for months and months knowing that its more likely than not going nowhere.
If you're a wholesaler and going to turn around and sell the property, sure. If you're an investor who can buy multiple deals, OK, too.
But if you're a buy an hold investor who can only buy one or two deals a year agreeing to be on the hook for three months is insane. A homeowner who's actually looking to buy a house an move into it would also be crazy to screw around for three months with a deal that's more than likely to go nowhere. So what you're saying, Jackie and Jamie, is that the only market for short sale sellers is wholesalers or investors how do a lot of deals. Which means it better be a good deal or they're not going to mess around with all these delays. For the potential homeowner or the infrequent buy and hold investor, these deals aren't worth the time.
We make a lot of short sale offers these days, and always put in a contingency that basically says, "We have an unconditional due diligence period that starts the day the bank provides written agreement for the sale."
This way, we can forget about the offer and if/when it gets approved, we do another walk-through and ensure that the condition is substantially the same, etc. While we wouldn't back out unless the property condition has significantly changed, contractually we could if we wanted to (the due diligence clause).
So, legally, there is no issue with you doing this. There actually another benefit as well -- if you get the bank to approve a low short sale price, it becomes an approved short sale, which will make it much easier for the seller to find another buyer if you walk.
Now, that said, putting in a short sale offer requires a bit more effort on the part of your agent, so keep in mind that if you do a bunch of short sale offers, you'll be keeping your agent more busy for a longer period of time, with the hopes of just a single commission. As an agent, I wouldn't be very happy about this.
That the bank will dilly dally for a long time before deciding not to do the deal.
If you're the one negotiating a short sale directly with the seller and the bank, it may be acceptable to have the deal in progress for months and months. As a buyer's who's just making offers on what's on the MLS, its unacceptable to have a committed offer outstanding for months and months knowing that its more likely than not going nowhere.
That is the point I was trying to make. So far my experience with short sales has been waiting months on end for a bank response, and hearing about other offers (which may or may not exist) from the agent. Waiting around on a single short sale when you don't know what the bank's decision will be doesn't seem to work, unless you're planning to live in the house. If there were still a lot of good REOs available I wouldn't even bother with the short sales.
If you're the one negotiating a short sale directly with the seller and the bank, it may be acceptable to have the deal in progress for months and months. As a buyer's who's just making offers on what's on the MLS, its unacceptable to have a committed offer outstanding for months and months knowing that its more likely than not going nowhere.
If you're a wholesaler and going to turn around and sell the property, sure. If you're an investor who can buy multiple deals, OK, too.
But if you're a buy an hold investor who can only buy one or two deals a year agreeing to be on the hook for three months is insane. A homeowner who's actually looking to buy a house an move into it would also be crazy to screw around for three months with a deal that's more than likely to go nowhere. So what you're saying, Jackie and Jamie, is that the only market for short sale sellers is wholesalers or investors how do a lot of deals. Which means it better be a good deal or they're not going to mess around with all these delays. For the potential homeowner or the infrequent buy and hold investor, these deals aren't worth the time.
That is not at all what Jackie is saying. Most of the buyers for the short sales we are involved with are homeowners that will live in the house. We also do them for investors as buy & hold as well as rehab and flip. Also, we have a very high success rate and if we accept an offer that we think is likely to be countered by the lender, we will tell the buyer up front. There is a lot of work in completing a successful short sale and we don't want to waste our time with an uncommitted buyer. We have declined offers if the buyer has not been inside the property. We require that the inspection periods be completed before the approval is received. Of course, any buyer can verify that before closing, the property is in the same condition as when the offer was submitted. In return, the buyer gets the best chance for a great deal that much more often than not, will close. If you can't wait for the short sale to be negotiated, buy an REO.
What everyone here is forgetting is the property owner. When you are putting in multiple offers on short sales, knowing that you will only close on one of them, you are not just wasting the agent's, sellers and negotiator's time. You are taking the homeowner one more step closer to foreclosure. Lenders will only extend approvals so long and postpone foreclosure sale for so long. While you are tying up a property you are stopping it from being put under contract by a legitimate, committed buyer. All the time the seller is getting closer to having a foreclosure on their credit history.
I'm thinking about the seller, too. If a potential buyer is required to commit earnest money for 90 days (not Jackie's post) then many potential buyer's just aren't going to bother with that property. I would daresay most buyers aren't willing to be committed to do a transaction for 90 days with no way out. Either the buyer has to be very, very patient because they have to wait for one 90 day deal to play out before starting another, or they have to be willing and able to take down multiple deals. How many buyers are like that? Doesn't that buyer know they're in a position of strength? And won't they use that leverage to get a better deal that a more typical buyer? How is that good for the homeowner?
Personally, I won't even hand over EM any more until the bank approves it. Why? Because I've been on the hook for a drawn out approval that never came. After the house was foreclosed on, my agent had to threaten to report the listing agent to get the EM back. The sellers have to sign off (at least in CO) to return the EM, and they're pretty dang unmotivated to do so after the property goes to sale.
This way, we can forget about the offer and if/when it gets approved, we do another walk-through and ensure that the condition is substantially the same, etc. While we wouldn't back out unless the property condition has significantly changed, contractually we could if we wanted to (the due diligence clause).
So, legally, there is no issue with you doing this. There actually another benefit as well -- if you get the bank to approve a low short sale price, it becomes an approved short sale, which will make it much easier for the seller to find another buyer if you walk.
Now, that said, putting in a short sale offer requires a bit more effort on the part of your agent, so keep in mind that if you do a bunch of short sale offers, you'll be keeping your agent more busy for a longer period of time, with the hopes of just a single commission. As an agent, I wouldn't be very happy about this.
I'm sorry, but we would not accept that language. The due diligence would need to be completed before the approval letter. We would be happy to take an inspection/ verification of condition so that you could verify that the property is in the same condition. You would not misuse that clause, but there are many potential buyers that would (as evidenced by this topic).
If the buyer walks after the short sale is approved, we only have a maximum of 30 days on the approval. Take out the due diligence period and that gets less. Many approval letters are for a specific purchaser, so although we know the lender has approved the price, we still need to start all over with a new offer and complete short sale submission package. It can take just as long or longer than the original approval. That doubles the amount of work that we have to do to achieve a sale. Even if it is an open approval, unless we can find a cash buyer (usually an investor), we can't get it closed without an extension.
Jon,
We seldom have an issue with finding a buyer. Sure, a few of them fall out, usually because their agent did not advise them of a reasonable time frame for closing. The reason that the buyer is considering a short sale in the first place is to get a better than "retail market" value. If they want a great price, they will have to wait for the process.
We require earnest money to be deposited. We will accept a reasonable timeframe for short sale approval and if that is reached and the buyer walks, they get there deposit back. If they wait until we get an approval letter and then change their minds, they likely will not. 30 days is not a reasonable time to get approval but 60 or 90 days is possible, especially if it is a HAFA.
The reason that so many short sales do not close is usually due to inexperienced negotiation or non committed buyers. I guess it's who you are working with that has the most effect on your success rate.
Indeed. Most of the ones I've made offers on have been MLS listings. My impression is most agents don't really know how to do these. I've made a number of such offers and only had one accepted and it fell through. Some friends (not investors) bought a short but it took months and months to get it done. They were willing to deal with it because it was just a cabin up in the CO mountains and not a place they needed to move into.
My impression is Bienes is talking about the same kind of properties. I'm not in any position to take down multiple deals at once. If I was actively trying to buy, I wouldn't want to be stuck waiting for something to happen on one particular deal for even 30 days. If I knew I was committed on that one deal if the bank said yes, I would have to hold off on any other offers until something happened. That would slow the whole buying process.
Jon - Our inventory is extremely low in Las Vegas right now. (2.5 mos inventory) I would say about 1 out of 10 buyers object to the EMD being non refundable for 90 days. Our position is they probably would have canceled before we got approval anyway so it saves everyone time and frustration. Since we started doing this we usually close with the 1st buyer instead of having to put the property back on the market and find a new one. As an INVESTOR buying a short sale I personally wouldn't tie up my money that way but as an AGENT I have to look out for my seller.
I see everyone's points and can understand where they are coming from. I'm just saying what works for us and how we approach the question in this thread. There are lots of business models that can be followed. If it is working for you...Great! If not, then there is no shortage of options to consider on BP! That is what makes Bigger Pockets such a valuable site!
Bill -
I appreciate your response -- it's nice to get insight from someone actually in the trenches working on the seller's side (I hear a lot about what goes on on the buyer's side but I don't know any short sale listing agents very well).
It's funny -- all of our short sale offers basically say:
1. Due diligence starts when we get approval;
2. Earnest money is only due when we get approval;
And we've never yet had an agent make us do anything different (we've closed every one of them that has gotten approved, so it hasn't been an issue anyway).
Prior to reading your response, I'm not sure how I would have reacted had a listing agent come back and said that due diligence must be completed upfront and/or earnest money must be paid upfront, but I guess now I should expect it and try to determine how I'll proceed should an agent make those demands.
Here are my two big concerns; I'm curious how you'd suggest I mitigate them:
1. If the bank takes 2, 3 or even 6 months to come back with an approval, the market may have changed to the extent that the deal is no longer profitable enough for me. It shouldn't be my loss that the bank waited so long to "take care of business," should it? I guess I have the option of backing out up until the time the deal is approved (withdraw my offer); is that the recourse you would suggest in this situation?
2. I generally put down large earnest money deposits to indicate my serious intent to follow-through on the purchase. But, if I'm required to put that money down upfront, I could be tying up $5-10K at a time on several properties for several months -- this is sub-optimal for obvious reasons. Would you suggest that I decrease my EM deposits significantly if I need to provide them upfront? What is typical in your experience for an EM deposit?
The same thing seems to be happening in this area as well.
I can totally understand the rationale of wanting the buyer to put down EMD before the lender approves the offer, but I think it's more reasonable to ask for $500 than $1000.
Bill -
I appreciate your response -- it's nice to get insight from someone actually in the trenches working on the seller's side (I hear a lot about what goes on on the buyer's side but I don't know any short sale listing agents very well).
It's funny -- all of our short sale offers basically say:
1. Due diligence starts when we get approval;
2. Earnest money is only due when we get approval;
And we've never yet had an agent make us do anything different (we've closed every one of them that has gotten approved, so it hasn't been an issue anyway).
Prior to reading your response, I'm not sure how I would have reacted had a listing agent come back and said that due diligence must be completed upfront and/or earnest money must be paid upfront, but I guess now I should expect it and try to determine how I'll proceed should an agent make those demands.
Here are my two big concerns; I'm curious how you'd suggest I mitigate them:
1. If the bank takes 2, 3 or even 6 months to come back with an approval, the market may have changed to the extent that the deal is no longer profitable enough for me. It shouldn't be my loss that the bank waited so long to "take care of business," should it? I guess I have the option of backing out up until the time the deal is approved (withdraw my offer); is that the recourse you would suggest in this situation?
2. I generally put down large earnest money deposits to indicate my serious intent to follow-through on the purchase. But, if I'm required to put that money down upfront, I could be tying up $5-10K at a time on several properties for several months -- this is sub-optimal for obvious reasons. Would you suggest that I decrease my EM deposits significantly if I need to provide them upfront? What is typical in your experience for an EM deposit?
We also enjoy your questions and insight from the buyers perspective. Everything we do is subject to change. And we are changing every day to adjust to the market and lender requirements!
What we strive for is a WIN/WIN for everyone. If I were working with a buyer with your track record of closing sales, your language would not be such a problem. It is the normal offer that we get, not knowing the buyer, is what makes us cautious. We see no benefit to accepting offers from an investor that makes several offers and plans on only closing on one of them. We do allow buyers to wait for the approval letter to spend money on their appraisal and if they want a home inspection, that can happen after the approval, too. They are aware that the sale is "as is" and that the seller (or lender) will not make any repairs. This way if a major issue arises, they can evaluate if they should continue with the purchase. Most investors do their own inspections, so their costs are mostly their time so this is not as much of an issue. Also, the investor's offer usually reflects his inspection of the property.
If I'm correct, your reason for due diligence after approval is to avoid spending time ($$$) on an offer that may not be accepted. I can understand that, since we are on the other side of that fence, not wanting to spend a lot of time on an offer that is not an informed and committed offer.
To answer your questions...
1. We only ask for a reasonable time to obtain approval. Make your offer contingent on getting approval in say..60 or 90 days. If it takes longer you can decide then if you want to extend your offer. By then, we will at least have an idea of where the lender is and how much longer it may take.
2. We are really more concerned with the buyer's commitment up to the point of getting approval. Most buyers put $500 or $1,000 as an earnest deposit. That being said, I would suggest that you keep doing it as you normally do in your market where you are known. It is working for you, so why change a good thing?! If the deposit is an issue on an offer you are making, I would think that a small deposit would be the way to go when you put in an offer.
Bill
Thanks for the responses, Bill...that all makes sense...
In response to your question above, we don't normally pay for inspections, and I always do my inspections before putting in offers (the two exceptions being structural and mold, which I'll bring in an expert after the offer is accepted). And I rarely ask for due diligence in my typical REO offers.
That said, the reason I like to have due diligence after bank approval is two-fold:
1. Long timelines: In case there has been a drastic change in the market and my offer no long makes sense; and/or
2. People still living in the house: In case the property condition has changed drastically (i.e., the sellers had decided to pour cement down the drains or took a sledgehammer to the foundation).
Now, assuming your scenario where the offer is only good for 60-90 days and where I have the option of backing out or renegotiating should the property condition substantially change, I'd have no problem not have due diligence after approval.
I would have to disagree with a lot of the posts given, and agree with a few others.
Every market is different, and with that being the case, my comments stem from my experience in CA, NV, and TX.
As an investor making short sale offers from the MLS, I am able to make many. When I do, my offer does not have an expiration date, includes my articles of incorporation, my POF, my corporate resolution, and a COPY of my EMD check. On deals that are not yet approved by the lender, I could be in for a long wait, as such, I would never offer up EMD and have it sit there for 90 days or more, not even 30! As to having multiple offers out at once, it would be rare to get too many approved all at the same time, but if that did happen, I could simply offer it to another investor buyer OR, it could be offered to any number of offers that came in after the seller agreed to my offer. As someone already stated, once a price is apporved by the one who actually makes the decision (the bank), the deal is a lot closer to being able to close and is now readly available to any number of back-up offers. This is one of many ways to "protect" the seller - homeowner in short sale.
Now, I can also see the seller's side of wanting something a bit more concrete from a buyer and not wanting to waste their time or that of their client's. With that, I say my track record, level of experience, and number of deals I have done (all of which can be proven to the list agent) will "prove" my commitment. I have yet to have any list agent require an actual EMD into escrow. In fact, until the deal is approved by the lender, escrow is not even opened. Look at it from the escrow company's point of view - why would they want to spend time and money having an escrow account open knowing their is a strong chance that the deal may not ever close, through no fault of the buyer!!! Having so many escrows open and so many EMD's out would not make any sense to any buyer or any escrow company.
The list agent must also understand, that in most cases, it is they who are responsible for the short pay negotiation (regardless if they do it themselves or hire a third party) and so the success or failure of that short sale mostly rides on ethir shoulders, not the buyers.
In summary, as an investor buyer, I see nothing wrong with making offers on as many short sale deals as you want. I do however suggest that you have all your ducks in a row so that IF it is approved in a timely manner, you do perform (unless market conditions or property conditions have changed giving you a legitimate reason to re-negotiate or back out). Not finding another buyer is NOT a legitimate reason for backing out!
I agree with Will's post 100%. Well said!
Our position is often unique. We facilitate/negotiate short sales all over the country. Sometimes we're the "B" buyer with a quick sale to a "C" Buyer, and often times we're handling it for an investor, or for an actual buyer who wants to live in the house. We're not the listing or selling agent. Our primary goal is to get a short sale approved with the best possible results for the homeowner (no deficiency) and a great deal for the buyer. We have a very high success rate which is why we're referred by Title Companies and asked to handle short sale by investors and Realtors. Every short sale we take on is with the goal of getting it approved and closed. It takes a lot of time and effort, and there's no profit if we
aren't successful. Will is correct............there's nothing wrong with making offers on as many short sales as you want, but be prepared to perform unless there is a legitimate reason.
Having an EMD is going to depend on the circumstances. We don't personally make an EMD when we're making the offer on our behalf. If we're facilitiating it for an investor that we know is legitimate and going to perform, we don't require EMD's. If it is for a buyer to owner occupy, we do require a deposit. That helps insure that they are serious, and aren't going to keep looking and walk when they find something they think is better, or just get tired of waiting. We always specify a realistic time frame and keep them informed throughout the process. Despite that, we had one last year where the buyer changed their mind. We had just received the approval letter and it was well before the timeframe specified in the purchase ageement to get it approved and closed. That buyer lost their $1000 earnest deposit. We were able to find another buyer and with an approval extension, get it closed.
Are there legitimate reasons to back out? Certainly there are, but not having the funds, or not being to find an end buyer are not acceptable reasons.
I thought of this, too! However, our agent said no, only one allowed at a time if you are only buying one, which we are, and our loan pre-approval is only for one. Maybe it is different if you can pay cash or are pre-approved for several.
Lynn M. - As a retail buyer for a home you are planning on living in, sure, that makes sense, but do know this, there is nothing wrong or illegal with you making more than one offer even if you will only perform on one of them. In such a scenario like that, upon receiving approval for the first one, you simply inform the sellers of any other offers that you have decided to buy another home and will be pulling your offer.