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 only invest in Florida and this is exactly how it's done. The market is so competitive there is no other way to operate as an investor frankly. You can always back out during the inspection period. One of the agents I work with doesn't even look at the inside of house until the short sale is approved and we agree on price.
Will, Thanks for the info. Just went back and read the email my realtor sent me which says, No, unfortunately, you cannot have two offers on short sales. Maybe I should move this to the forum I've been watching about ethically-challenged real estate agents. Trying to find out if MD has different rule barring multiple short sale offers, but can't find one anywhere so far. She did say we should have an update from negotiator mid-week, so I'll wait til that time and, if it's not looking good, then ask her again why I cannot have another offer in until the bank approves one of them.
My guess is that your agent is concerned about the position it will put HER in if one or more listing agents finds out that you have multiple offers submitted.
She's saying, "No, you can't do it," but I'm fairly confident that's her way of saying, "No, I won't let you do it."
I disagree with Will on this one. It's not fair to the homeowner to make short sale offers on more than one if you are only buying one. It may be legal, but it certainly isn't ethical. In most areas, when an offer is made.......even on a short sale.........the property must be moved to pending, or contingency or back up offer on the MLS. Any of those automatically cuts down on the number of people that will even look at it. If the buyer backs out, the homeowner has now lost that number of days on the market, and is that much closer to foreclosure. You are also wasting the time of the person negotiating it with the lender. That's why we always require an earnest deposit from a buyer who is going to owner occupy, and won't knowingly work with an investor with that business plan.
As far as the scattergun approach of making offers without even looking at the house, again it is not fair to the homeowner, Realtor and/or the negotiator. It ties up the loss mitigators at the lenders that already have huge numbers on their desks, and creates more of a backlog. There are gurus out there that advocate making a 100 offers a week and seeing what sticks. This kind of approach just makes more work for everyone and is seldom effective. Everyone complains about the length of time a short sale can take, and wasting time trying to negotiate a short sale that is not a serious offer only exacerbates the problem.
Jackie, It may not be fair to the seller, but it's also not fair to tie up the buyer's time for 45 to 90 days on no guarantee of sale. It's not buyer or seller's fault the bank takes so long to approve/disapprove, but it seems to me if there are 2 properties that would work, I shouldn't have to wait for bank approval on just one, potentially losing the other or both, if I can make offers on both and take the first one that will approve it. It doesn't mean it is not a serious offer ... on the contrary, it means I'm very serious about buying one. I wish the only ones in the area I'm looking in weren't short sales, but they are.
First of all, if you have a good negotiator, you should have a very high chance of success as long as you're not making a ridiculous offer. As far as fair, you need to think about the time the negotiator or Realtor has to spend submitting and negotiating the offers. And also the lender who takes time to review the offer, spends money to do BPO/appraisal, etc.
Would you think it was fair for a homeowner with a conventional sale to accept 2 offers, and say whoever gets their financing together and is ready to close first gets the house? Would you want to jump through the hoops getting your appraisal, inspections, paying for loan origination and going through underwriting in the HOPE that you would be done first? If you're going to buy a short sale, and reap the benefits of getting a home at a great price, then you have to accept the time it takes. If you need a quick sale, then don't buy a short sale.
Jackie Patterson We will have to agree to disagree on this. While I understand your point and position, it also must be said that the buyer also has a point and position.
Bottom line, "life is not fair" and while we strive to make sure we have win win situations, the core problem is the banks in this situation. To use your line, it is not fair to the buyer to tie up any amount of EMD for lengths of time nor is it fair to pin their hopes on the success of one short sale negotiation. Once more, you have stated a few times that if you have a good negotiator, your odds are much better. While I agree, in most cases, the choice of the negotiator is NOT up to the buyer. As a buyer, IF I were to have to place all my hopes on one offer with one short sale, I would want to have full control over the negotiations with the lender, not the list agent. This entire world is a give and take and from your position, you are asking the buyer to give all and take nothing, I just don't agree with that.
From the investor buyer standpoint, again you state it is not "fair to the homeowner". I say to that, it is not the buyer's fault or responsibility that they are in the situation they are in. Often times, the investor buyer is the only offer on the table. The seller should not expect the buyer to have to place up EMD or be tied into anything on the "hopes" that the list agent is a good negotiator and that the lender acts within reason - often they do not!
Scattering tons of ofers on many short sales from an investor standpoint is how the "numbers game" is played. Those who can't live with that can simply reject the offer at their own peril.
Agin, I see nothing wrong with making multiple offers, however, I would say that as an owner occupant buyer,. they should limit offers to 1-3, as they should not be "scattering" multiple offers everywhere, I agree that would be irresponsible (although not illegal).
Would you think it was fair for a homeowner with a conventional sale to accept 2 offers, and say whoever gets their financing together and is ready to close first gets the house? Would you want to jump through the hoops getting your appraisal, inspections, paying for loan origination and going through underwriting in the HOPE that you would be done first? If you're going to buy a short sale, and reap the benefits of getting a home at a great price, then you have to accept the time it takes. If you need a quick sale, then don't buy a short sale.
Jackie, I believe regular contracts usually have pre-approval attached from buyer and stated in contract that financing must be applied for within 7 days and notice they don't qualify asap, other contingencies within 10 days, etc., and if sale is contingent on other issues like other sale, a clause that states seller CAN keep it on market and sell to someone else if buyer cannot comply within a certain time frame (sort of your, whoever gets it together and ready to close first scenario). Conventional contracts are built to get rid of unqualified or not serious buyers, moving onto the next to get the deal done asap.
I do understand the "scattering" argument, but we are not "reaping the benefits of getting a home at a great price," we are simply trying to stop renting and move into a home of our own now that we know the area. We are willing to offer fair market value, actually more than 2012 assessment, right now on the only 2 that work for us in the area we are looking, but they are both short sales as they paid way too much in the boom, and we are serious about buying one of them and shouldn't be prevented from that simply due to having to wait 90 days for one bank or negotiator to say yes or no while the other one is out there that should also have the chance to say yes or no but doesn't even know we're interested as we can't make the offer. It would be like the seller who takes an offer from a buyer contingent on sale of buyer's house, getting another buyer ready to go right now, no contingencies, but not being able to sell it to them because the other buyer is tying them up.
In the other case, a seller taking an offer from a buyer who also has an offer on a second property is not coming out of pocket or losing any money. Also, short sales are not always good deals just because they are short sales. many lenders are placing ridiculous price points on these properties expecting to get full retail or often better.
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.
I'm not sure about the loan issue, but I currently have two different offers out there on short sales and no one has asked me to disclose whether I have any other existing offers which have been accepted....I think you're agent just doesn't want to be bothered. The agents who do lots of short sales know that the buyers are going to be putting in multiple offers.
Exactly. I would say 75% of them aren't even good deals.
I guess Will is right.....we will just have to agree to disagree on this subject. Jackie & I are BP members to offer input based on our experience and knowledge, to receive the same from other BP members and to gain productive business connections. We'll continue to do what works for us and our clients. As Forrest Gump said..."That's all I have to say about that."
I can't speak for other states, but the standard GA contract has two check-boxes that need to be filled out for every offer:
1. Buyer has other properties under contract?
2. Buyer has the right to submit other offers?
This gives the seller more information about buyer intent, at least in some cases.
I can't speak for other states, but the standard GA contract has two check-boxes that need to be filled out for every offer:
1. Buyer has other properties under contract?
2. Buyer has the right to submit other offers?
This gives the seller more information about buyer intent, at least in some cases.
Interesting. I don't think they have that on the contracts here (yet). I haven't seen it anyway.
The choice of a negotiator can absolutely be up to the buyer. All you need to do is write into the offer that the short sale negotiation will be done by XXX. We negotiate for buyers all the time.
Would it not be simple to add a clause in your offer stating that your offer is withdrawn if another short sale offer is accepted first. We have done this and it seems to be well understood and it creates urgency and gives no time frame for withdraw. If an offer is accepted then we simply call or email the other brokers and let them know that someone else beat them to the deal.
J Scott - They do not have those on CA, NV, AZ, or TX contracts either and I am sure many other states do not either. Not sure if I would want to see it there or not, mixed emotions.
Jackie Patterson - Good point and I have done that in the past. The problem is often the list agent. I have persoanlly experienced many times agents refusing to do so. They feel they are giving up control and that they are now placing the fate of their client into someone else's hands, so often they refuse. With that being the case, investors here in CA (where short sales can take up to 6 months to close - a good bank and negotiator can get these done in about 2-3 at times) are forced to make multiple offers in order to get one deal and they often have no choice but to let the list agent be responsible for the negotiations.
Bill Patterson - Certainly, we all have different experiences and having this venue to share them with each other is one of the greatest things since sliced bread. Let me be crystal clear that I do not dispute what you and Jackie have pointed out, your areas are certainly different than mine which can often cause different circumstances and outcomes for our experiences.
I will, however, stand firm that both your opinons come from the side of the fence of the list agent so naturally your opinions are voiced for that side, whereas, I am from the investor buyer side and would never agree to have EMD funds held up or agree that I could only have my one offer on teh one short sale. It would not be fair to me or condusive to my business.
Will, just to be clear, our opinions don't come from the side of the listing agent. We are NOT the listing agent. We are operating as the buyer/investor, or we are representing the home owner, the buyer, and sometimes the Title Company. Even when when we represent the homeowner, we work between them and the listing agent.
I think our philosophy is different than yours. We're not just playing a numbers game, looking for the biggest profit we can get. We look at the human element and are proud that we can help distressed homeowners out of a bad situation. We also help buyers get homes they want, work with investors to get great deals, help Realtors who don't have the time or expertise to negotiate short sales, help Title Companies provide a service to their Realtors, and generally take a bad situation and turn it into a win-win for everyone. Along the way we also make a profit. We've made very large profits, but we've also done a few where we didn't make a dime. Of course we don't want to do that all the time, but we're not going to abandon someone in the middle of the process because there is no profit. That's why hearing an investor say they make multiple offers and take whichever one come in first really bothers me. This puts the homeowner whose house has been taken off the market for that period in a really tough position. It also means that whoever is working the other short sales just spent many hours for nothing.
Jackie Patterson - My mistake, I misunderstood your role, now I am clear.
Let me also make something clear, I cant speak for every other investor, but for me the following statement is just not true:
One last thing Jackie, in the event that I did in fact run with your program and had to put up an EMD, and in the event that the bank came back with an approval but at a higher price, I as the buyer would have the full right and option to back out because they did not meet my offer price and as such, my EMD returned. In such a case, you and the seller are now in the very same spot you stated you avoid by having people not make offers on more than the one deal. My question is, how would the two scenarios be any different in the end? I am sure you can not say that you have successfully closed 100% of short sale transactions so this scenario must have come up before.
By the way,in debates back and forth such as this, nobody can see facial expressions or tones of voice, it is just text, as such, sometimes misunderstandings take place and I wanted to be clear that I am enjoying our converstaion back and forth, I am not attempting to argue with you. I am, however, trying to understand and learn from your perspective and hopefully same goes for you.
By the way,in debates back and forth such as this, nobody can see facial expressions or tones of voice, it is just text, as such, sometimes misunderstandings take place and I wanted to be clear that I am enjoying our converstaion back and forth, I am not attempting to argue with you. I am, however, trying to understand and learn from your perspective and hopefully same goes for you.
Of course you'd get your EMD back, if you made one. If the lender counters, the buyer always has the right to accept, decline or counter back. Are we in the same position as we would be if a buyer backed out because they'd made offers on more than one deal? Not really in my opinion. In this scenario we would have the option of rebutting the valuation, and if all failed, at least everyone concerned knows it was a good faith offer that failed because the lender valued it too high. Sometimes that happens. That's different than wasting everyone's time on an offer that's likely to go nowhere.
I agree that conversations like this are good because you learn other perspectives. I also have to say that I'm happy to see so many responses about a short sale topic.
For the agents here:
If you you have more than one short sale accepted (by the sellers) at the same time (but only want to buy one house), and you end up buying one while the other is still in the pipeline waiting to be approved by the lender, should you back out immediately on the one you aren't going to buy, or stay in the offer so that it gets approved and the seller will have an easier time finding another buyer? What's the proper etiquette in this situation?
You need to back out immediately so that a backup offer (if there is one) can be inserted in your place, or the property can be listed as active again and a new buyer can be found. Remember that typically the foreclosure process continues during the short sale negotiation. They may be postponing auction dates, or not scheduling them, but the clock is ticking. Even if there is an approval, in most cases it is for a specific buyer, and if you change buyers it must be approved again and a new approval letter issued.
This is a really good thread, I agree with Jackie. I have a prop mgr/agent who assists he in purchasing properties. She sort of frowns on the unapproved short sale listings, no doubt since they take a lot of work with highly uncertain outcome. I sent her a note today asking her to try to find out the following on short sale listings on the MLS. I thought this might help to determine the likelihood of my bid having success. Do you think these are reasonable to ask the LA, or do you have other info you like to obtain?
• Who is the lender or servicer that the short sale package is submitted to? Is this a HAFA short sale, FHA, or just a standard short sale?
• Is there a SS negotiator involved, or just the listing agent handling the negotiation? If just the agent, how many SS’s have they successfully closed? If a negotiator, how many?
• Are their secondary liens on the property which also need to be settled with? If there is more than one secondary lien, I’d probably pass, as negotiations are too difficult.
• Has a short sale package been submitted to the lender yet? Or is the agent waiting to get an offer before they submit?
• Have any other offers been submitted to the lender yet?
• Has the lender ordered a BPO or appraisal yet? If so, can we find out the amount, or ask if our estimated value is in the ballpark?
Additionally, I have these questions for Bill and Jackie, or others with alot of SS expertise:
• Do lenders always require SS's to go on to the MLS, in order to maximize exposure?
• If an investor locates an underwater borrower, can they prepare the SS package, including the offer from themselves, and submit to the lender?
• Is the LA or SS negotiator normally privy to the value assigned by the BPO agent or appraiser retained by the lender?
• What is the typical discount a lender will permit below the BPO price (assuming standard closing fees, agent commissions, and negotiation fees are being assessed)? As stated, there HAS to be a discount to induce a buyer to put up with the uncertainty of this process. Is it 10%? 15%?
• Presumably an investor/agent could waive his portion and enjoy an advantage, just like with an REO, by yielding a higher "net" to the lender. Correct?
• Is the listing always “pended” when the seller signs an offer? Even if pended, is there a way for the LA to communicate to other buyers’ agents that “yes, there is an offer but it’s very low and probably won’t fly. Get your backup offer in and you’ll have a great shot.” If that happens, I assume the LA is obligated to submit all such higher offers to the lender?
• If $500 or $1,000 EMD is collected, is escrow always "opened", or is there some sort of short-cut process for holding the funds, given the uncertainty of the transaction closing. (I've read that only 20-25% of SS's close, versus 80% for conventional transactions).
• What is the typical fee collected by a 3rd party negotiator? In many cases, a skilled agent will handle this, correct? If so, how much above the commission might the agent include for “negotiation” fees? Are banks more reluctant to pay this to an agent vs a 3rd party firm?
• If a buyer makes an offer that will net the lender less than their minimum, will they counter with their minimum (like HUD)? Or will they typically counter above the minimum to try to negotiate a larger amount if possible? Obviously, it's not in the best interest of the bank to play with the buyer too much and cause the SS to fail, if they can in fact get the minimum, especially considering the foreclosure clock that is ticking.
• Is there a dollar amount (or % amount) that the SS needs to be better than a foreclosure price for the lender to approve the foreclosure?
If you have the time to tackle these questions, would be much appreciated!