Tips for Creating an Offer Price for a Short Sale

How does an investor make an offer to the bank?  The whole point of the initial offer price is to be able to justify the offer to the bank.  The original offer price will most likely not be the final sales price, as there is a ton of negotiating that goes on from the beginning until the end of the process.  But you want to make sure that the bank is able to ‘justify’ how you came up with your offer. 

As mentioned previously, though most banks do not require a CMA or Estimate of Repairs (from a licensed contractor), you will still want to send it with your Short Sales Packet to defend your offer.  The following is how to determine what your offer price should be:

·       Step 1- Determine asking price based on averages from CMA (this is why it’s good to have a CMA included)

·        Step 2- Reduce price by 10% due to potential market fluctuations in market value

·        Step 3- Subtract Repair Costs (this is why it’s good to have the Estimate of Repairs)

·        Step 4- Provide the following discount:

o   Between 75-80% for newer homes

o   Between 70-75% for older homes

There you have the offer price!  The following is an example.

CMA states that the house, built in 1973, has a Current Market Value (based on the CMA) of $100,000 and repair costs estimated at $15,000.  How to figure price?

·        Step 1- Current Market Value is $100,000

·        Step 2- Reduce by 10% - $90,000

·        Step 3- Deduct Repair Costs ($15,000) = $75,000

·        Step 4- Is 1973 old? NO!  That’s the year I was born!  Okay, it’s old.  Use a 72% discount.

·        Offer price- $54,000

Some Loss Mitigators may look at the $54,000 house and assume you are just trying to get a steal of a deal.  But the successful investor will provide the Loss Mitigation Department with the CMA and the Estimate of Repairs and be able to defend their offer and have their packet move to the next level!