Short Sales – How Investors Can Avoid Perils and Pitfalls

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perils of short salesI’m not going to wax poetic today about short sales as a great opportunity for sellers, listing agents, and buyers. While a short sale is all of those things, there are also many perils and pitfalls to purchasing and selling a short sale—including a few that arise when working with investor buyers.

Just like many investments, a short sale being purchased by an investor buyer is just that—an investment. Because the purchase is an investment, many of the emotional ties commonly associated with the purchase of a property are just not there. There is no stereotypical wife thinking about where she is going to put Great Aunt Esther’s rocking chair, and no young parents concerned with the quality of the local schools. There is simply a buyer (or an investment group) planning and calculating the net result of the transaction.

One of the most common things that occurs with the investor as buyer of a short sale has to do with a purchase price. The buyer offers to purchase the property for a specified price, and the offer is submitted to the bank. The bank likely will counter the buyer’s offer. The investor buyer may come up to the bank’s price and an approval letter will come soon after. Sounds good, right? Yet, often times buyers will revisit the property after approval and note additional repairs or issues which would hamper the closing—unless the bank agrees to lower the purchase price.

So, what can be done to avoid this problem and get short sales approved more quickly and efficiently?

It’s simple really. Buyers must conduct their research and do their due diligence prior to placing any offer. They must decide what their offer is going to be based on the comparable properties, the area, and how much they would like to earn at resale (if applicable). BPOs and full appraisals should be completed before submitting the short sale package to the bank and repair bids must be secured by licensed and insured contractors. With all of this information, the short sale negotiator or negotiating agent can provide the best picture to the bank from the very beginning—making the entire short sale process as quick and efficient as possible.

Photo: flickr creative commons by rmgimages

About Author

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®. Before landing real estate, she had careers in education and publishing. Many folks say that Melissa is genetically pre-disposed to success with short sales. In fact, last year she and her staff obtained over 500 short sale approval letters! When she isn’t speaking with lien holders, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

4 Comments

  1. Bill Patterson on

    Melissa,
    Nice Blog! Your advice is not just for investors, though. Every buyer of a short sale property should do all of their due diligence before submitting their offer or at least before accepting a counter offer. As investors, we not only give pictures and written quotes for needed repairs to the lender, but have them available to the Lender’s BPO agent. A retail buyer would be advised to do the same!
    Bill

  2. Hi –

    You noted that “full appraisals should be completed before submitting the short sale package to the bank and repair bids must be secured by licensed and insured contractors.” Is that really wise. Many short sells fail within a short time frame because the bank outright rejects a semi-low ball offer or feel their appraisal of the property is much higher what the buyer is aksing. Or, the bank may take months to render a decision. Thus, no assurances that your short-sell offer will be accepted and I’m sure many investors will attest, the bank simply says no.

    Thus, is it really wise to spend $350 or $450 on a BPO or appraisal before you submit your short-sell offer, especially if you’re an investor and making 2, 3, or 4 multiple short-sell offers? Even if you were not an investor, but rather an ordinary buyer, why would you spend that kind of money on a BPO since there’s no assurances of acceptance?

  3. Bill Patterson on

    We can submit our own BPO, but the lender will do another one in most cases. Lists of repairs, pictures and estimates are a must for the lender’s BPO agent as well as being good to include with your initial package. We would not in most cases have an appraisal completed unless we were working with a local lender and really wanted the property that had (in our opinion) a high BPO.
    Bill

  4. I really feel that hedge funds (or vulture funds as they are often referred to as) were the big winners in the real estate plunge. It’s they who are grabbing the short-sales and foreclosures. It’s a shame that the average investor: A) Lost a lot of liquidity in the market back in 2008 and B) Lost a lot of investing confidence that was derived from the fear of losing their retirement savings. I feel as though there are still some real estate investment opportunities in severely depressed markets such as South Florida, Las Vegas, and up and coming places like North Carolina and DC outskirts.

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