By Susana Field

What are the chances?

I have tried to help two clients buy condos in Steamboat which were listed as Short Sales. (Short sales can be thought of as pre-foreclosure sales in that the owner’s mortgage lender gets involved because the asking price will not be enough to repay the mortgage; it will be “short” the amount due). Both times our offers were met with offers by other buyers and both times my clients’ bids were rejected.

As an agent of course I hate to go through all that work, for both myself and my client, only to loose the deal. (Yes, deals can be lost after putting in even a lot more work than that; like when my buyer’s financing falls through at the last minute right before closing, but still… ) But what I hate the most is that my clients lost the chance of getting the condos they wanted.

Here’s what I think went wrong, and how I think you can beat my odds:

1. Lowballing an already low asking price.

If your agent has run a CMA (Comparative Market Analysis), looking at all the similar properties which have sold recently, and comes up with X as the market value for the property, consider making an offer at 10-15% below market value and hope they will counter. But when the asking price is already below market value, going an extra 10-15% below that is treading dangerously.

If the asking price is below market value, and the property is in excellent shape and desirable, you are not the only person that is going to have noticed. It’s one thing to be low-balling when you are the only one at the table, it’s another thing to be doing it when a crowd is being attracted. This often can happen right after a price drop. What was a borderline attractive price with a price drop can suddenly become a very attractive and affordable price to more people than just you. 

2. Fear of being taken advantage of.

Yes, buying and selling real estate can be scary, especially in our current market where it’s natural to wonder if you are buying something just before the price plummets even more? But what about mistrusting the agents, the seller, and the whole process? Is someone going to trick you out of your money? When I told my clients on both occasions that the listing agent said they were expecting another offer that same day, the response was “Yeah right. They are lying to get me to raise my price.” As an Exclusive Buyer Agent I have a legal duty to my client. I don’t want them to pay more than they have to. But I also don’t want them to lose a home that would be perfect for them, because of a fear of being taken advantage of.

Yes the listing agent could have been lying (although I doubt it and in these two cases felt them not to be). And my clients didn’t want to risk being tricked. But what about risking the possibility that it wasn’t a trick? That there was another offer and that it could be a better one? Why not take the opportunity to decide exactly how much the property is worth to you and make that offer? Is $5000.00 going to make much difference in your mortgage payments (especially at these rates)? Is $10,000.00? Is $20,000.00? If you can afford it, if you were expecting to go up that much anyway during negotiations, if it still gets you the perfect home, and if it still does so for under market value, why not? No one is asking you to offer more than you can afford or want to pay. Sometimes you just have to show your hand if you even want a chance.

3. Asking for too many contingencies.

Short sales are odd in that you are dealing with both a seller and a bank in order to buy a home. It’s understood that most sellers are willing to negotiate various things (fixing the broken faucet) and that most banks aren’t (typically it is sold “as is” with only ten days to conduct and approve your inspection findings). Because there is a normal seller involved it’s easy to think that you can ask for the normal stuff. But you have to remember that it’s not a normal deal. The seller has to be thinking about what the lender will approve of, because it will be up to the lender to allow the deal to close.

And what does the lender want? Besides the highest price they can get (remember, they are losing money on a short sale as it is, and so they want to lose the very least), they want to be assured the buyer is going to close on the deal in the end. Thus they want as few opportunities for the deal to fall through, meaning as few contingencies to the contract as possible. They’d like it to be a cash deal, or at least with as much cash down as possible to enhance the chances of financing going through for the new buyers. They’d like it to be sold “as is”, so there won’t be negotiations over repairs which could derail the deal.

I don’t like short sales. When a seller lists a price or a bank lists a price, you can be pretty sure that i you give them everything they are asking for that they will sell the home to you. You also can generally get an answer back in a couple of days to whether they will accept a lesser price or terms. But with a short sale, all you know is that the asking price will not pay the mortgage off. The seller is willing to accept the price but hasn’t a clue whether the lender will or not. And it could take months to find out. Oftentimes the asking price is just a lure to capture a mandatory Offer which the seller has to submit to the bank with their short sale request package. All to get the lender to agree to a short sale and to show their hand in what they will and will not accept for a price.

Yep, my clients and I have struck out twice in  buying a short sale property. The first buyers so far have not come back to the table. The second set left on vacation, with plans to keep looking when they return. Will they look at other short sales? The third time’s the charm, right? I’ll let you know here in this post how well we do! And please, you let me know how well you do too! Maybe together we can get it all figured out!