Negotiate with the bank to get the best bargain in a short sale transaction.
When you buy a house in a short sale, you acquire a property that the current homeowner can't continue to make mortgage payments on. The homeowner may prefer that the bank sell the property in a short sale, because a foreclosure is more damaging to credit. The buyer purchases the property from the bank and benefits from the transaction because of the below-market price. The bank benefits because it does not have to incur costs associated with foreclosure, nor does it have to bear the risk of acquiring a property it may not be able to sell promptly. Since the bank accepts a smaller sum than what is owed on the mortgage, negotiations are important for the buyer.
Instructions
1. Make a list of potential short sale candidates. In general, banks are more open to negotiations for properties in which the homeowner owes a lot on the mortgage and in which the homeowner has little equity. Refer to legal advertisements, online databases and courthouse listings, or talk to an experienced real estate agent to identify candidates for short sales.
2. View and evaluate the properties. Determine the extent of any damage and how much you may have to spend on repairs. Narrow your list down to one property that you want to buy, based on which house you think will yield the best bargain.
3. Estimate the true market value of the property. Compare it to similar houses in the area that have changed hands in the past few months, to get an idea of the home's market value. Having a realistic idea will help you in negotiating a reasonable price for the property.
4. Apply for financing. The bank will not consider the short sale offer if you do not have adequate financing, because that may indicate you are not creditworthy or eligible for a loan. On the other hand, pre-approved financing will allow you to close the deal as soon as the bank accepts the offer.
5. Determine the mortgage on the home. Along with the property's true market value, you should find out how much the homeowner still owes on the mortgage. This information will tell you how much the bank stands to lose and help you negotiate a better deal.
6. Organize the proposal. Your short sale offer to the bank should include an appraisal of the property and an estimate of damages and repair costs, along with other documents. The lower the appraised value, the better it is for the buyer since it gives him the upper hand in negotiations. This is because a low appraised value may convince the bank to sell the property at a below-market price rather than holding on and expecting a better offer. Similarly, high estimates of damages and repairs will also work in favor of the buyer.
7. Determine the highest amount you are willing to spend. Use the market value, appraised value and the estimates of damages and repair costs in negotiations. If the property is in a distressed area and rapidly losing value, and if it needs a lot of repair work, the bank may consider even modest offers. Have a set figure in your mind, and negotiate the deal by emphasizing the problems with the property.
Tags: short sale, market value, appraised value, bank accepts, bank benefits, bank sell
