Buying a Short Sale Property

August 17, 2008 9:12 AM

I just saw a house in NY that is being offered as a short sale. It needs work, but the investment would be smart. My real estate agent was trying to dissuade me about considering the house by saying that the house needs so much work. It does need work, but not as extensive as the agent is suggesting. How do I negotiate the process of making an offer and have it accepted?

A couple of points to ponder: my agent teaches a foreclosure class and I'm suspicious that he wants to purchase the home himself; 2 agents are involved - mine and the one representing the seller. Can I speak with the seller/bank myself? I want to be sure that my offer is presented and that I'm not outbid by someone (like my agent) or that the agents work together to get me to raise my offer - and their commission -by just saying that my offer is too low. Is there anything to protect me as the consumer? I feel like a sheep among wolves!

posted by anonymous to work & money (13 comments total)

It would be worth your money to pay a home inspector to come in and give you an assessment of what really needs to be done to the house to make it livable. Hire someone who is completely independent of your agent. This can help give you legitimate bargaining power. When I bought my house, the inspection person was able to tell me that some of the electrical and plumbing in the house needed immediate upgrading, but that other problems were merely cosmetic and could be fixed later.
posted by pluckysparrow at 9:19 AM on August 17, 2008

You should absolutely get an inspection and/or walk through by a contractor as soon as possible. How do you know "it does need work, but not as extensive as the agent is suggesting?" Have you experience with rehabs? I work in construction but would be pretty wary of a lot of fixers - houses can be serious money pits. But your spidey senses may absolutely be correct. An inspection costs what, 300 bucks? It's money well spent.

As to whether you can try to speak to the bank directly - check your contract with your agent, but it's unlikely the seller will speak to you if they've retained an agent.
posted by jamesonandwater at 9:27 AM on August 17, 2008

Thirding an inspector. Don't go into this based on what you think. Get a professional to look it over.
posted by kimdog at 9:35 AM on August 17, 2008

Can I speak with the seller/bank myself?

Did you sign a contract with the broker? If so, and I guess I'm sorry to admit how commonplace this is, a buyer will initiate "off the record" discussions with the seller, with the first official inquiry happening after the contract expires.

As I said, this is pretty common, and all the big brokers coach their agents to do this kind of thing.
posted by StickyCarpet at 10:06 AM on August 17, 2008

I am not a Realtor.

That said, you should determine whether or not the home has been approved for a short sale already. You say it's being offered as a short sale, but that doesn't necessarily mean that the bank has approved the short sale, or will approve the amount you're offering. The reason I'm pointing this out is because unless the property has been 100% pre-approved for a short sale, getting the lender to accept a short sale offer takes a LONG time, possibly months. If you're willing to wait that long, it's worth investigating, but if not you may want to move on.

If the property is known to have flaws, it's not uncommon for the inspection contingency to contain a specific dollar amount- IE the contract is contingent on an inspection that indicates the property needs less than X thousand dollars of repairs. That way the buyer can write the maximum they're willing to pay for repairs into the contract and you have an easy out if the damage is worse than you thought. If the repairs are over the limit and you decide to go through with it anyway, you can still release the contingency.

I want to be sure that my offer is presented and that I'm not outbid by someone (like my agent)

If you tell your agent that you're ready to present an offer, they're going to have to do it. If you're concerned that the agent is going to try to outbid you, contact their broker in advance. I'm not 100% sure on this but there may be something preventing them from bidding on a property their client is also bidding on. Again, the buyer's agent's broker will be able to address this concern.

or that the agents work together to get me to raise my offer - and their commission -by just saying that my offer is too low.

This is a reasonable concern, but upon scrutiny it doesn't stand up. The primary reason why is because the seller, not their broker, is the one who ultimately accepts or rejects the contract. If they're in a short sale situation, it most likely means they're in foreclosure and they're going to lose the house if they don't sell it fast. Unless your offer is ridiculously low, they're likely to take it.

Secondly, the broker wants to sell the house quickly, because they earn a commission and then can move onto the next property they're going to list. If they try to spend time negotiating with you to raise your offer, they run the risk of losing the offer and thus have to wait for the next person to make an offer, which is a dicey proposition with foreclosures. Now suppose the broker did attempt to get you to raise the offer, say by $10,000. 6% of that is $600, of which the broker gets half. So to risk losing or delaying the offer for an extremely negligible gain is an absurdly useless tactic, considering that most price negotiations usually take place within the $2-5,000 range. So really the price is going to be determined by what you're willing to offer and what the seller is willing to accept, not how much the broker wants to make. Their most valuable asset is their time, and if they're trying to negotiate for a few hundred dollars, they're wasting it.

Is there anything to protect me as the consumer? I feel like a sheep among wolves!

There sure is- your brain. You're using it right now and that's a good thing. If you think the buyer's agent representing you is not actually representing your interests, you need to contact their broker and explain your concerns. You don't necessarily need to involve your agent by name if you don't want to, just ask the broker what they might think about the situation you described (IE you think the agent is trying to steer you away from the property for their own benefit or may try to outbid you). That broker has a huge interest in ensuring that their agents aren't giving his business a bad rap and will be able to address your concerns.
posted by baphomet at 10:19 AM on August 17, 2008 [2 favorites]

If so, and I guess I'm sorry to admit how commonplace this is, a buyer will initiate "off the record" discussions with the seller, with the first official inquiry happening after the contract expires.

Are you familiar with the listing contract's protection period clause? It's required by the NAR for any listing contract. If the buyer is shown a house while it's under contract with a broker, and the buyer purchases the property within a certain period of time after the contract's expiration (usually 90-180 days), both the broker and the agent representing the buyer are still entitled to the commission. Can you guess why this is in the listing contract? It's to prevent people from attempting to cut out their agents.

In any case, good luck finding out when the seller's listing contract expires.
posted by baphomet at 10:23 AM on August 17, 2008

fourthing an inspection; this will highlight things you may have missed, and should give a better idea of how much work it will need. The inspector won't give you a price for the work, but they should detail what needs to be done in their report. Then, you can talk to a contractor and get some prices.

As to the broker question; I'll leave the niceties of contract law to the lawyers, but remember that the broker is there to serve you. You're the wolf, not them. your realtor is your wing-wolf (as it were), ready to jump in and help you make the kill. The other realtor is, of course, another wolf working for someone else, but that's why you have a wolf on your side.

If they don't reccommend the house, you should discuss the why, but you are also within your rights to say "I disagree. Make this offer on my behalf." And, given the current state of the market, I'd be very surprised if any broker is looking to flip a house and screw over a client. If you have any solid evidence that the realtor has anybody but your needs as the first thing on their mind, (beyond a gut feeling), get the hell out of there and get another realtor.

(note: I am not a realtor; just someone who bought a house recently).
posted by baggers at 10:28 AM on August 17, 2008 [1 favorite]

If you have any solid evidence that the realtor has anybody but your needs as the first thing on their mind, (beyond a gut feeling), get the hell out of there and get another realtor.

QFT
posted by baphomet at 10:39 AM on August 17, 2008

we just bought a short sale house. Took about two (agonizing) months to hear back from the bank after making our offer. Short sales are generally a huge headache for agents with a lower commission than normal sales. Is it possible they're trying to dissuade you because they simply don't want to deal with it?
posted by csimpkins at 10:55 AM on August 17, 2008

You don't trust your agent: get a new one.
posted by nanojath at 11:52 AM on August 17, 2008

Do you work in construction? I know a few folks who got in way too deep because they thought a teardown was a simple fixer-upper.
posted by jenkinsEar at 2:29 PM on August 17, 2008

I tend to yield to the advice of experts. If they say it isn't worth it, I'd listen.

If you're still pushing ahead, get an inspector or a contractor to look at the place. But then if you're not trusting your agent, you may not trust them as you may think they might try to inflate the price. There are crooked people in the world, but on big cash decisions, even if someone is looking out for themselves, you can always walk away.
posted by thebreaks at 6:15 AM on August 18, 2008

Follow-up...I brought an independent contractor with me to evaluate the house and he was in agreement that the mechanicals were in good condition. The house needs some work, but not nearly as much as the broker suggested. I made an offer that considered the work and my broker called me and told me that my offer was among 3 that were submitted to the buyer's broker. I raised my offer to the actual asking price, submitted all my mortgage pre-approval papers, and now am waiting. In the meantime, I've contacted the bank directly. The bank told me that as the house is in short sale, I must work with the brokers. If the bank directly owned the house as an REO, then I would be able to work with them directly. So, now it's a waiting game...I still don't trust my broker and have been interviewing other agents with whom I feel more comfortable. Thanks for all of your help.
posted by suzeQ at 3:29 AM on August 19, 2008