What to do when your short sale offer is rejected

A lender turns down your short sale offer and says to raise it, what are you to do?

The first thing to keep in mind is the banks position if the property goes back to them in a foreclosure. The bank must deposit an equivalent amount of money into a loan loss reserve account when they take back a property. By doing so, they are depleting their capital. As their loan loss reserve accounts add up, the bank becomes less liquid, losing their capital reserves, which could force them into insolvency. So your position of strength is that the bank does not want to foreclose. Your job in presenting that offer is to show that it is in the banks best interest to accept your offer. So how do you do that? You show them why their counter offer is too high.

When submitting your offer, make sure you calculate an offer of 80% of the value that you come up with. Lenders are discounting properties before repair costs at least 80% of the true value. This is the value that they expect to get if they were to "quick sale" it in 30 days or so. A short sale negotiation could go on for months or longer. During that time there could be lower comparable sales on the market. Find the most updated and lowest comps you can find and send them to the lender. Pay particular attention to the days on the market on how long it took that comp to sell. Point that out to the lender. If a comparable property took 210 days to sell, then that would justify a lower offer than that comp. The lender should be looking at a valuation based on selling a property in 30-60 days. This will be a "quick sale" price that the lender should agree to. Always keep this in mind.

Another negotiation strategy is to present them with a home inspection that shows every single thing wrong with the property along with an estimated cost to get that property in excellent condition. That cost is deducted from your market value, which is 80% of the 3 lowest comps. So for instance, if you have the 3 lowest comps averaging to be $100,000, multiply that by 80% to get $80,000. Now subtract out your cost of repairs. That should be your reasonable offer in which to give the bank.

Finally, the bank is negotiating to get the highest price for them as well. They will tell you anything to make that happen. I had one bank tell us that their BPO (brokers price opinion) came in at $245,000. It just so happened that my negotiator knew the BPO agent. She called him and he told her what the true value was. Surprise! He valued it at $210,000. So, the moral of the story is, stick to your guns because sometimes bankers lie.

Jim Costello

813-785-8602

Investor and Short Sale Specialist

P.S. – Ask me how I can buy your short sale listings, negotiate your short sale and pay you 10% commission.