What You Need to Know to Get your Offer Accepted by the Bank

Most Buyers believe that if the property is distressed or in a short sale, they then would have the most chances of their offer being accepted, since the bank is “distressed” or wants to sell fast.

However, it works totally in reverse, on a short sale or distress situation, the Buyer has the least flexibility and the least leverage when presenting an offer. In many occasions they don’t even have a second chance!

Meaning they are not even countered by the bank. The property is distressed NOT the bank! Remember the legal definition of distressed property, “the legal seizure of the goods of another as payment for debt”, this does not necessarily mean that the Bank is distressed.

Let me explain:

Banks are NOT in a rush, as of this writing according to The Los Angeles Times, banks are holding 1.8 million homes off the market. This is known as the “shadow inventory”, these are homes that have been foreclosed which banks are holding in order to not further deplete residential real estate prices.

a. – On a Distressed Property or Foreclosure, the bank has already gotten an idea of the value by means of a BPO or Broker’s Price Opinion of Value and their own in-house system. The decision as to how much the property is worth is taken thousands of miles from the property in some office who in most cases does not know what the local market conditions are. They do take into consideration what the local Realtor says, but his/her opinion is just part of the equation.

Once the bank decides, unilaterally, on a value, they stick with it. Offers which are nearly this value or beyond get countered or approved immediately, all others are discarded right away. Once you see a price on a distressed or foreclosed listing, that’s it, that’s the price, there is no negotiation, if you want to get that particular house, just bid that price OR MORE!

This is why you often see in these listings “send us your best & final offer”. You are not offering, you are BIDDING! Big difference!

If the property is in excellent condition and in a good neighborhood and you bid exactly what the bank is asking, chances are you are NOT going to get it. You would need to bid MORE! This is because there is competition, you are not the only one. These properties, the nice ones, get a lot of competition!

b. – on a short sale, the owner of the home will forward all offers received to the bank. The bank’s main criterion is how fast & how surely can the buyer close. They will choose the cash only or big down payment offer as opposed to the highest price offer because they want to sell the home as soon as possible, even if there is another offer that is higher in price. On a short sale what counts is demonstrable financial ability to close.

Not so on a distressed property, there what counts (from the bank’s viewpoint) is highest price.

On a short sale once the bank decides on an offer, whatever price was on the offer becomes the approved short sale price and then the bank behaves as in a) above.

Therefore you have two cases on a short sale:

I. – the short sale has not been approved (most cases), in this case price is not as important as financial ability to close. It is better to offer less with more down payment and/or all cash if you can, than a higher price. (most short sales don’t even take FHA Loan offers)

II. – the short sale has been approved, in this case there is no further price negotiation that is possible, you would have to pay the listing price or more if you want to acquire that home.

When to USE an FHA Loan (FHA Loans Could be a Double-Edged Sword):

FHA (Federal Housing Administration) loans are great tools to buy a home. The down payment is very low, it usually can be gifted from a relative and the lending criteria is very flexible. This allows a lot of people to qualify for them.

This is why FHA loans are very poor to present offers for an un-approved short sale, since they give the least confidence of the financial ability of the Buyer to close the transaction. FHA loans also tend to be a little longer than regular loans and in addition to the Buyer qualifying, the home is subject to more stringent qualification requirements, this is why it is very difficult or nearly not possible to buy a foreclosed home using an FHA loan.

You CAN however use short sales and foreclosures to your advantage, but in a different much more effective way, this link shows you how to get the best deal on a property.

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