Real Estate Advice: Backup Offer in a Short Sale

If the bank does not approve the contract, and submits a counter, and the buyer subsequently walks, then the seller will not necessarily have to relist the property. Once the current contract is canceled, the seller can accept the new offer and it will be submitted to the bank for approval. The good news is that at this point, the listing agent should know what terms are required to get an approval from the bank. And you can submit your offer with those terms in place, if both you and the seller agree to them. From this point forward what happens will really depend on who the lender is. Some lenders will be able to approve the short sale relatively quickly because the “investors” have already stipulated their terms and they are already far along in the short sale process. However, some lenders start from the beginning because it’s a new buyer.
Your agent should be able to ask these questions of the listing agent so that you will know what to expect.

Making an Offer on an REO

When making a decision on how much to offer there are several things to consider.

1. What are the comps? Have your agent (and it shouldn’t be the listiing agent) pull the comparable sales in the area. Determine what you think the value of the property is.

2. Now that you know the comps, decide how much you’re comfortable paying for the property. This is not necessarily the same number that you’re going to make your first offer at, but it’s a good idea to know up front how much you’re willing to pay.

3. Assess whether you’re in a buyer’s market or a seller’s market. If you are in a buyer’s market, you have more leverage. You may not be competing with anyone else for the property which means you can make your offer lower than the asking price and see how the bank reacts. More often than not the lender will stick to their asking price but I have been able to negotiate lenders down considerably by understanding the market and geting the listing agent on my side. It can take time and patience but it’s possible. On the other hand, if you’re in a seller’s market, then you may need to make a more competitive offer. Ask the listing agent if there are other offers on the property. Usually with REOs, the listing agent will be pretty frank about whether offers are going over asking or not. And they will let you know how many offers you have. It’s also important to know if the bank wants to see your highest and best offer up front or if they will counter all offers.

3. Remember, you’re not dealing with an emotional seller. This seller only cares about the bottom line. And even if you make an offer hat is at or over asking, it’s the bottom line that the bank wants to see. Consequently, with REOS, it always a good idea to ask for very little else in the contract. For example, if you ask the bank to pay your closing costs (let’s say it’s $7,000) then the asset manager is just going to take out his calculator and deduct the $7,000 from your offer price. If you ask for termite work, the bank is going to deduct that cost from the offer price. The same goes for a home warranty and repairs. The list goes on and on. Of course, if no one else is making any offers, then you can ask for more. The bank will simply tell you what they will or will not pay for. But if you’re offer is going to be lined up with 10 other offers, you want to make sure your offer is as clean as possible.

4, One last tip for REOs: If your offer is accepted and during the transaction you want to ask for repairs, the banks are more likely to do repairs that are health and safety related. I’ve had REO transactions that are advertised “AS IS” and “no repairs” all over the MLS listing, and I’ve gotten repairs approved by the bank because I’ve been able to position them as health or safety related.