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Indianaplis Short Sales -- Are They Good Deals?

Indianapolis Short Sales -- Are They Good Deals?

Piggy bankMaybe!  Many buyers think banks own Indianapolis short sale properties, thus they set the list price.  They don't.  (For more information on this, read Part 1 in this short sale series -- What is a Indianapolis Short Sale?.)  The seller is still the actual homeowner, so it's the seller who actually controls the list price. 

But since Short Sale offers are contingent on approval by the
seller's lender, it is the lender who ultimately determines the
sales price which they are willing to accept on a short sale based on their guidelines and a current appraisal.  Once this value is determined they will either reject, counter or accept an offer.  If accepted, they will issue a short sale acceptance letter to the homeowner along with not only the accepted price but other terms such as the closing date and possibly the requirement that the seller agree to a promisory note to make up some of the difference between the approved sales price and the mortgage balance.  The homeowner has the option to accept the terms of this agreement or allow the bank to proceed with foreclosure or deed in lieu.    

So the big question is, what price is the bank willing to accept in order to get the deal done and avoid the expense of foreclosure?  In a perfect world, there would be published guidelines as to what the "usual" or "normal" amount might be, but unfortunately, the world of short sales is anything but "usual" or "normal".  

So you see, it depends on the circumstances of each individual Indianapolis short sale and how motivated and realistic the bank is as to what the true market price is and what they are willing to accept. 

And it's not just the price that makes a short sale a "good" or "bad" deal. It's often how the short sale is handled by the listing broker and bank. When working with buyers who are considering purchasing an Indianapolis short sale, we open a dialogue with the listing agent prior to showing a short sale to determine the individual details.  Here are some of the variables we want to know about in order to evaluate whether or not a short sale is a "good deal".

1.  How many mortgages are on the property?  If there is a second, the approval process will be more difficult.  A second only receives $3000 from a short sale, so they
often elect not to participate or require the buyer or seller to bring additional funds to closing to make up the difference between the 2nd mortgage balance and the $3000.  This is often a deal breaker.

2.  Which Banks are involved?   Local banks tend to know the local market and can make decisions more quickly.  If there are two mortgages it may be easire to get an approval if the same bank owns or services both loans.

3.  How many offers will be sent to the bank?  Short sale offers are handled differently
depending on the bank and listing agent.  For the buyer, the best scenario is to have one primary offer accepted by the seller and sent forward to the bank.  The bank may still counter the offer, but at least the buyer doesn't wait for weeks or possibly even months, just to have another offer submitted at the last minute. 

4.  Homeowner Occupied?  Although short sales are usually sold "as is", if the seller is still living in the property (and usually they are) then the condition tends to be less
risky.  The utilities are still on, the lawn is mowed, general maintenance is more likely to be taken care of, vs. an empty home which may or may not have been properly winterized, has overgrown landscaping, flooded basement etc.

5.  Are there other liens on the property?  A title search should be completed when the property is placed on the market, but this isn't always done, and even if it is, the seller may continue to acquire additional liens (Federal Income Tax liens, contractor liens, etc) that may not be discovered until the last minute.

6.  Has the homeowner initiated the short sale documentation with the lender?  The bank will require the homeowner to submit financial documents supporting their financial hardship.  If this has already been intiated, or better yet, completed, then the process will move more quickly.  If not, it could be months before the bank responds to an offer.

Basically, there are some great Indianapolis short sale deals out there, but as you can see, there are also risks, they take longer and often there are headaches along the way.  But it's precisely these risks and headaches that make the prices more attractive.  If it were easy to buy a short sale, everyone would! 

An experienced short sale agent helps buyers understand and evaluate the risks.  They also explain the differences between short sales and other types of distressed sales, such as Bank Owned properties or HUD's and how each works with the seller's goals and timeframes.  After looking at all of the options, weighing the risks and benefits, some buyers will decide the reward is worth the risk, while others will determine that the whole "distressed" sale market isn't for them. 

The good news for all buyers is that these distressed sales are forcing non-distressed sellers to lower their prices in order to remain price competitive.  So even if you decide a short sale isn't for you, it's often possible to find a beautiful home where the sellers are motivated and have priced below market value.  And that's a great deal too!

Other related articles:

Part 1
- What is an Indianapolis Short Sale?
Part 2 - How to Buy an Indianapolis Short Sale

Contact the Hoagland Group at 317-340-4575 to find out more details on Indianapolis Short Sales, Greenwood IN Short Sales, or other central Indiana Short Sales.

 

Originally posted on Hoagland Group Active Rain Blog

 

 

Unless otherwise noted, blogs are authored by Tonda or Steve Hoagland

 

 

Comment balloon 31 commentsTonda & Steve Hoagland • March 09 2011 03:46PM

Comments

Short sales are usually good values but do take alot of patience

Posted by Lori Bowers, The Lori Bowers Group almost 8 years ago

Hi Tonda & Steve,

This is a very good post that explains the process and the pitfalls. presenting one offer at a time to the investor is very good advice. Even though a short sale may be a great deal, buyers do not want to be in limbo for too long and multiple offers do bottleneck the system.

Posted by William Haddad, Carmel, Fishers, Noblesville (Sierra Pacific Mortgage dba Capital Mortgage Solutions) almost 8 years ago

Fabulous article!!!  Great points!!!!!!!!!!

In terms of buyer's concern regarding short sales; one factor that hinders a short sale is the length of time it takes to approve some of these transactions.  In the past, when we were used to 3-6 months of approval time, the great priced short sale often became overpriced due to market deterioration.  Nowadays, the process has streamlined with the big lenders (avg. 2-3 months).  In some markets where you have prices stabilizing or decreasing slower; the value will sustain.  So based on this, if the home was priced lower at the time of acceptance then it is a good deal. 

I have taken out buyers who want the "steal".  I think as agents, we need to make sure our clients understand the market for this home and do the analysis to determine whether is priced well not a steal. I don't think there really is such a thing as a steal anymore given that lenders are not going to approve a very lowball price if the market can sustain higher.  However, that being said, if the property has been on market for a long time, then the chances of possibly getting a better price on the home is definitely out there. 

So good deals?  Absolutely! Steals?  Depends.

Posted by Helena Kaucheck almost 8 years ago

Lori,

We find short sales can be excellent values, IF they actually close and IF the buyer has the time and patience to wait around.  Sometimes it's quicker and easier to find a good HUD or bank owned property, but right now Central Indiana has a lot of short sales.  Many buyers think they know what they are and how they work, but when we actually sit down and chat, they discover there is a lot they don't know.  Some still pursue, while others decide it's not for them!

Thanks for the comment!

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) almost 8 years ago

William,

I agree.  We've found the best route for both buyers and sellers is to send one offer to the bank (one that is as near market value as possible and where the buyer is willing to wait).  Then the bank gets moving with their appraisal and the process starts chugging along AND the buyer is rewarded for sticking around with a nice home at a good price.

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) almost 8 years ago

Thanks Helena!  Yes it seems the banks are finally getting systems in place to move approvals along more quickly.  Or we've been brainwashed -- do we really believe 2-3 months is quick?!!  I also think most banks are also doing their homework on the value of these properties and aren't willing to accept rediculous offers.  But there are still some excellent deals for those willing to take a little risk and have the patience to wait.

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) almost 8 years ago

Great artical on short sales...  I have done a few as the listing agent and they are all different.  Some lenders are easier to work with than others.  A few years back I did one with GMAC and it closed 45 days after they received the offer.  But it has been my experience in the pasted most lenders will accept 88% of the homes appraised value.  When I recommend a listing price for a short sale around 5% below the suggested CMA value. 

I also have a document in the attachments section of the listing that explains a short sale and how it could be several months before the offer is accepted.  The buyers agent and their client is to sign the document prior to making the offer.  Hope this might give someone some insite.

Posted by Allen Deaver, Allen Deaver (Sky Realty) almost 8 years ago

Thanks Allen.  I agree, some lenders are definitely easier to work with than others.  I've been considering adding a similar disclosure for buyer's agents to our listings.  There are just too many agents that don't understand how these work or they've had one or two so they think they know -- but there are so many variables that make each one different.  I need to move this up on my "to do" list!

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) almost 8 years ago

I specialize in Short Sales on the West Side of Los Angeles and all your points that you brought out are really valid throughout the country. Great Post and a real good primer on Short Sales. What I have told my clients that you sometimes can get a better deal with a home that is not a short sale because you are dealing with sellers that have emotions where the bank has none. You will sometimes be able to get a higher % below market value with an individual in a regular sale then with a bank in a short sale or REO

Posted by Robert Schmalz, Cal. Lic Broker (West Los Angeles Real Estate Group) almost 8 years ago

I am not sure I learned anything new, but article is a great one for potential Buyers.  Thanks for the post.

Posted by Jerry Morse, BBA,GRI (The Morse Company) almost 8 years ago

Robert - Absolutely!  Although sometimes we need to take a look at a few so the buyers can draw their own conclusions.  They have so many outside influences telling them they're crazy if they don't buy a distressed property.  We might look at several REO or short properties, then look at a normal sale and they say, "This house doesn't need a thing, the price is great, it's not sold "as is" and  we don't need to do any improvements".   That's what we're talking about!!!! 

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) almost 8 years ago

Jerry,  the purpose of this post is to inform buyers.  We'll use it in other marketing formats too.

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) almost 8 years ago

You make very good points. Here's my formula: You must assess the value of a short sale listed property the same way as a resale - quantitatively and qualitatively. Add the buyer motivation, calculate and add the expected waiting period, the success ratio of closing escrow in your area, add or discount the future value of the property at that COE point in time in the future, and subtract a discount 10 to 15% because it's a short sale. Add or subtract the experience and reputation of the short sale listing agent. Shake well, and bake with your client. 

Posted by Richard Bazinet /MBA, CRS, ABR, Phoenix Scottsdale. Sellers, Buyers & Relocations (Realty ONE Group) almost 8 years ago

Richard, I like the way you sum up the situation!  I can't help but think of that crazy Will Ferrell movie, Talladega Nights "Shake N' Bake"  http://youtu.be/sLF31AY25so  !!!!!

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) almost 8 years ago

Well articulated article...thanks for sharing! The idea of any distressed/motivated property owner/bank poses a potential great deal on the surface. If the banks would allow any type of reliable trend to be assessed for a prolonged timeframe, we might be able to make across-the-board statements about Short Sales. Until then, it appears that we are all forced to examine each opportunity on a case-by-case basis to determine the value.

Posted by Jason E. Gordon, Sr. Loan Officer, CMPS, CDLP, RCS-D, CDPE, CMHS (AmeriFirst Financial Inc, San Diego, CA) almost 8 years ago
Great title for this post. You raise a good point about 2nd liens only receiving $3,000. Most 2nd liens will still try for more than $3,000.
Posted by Thomas Staples, (407) 476-4993 (La Rosa Realty) almost 8 years ago

There are mitigating factors concerning the value in anything that's for sale. Depressed properties will not drive down the value when comparing the quality features and benefits of a property. that's why people hire professionals who can demonstrate the differences and value to close at a higher price regardless.  

Posted by Kimo Jarrett, Pro Lifestyle Solutions (WikiWiki Realty) almost 8 years ago

For some inexplicable reason, I have encountered a  number of sellers recently that are demanding high contract prices. I understand that therer are tax samifications, but your blog is spot on - utlimately it is teh lender that decides.

Posted by Paddy Deighan JD PhD, Paddy Deighan J.D. Ph.D (TimeshareLawyers.pro) almost 8 years ago

This post will really help buyers to understand the short sale process. 

Posted by Brenda, Ron, Lee Cunningham & Tara Keator, Realtors, Homes for Sale - Phoenix Metro (West USA Realty) almost 8 years ago

I remain amazed that home buyers are willing to wait 3, 6, or more months to buy a home.Even more amazing is that they'll wait a couple of months just to find out if the bank will allow the offer to go forward.

When I was an agent, the home buyers I had were looking because they wanted somewhere to live - as soon as possible.

Posted by Marte Cliff, Your real estate writer (Marte Cliff Copywriting) almost 8 years ago

Hi Tonda and Steve -

What a great explanation here!  It is thorough and easy to understand.  Well done!!!!

Posted by DeeDee Riley, Realtor - El Dorado Hills & the Surrounding Areas (Lyon Real Estate - El Dorado Hills CA) almost 8 years ago

Great information! I plan to tweet/fb this out today.

Posted by SentriLock Blogger (SentriLock, LLC) almost 8 years ago

Jason, How true!  In my humble opinion, the most difficult thing on short sales is to try to explain how they work without completely confusing buyers and sellers.  It seems my conversations are constantly "most of the time", "usually", "in most instances"! 

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) almost 8 years ago

Marte - Some bargain hunters are willing to wait a long time on these short sales, but the sad part is when they wait and then it's never approved.  We've seen them go on to foreclosure or suddenly have substantial liens attached, etc.  If you KNEW FOR SURE, then waiting wouldn't be so bad, but with short sales, there simply isn't any guarantee that it will actually materialize.  Many do, but some unfortunately don't.

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) almost 8 years ago

Brenda, Ron, DeeDee, Laura -- Thanks!

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) almost 8 years ago

I think the prices are a little better, but the hassal makes it questionable when you can buy something else a lot easier.

Posted by Gene Riemenschneider, Turning Houses into Homes (Home Point Real Estate) almost 8 years ago

Laura - Thanks.  Hope you find it useful.

Gene - Right now in our area HUD listings seem to be the easiest and quickest way to buy at a really low price.  They're consistently priced below bank owned and short sales.  Plus, you get a response right away!

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) almost 8 years ago

It pays to have an experienced and motivated agent to help you figure out if the home you want is a good deal because short sales can get very complicated.

Posted by Dennis & Terri Neal, Your Home Sold in 45 Days or We Se (RE/MAX, Big Bear) over 7 years ago

Steve/Tonda

GREAT post!  This information is a good reminder for those of us who are working short sale transactions and a good introduction for the newbies.  I recently wrote a contract for a property that is listed as a short sale and since it is my personal purchase I was very nervous about the transaction.  After reading your article and felt confident to know I went though all the right steps before submitting my offer. 

Posted by Alicia Stukes, GRI, CDPE, Notary (Exit 1 Stop Realty) over 7 years ago

Dennis & Terri.  Absolutely!

Alicia, Hope you get a great deal and everything goes smoothly!

Posted by Tonda & Steve Hoagland, Real Estate - Greenwood Homes for Sale - Central I (Keller Williams Realty) over 7 years ago

Short sales can be a great deal, and do take a lot of patience and some flexibility. I have found that sometimes you can find a motivated equity sale and get a good deal without the hassle too. Depends on each situation and what home is ultimately best for the Buyer.

Posted by Sylvie Stuart, Home Buying, Home Selling and Investment - Flagsta (Realty One Group Mountain Desert 928-600-2765) over 7 years ago

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