Buying a short sale can be a great opportunity to get an investment property at a discounted price. However, not many real estate investors know how to navigate short sale deals. For investors looking to capitalize on short sale properties, one of the biggest questions is: Can you negotiate a short sale price?
The answer is an emphatic “Yes!” It is very much possible to negotiate a short sale. However, short sale negotiations are usually more time-consuming and more complicated compared to traditional sales. This is because short sale negotiations have to be approved by an additional party – the lender. For you to effectively negotiate the price of a short sale, you must know how to work with both parties (homeowners and lenders). Short sale properties also come with some unique risks. Continue reading to learn the best practices for how to negotiate a short sale.
Related: How to Buy Investment Properties: Short Sale vs. Foreclosure
Strategies for Getting a Good Deal on a Short Sale
Negotiating a short sale basically involves convincing the bank to sell the subject property for less than the mortgage balance. To get a good deal, it’s crucial to have a good short sale price negotiation strategy.
Here are some of the top tips on how to negotiate a short sale.
1. Make Sure That the Short Sale Is Approved by the Lender
There are many homes that have been advertised as short sale properties. Just because a property has been listed as a short sale doesn’t mean that the seller has been approved for one by their mortgage lender or bank. The mortgage lender must verify that the seller can no longer meet their mortgage payments and that a short sale is their best option.
Therefore, even before you get too far involved in a short sale, you need to confirm that it is lender approved. If the bank hasn’t agreed to the short sale, you could be wasting your time. Sometimes, the bank may opt to go into foreclosure if it thinks it can get more money.
2. Hire a Real Estate Agent
Short sale transactions usually take a lot of time and are quite complex in nature. Therefore, it is strongly recommended that you hire an experienced real estate agent to navigate your short sale. A real estate professional will help you put together a viable offer and resolve possible hurdles.
They are also familiar with the best real estate negotiation tips and will help you negotiate the best deal. Make sure you vet them accordingly to find the right agent for the job. They should have a good track record in short sales.
Related: Working with a Real Estate Agent: What Investors Should Expect
3. Don’t Submit a Low-Ball Offer
Can you low ball a short sale? Most buyers think that the bank is desperate and figure that the bank just wants to get rid of the property at even half its value. It’s true that short sale properties are often sold at a discount. However, just because the seller is motivated to sell doesn’t mean any offer you make will be accepted.
It’s unlikely that the bank will approve an offer that is less than what they believe they can get for it. The lender is already taking a loss and wants to recoup as much as possible from the short sale. Moreover, there are likely to be multiple offers with some submitting higher offers. Submitting a low-ball offer will often result in outright rejection.
4. Conduct a Comparative Market Analysis
As we have seen, submitting a low-ball offer is a bad idea. However, can you offer less on a short sale? Absolutely. You don’t want to leave money on the table. However, you have to make sure you offer an appropriate price. You have to understand that making an offer on a short sale property is a delicate process that needs strategy and negotiation skills.
To know the right price to offer, you need to conduct a comparative market analysis to determine the property’s market value. This involves reviewing recently sold properties in the area that are similar to the subject property (real estate comparables).
Compare the market value with the approved price and see if there is a big difference. Based on this, you can know how much less you can reasonably offer. Even if it’s not in line with the price approved by the lender, it can still be accepted if you meet other requirements or the lender may counter offer. When submitting your offer to the lender, be sure to include your real estate comps report to back up your offer price.
Related: Learn How to Do a Comparative Market Analysis Like a Pro
5. Use Cash or Get a Mortgage Preapproval
Negotiating a short sale is not all about price. The lender may not necessarily accept the highest offer. Financing is also crucial in determining the chances of your offer being accepted over others. When it comes to short sales, lenders typically prefer cash buyers. Buyers with a cash offer will often get the quickest response. This is because cash buyers are deemed less risky by lenders and are more likely to close.
However, if you are unable to come up with cash, make sure you get a loan pre-approval and include it with the offer. Putting down a sizable deposit will also make your offer more attractive to the lender.
Related: How to Finance a Short Sale Property Purchase
6. Limit Your Contingencies
Lenders usually don’t want to deal with buyers who rely on the occurrence of certain events to decide whether to purchase the investment property or not. To avoid your offer being rejected, it’s usually wise to limit your contingencies and not ask for concessions.
7. Exercise Patience
As mentioned earlier, buying a short sale home can take a long time. However, the deal could be worth the wait. Therefore, once your offer is in, you need to exercise patience. You may not get a response from the lender for 30 days or more.
Use this time to do your home inspection to determine the work you’ll need to do. However, you should not ask for repairs since short sale properties are usually sold “as is”. If the cost of repair is too high and exceeds your budget, move on.
8. Talk to the Short Sale Negotiator
Another important step to getting your offer accepted is to find your short sale negotiator after submitting your offer. They will be your direct contact in the short sale deal and, therefore, you need to have their contact information. You can make enquires and get a better understanding of the sales prices.
The Bottom Line
Buying a short sale can offer lucrative opportunities for real estate investors. If you have been asking “Can you negotiate a short sale price?” you now have the answer. It’s entirely possible as long as you understand the short sale process and follow the right strategies. While it can be time-consuming, if you follow the above tips, you can easily get deals with attractive profit margins. If you are excited by the idea of buying a short sale, you can easily find and analyze profitable short sale properties in the Mashvisor’s Property Marketplace.
To learn more about how Mashvisor can help you find profitable short sale investment properties, schedule a demo.