Short Sale on FHA Purchase Question

[LA Woman]

How does the short sale sales price get determined?

I'm asking as the purchase I'm doing is in escrow for about $50,000 under market.

When I put my value of say $200,000 and it's in escrow for and listed for $150,000 what happens? Anything? Does the bank renegot. the sales price?

I get the feeling on this job and on several sales that I've seen lately, that these short sales are being sold to family and friends at way under market.

Someone educate me on how this part of the short sale process works.:new_beammeup:

 

[CANative]

I have had properties appraise well above the contract price several times in the last few months, particularly on short sales.

BPO's (Bogus Price Opinions) are the likely culprit, and short sale fraud probably figures in too.

 

[Lloyd Bonafide]

Short sales often do sell below market, but the existing lender will probably never see your appraisal - they have to do their own evaluation of the property's value, as part of their decision to accept the negotiated sale price or not. Occasionally the buyer will be contributing funds to the purchase above the sale price, but that should be part of the purchase contract.

The sad thing is, the existing lender may never get a current appraisal - they may just rely on a BPO or multiple BPOs. It's a good opportunity for realtor/fraudsters!

 

[LA Woman]

Let me guess, the BPO the Bank gets to determine value is from the Listing Agent!!! Who probably has an investor/friend/family member just chomping at the bit to buy the property at 25% below market.

Well this is a problem then. Why are the banks not required to get market value for the property since we have bailed them out?

My market is in the process of switching from REO driven to Short Sale driven, I can't wait to see is this will stop the increase in values we have been experiencing.

 

[Riick]

Truth is that for short sales no one knows how the price is determined.
All I'm SURE of, is that though my business is primarily REOs, I have never
been asked, to put a value on a short sale.
Obamanation administration wants short sales instead of foreclosures, so that's
what we're going to see lots of in next 6-12 months.
Make friends with a broker and cut yourself some pie.

.

 

[hastalavista]

Well this is a problem then. Why are the banks not required to get market value for the property since we have bailed them out?

I do appraisals for a bank that are used in its consideration of the short-sale offer when it is the existing lien holder. Its regular business for me.
So there is at least one (and I'm sure there are more) Federally Regulated Institution that relies upon an appraisal in addition to whatever other valuation services it avails itself to before agreeing to accept a short-sale offer.

 

[Aprazr]

Just did a short sale last week & family was 'bailing out' family, I guess (same last names on contract -'Ngyen' or 'Do' or 'Duck' something like that(lol). Contract was $75k and appraised for $155k. Does NOT make sense.....but then again, what DOES make sense in this market (lol)

"Blessings to all"
Gregg White

 

[CANative]

I don't think the Fannie Mae definition of market value is adequate for the topsy-turvy world we live and do business in.

Denis... You say you do appraisals for "short sale consideration." Are you using market value and what does the client do with the market value opinion? Do they use it to see where the value is on that day and then consider how much the outstanding loan is, what the borrowers position is, what the market has been doing and what it is expected to do in the near term future as well as several months to a year out?

Are they also calculating how much tax relief they can get on the short sale, not to mention insurance claims and government reimbursements?

These are all complex issues and everything is a moving target.

 

[hastalavista]

Denis... You say you do appraisals for "short sale consideration." Are you using market value and what does the client do with the market value opinion? Do they use it to see where the value is on that day and then consider how much the outstanding loan is, what the borrowers position is, what the market has been doing and what it is expected to do in the near term future as well as several months to a year out?

Are they also calculating how much tax relief they can get on the short sale, not to mention insurance claims and government reimbursements?

These are all complex issues and everything is a moving target.

These are complex issues and I don't have an answer for all of them. I can tell you this:
A. As a rule, the values I have opined have been relatively close (within 5-10%) of the contract price; sometimes over, sometimes under. I don't think I've had one where the difference was more than 10%.
B. As I understand it, the client will take the appraised value into consideration and make its decision. In other words, if the difference is, say 3%, the client won't sweat it. If it is 5% or more, they may go back to the negotiation table.
C. In their assignment-requirements, they do not ask for anything more significant than a typical GSE minimum guideline (they do not ask for a forecast of the market trends). They do ask for a cost-to-cure estimate if appropriate (appraisals are done as-is).


I've heard through the agents and brokers I've interviewed that this particular client is considered "tough" in its negotiation process. If it concludes the price is unfair, it will stand fast and refuse. If it believes the price is fair (and I assume fair means within 3-5% of the appraisal value) it will accept the short pay.

 

[Lloyd Bonafide]

Denis does appraisals for the existing lender in a short sale transaction, but it doesn't seem like I hear too much about other appraisers doing the same thing. From what I have heard from agents working on short sales with the big lenders, BPOs seem to be the most common way they value their properties in short sales, and at least some of the time, the existing lender does not actually have a full appraisal done. Is that correct, or are many of you doing appraisals for the existing lenders? From what I hear about some lenders, if the contract price is within 10% of the BPO value(s), the short sale can be approved.