UTAH REAL ESTATE INVESTOR

I think that just about everyone knows intuitively that you can get a great deal by purchasing a short sale property. But just how much of a good deal can you really expect to get after all of the negotiating, lost paperwork, apparently lack of progress, angry customer service people, extra time, etc. And where do you start. Let’s consider the purchase price.

How much do you offer on a short sale purchase? How much of a discount is the lender actually willing to take? And what offer will the seller accept in the first place?

There are a few numbers that you need to be aware of when purchasing a short sale. The first and most important number is current market value! When considering what the current market value is today we do not take into consideration what the property sold for last or what the current owner owes on the property. We need to look at the value from the bank’s perspective…if the property is listed as an REO (bank owned) property, what price would most likely cause it to sell in 60 days? The answer to that question in current market value.

Why does this method work to determine value? Because the bank has to answer one simple question, “if we take the property back through foreclosure, how much can we realistically sell the property for?” The bank will determine this value with a BPO (Broker Price Opinion).

When we consider the market comparables we only look at property that has sold within the past 60 days; anything longer than this is old data. We also need to take into consideration the other active listings (the competition) in the area and how that will affect the sales price so that the property could sell in 60 days. If the property has been on the market for more than 30 days without an offer then the list price is too high for the current market.

Once you can figure out current market value your ready to begin to calculate an offer price. Once again we must look at the property from the perspective of the lender, “how much can we realistically expect to NET if we take this property back at foreclosure?” The lender will incur quite a few expenses through the foreclosure process (such as legal fees, holding costs, insurance fees, repair expenses, closing costs, realtor fees, etc.). The lenders are doing so many foreclosures now that they know these expenses very well for every area of the country. If you know what these expenses are you can figure out the lender’s bottom line. Your offer just has to be higher than their bottom line and they will accept your offer!

Experience has shown that the foreclosure costs for the lender are between 15-20% of market value. With this in mind let me share a quick example:

I have a property that was purchased for $300,000 about 18 months ago. Today the CMA (Comparative Market Analysis or Realtor Price) value of the home is about $250,000. Considering the market factors a current market value of $220,000 is more realistic. So the investor offer price on this property would start be between $176,000-187,000.

Now just because the lenders will accept this lower value doesn’t mean they won’t kick and scream about wanting more money. There is more to a short sale than just price. However, if done correctly most lenders will accept these lower values because they actually net more money through the short sale than they will net if they go through the entire foreclosure process. And since the lender will get less than they are owed they will require that the owner receive nothing, so any offer to the seller should be acceptable as long as the investor can perform.

The easiest way to find a real estate foreclosure auction in Utah is to contact the trustee who is performing the sales. Here the main companies/firms doing foreclosure auctions: