Saturday, January 24, 2009

Destin Real Estate Buyer Question: Short Sales

Dear Wendy,

I have read quite a bit of your articles regarding Destin real estate and area short sales. I have made an offer to buy a short sale in October and we are still waiting. The house is brand new, it's listed for $799,000. The builder owes over $700,000. The house is not finished, it needs countertops, appliances, driveway, painting, finish hardwood floors, etc. Approximately $100,000 is necessary to complete house. A home 2 doors down just sold for $540,000. This new house is the nicest house in the development but definitely not worth $800,000. In our opinion even though it is the nicest house it probably is still not worth more than $600,000 to $650,000 that's if it was completed.
I originally offered $500,000 but now want to reduce my offer to $450,000 since it needs $100,000 to fix up and Destin real estate market is still falling. The negotiator is assigned and they will do an appraisal or BPO within 30 days. I feel $450,000 is fair given the changing market. Do you know typically how much Countrywide will go below market value, especially on an unfinished house?
Thanks,
Joe

Hi Joe,
Countrywide will not "really" go much below market value. They will rely heavily on the Broker Price Opinion (BPO) or appraisal, as I wrote in 'Short Sale Pricing: The "X Factor"' and will want close to that figure. Their calculations will depend on who the end-investor is on the loan, and those specific requirements. For example, if the loan has mortgage insurance (MI), they might want the "Net Proceeds" to be 91% of appraised value sometimes! One thing you cannot control is the BPO or appraisal, but you can inform the party doing the appraisal of cost estimates to finish the house. That may help keep the end figure realistic.
If you reduce your offer now, Countrywide might close the file. That will depend on the negotiator. Sometimes Countrywide relies on a valuation they have in their system already, and if the offer is below it, they will just cancel the file. Then you will have to start all over, and again risk the file being cancelled because you are too low.
Your concerns make sense and are valid. If you think you are overpaying for a property, I'd use caution. Best of luck.
Wendy Rulnick

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