Like a lot of investors these days, most of our offers at this point are on REO properties and Short Sales. For anyone who is not aware, an REO is a bank owned property, and a short sale is when a homeowner is selling the house for a price that is below what is owed on the mortgage. For short sales, the bank must agree to the sale, because they will not be getting back the principal that was loaned out. Also, the bank does an appraisal on the property and comes up with the minimum amount that they will accept.
We offer regularly on short sale properties. These are usually fire and forget. We submit the offer, and then move on, assuming that we won’t hear back from the seller because we almost always offer lower than the asking price. And if we do hear back, it will sometimes be months later.
Currently, we have 3 accepted offers on short sale houses. Cool! Does this mean we are going to get 3 properties to renovate? Maybe. Maybe not. So how many do I think we’ll get? No idea. Possibly none of them, possibly all of them.
There are still too many unknowns, and the biggest one is the bank. Will the bank approve the sale at the contracted price? There is no way to know. How long will it take to get an answer from the bank? Again, who knows! Supposedly, some banks are moving faster on short sale decisions these days, but we’ve heard timelines up towards a year to get an answer from some banks.
Okay, but let’s say the bank approves the sale. Then we have to decide if we still want the house, and at the price we originally offered (or at the bank’s minimum price). If we’re getting our original price, of course we want the house, right? Well, maybe. It depends on the latest condition of the house, which may have deteriorated more during the time we were waiting, thus necessitating more repairs and costing us more money to renovate, thereby eating into our estimated profit. Also, what will the market value of the house be when we hear back from the bank? If we waited 6 months to get an “okay” from the bank, the remodeled value of the home may have dropped significantly during that time, especially here in Los Angeles. When we offered on the house, our renovated value for the home might have been $400k. And 6 months later it might be $360k. That could very likely mean that buying the place no longer makes sense.
Yep, short sales can be frustrating. But on the good side, at least the opportunities exist. We continue to offer on them, because there are good deals to be had, and there are a bunch of homes with a lot of potential that need some “refreshing”. And we do have 3 accepted offers!