Short Sale: What percent of appraised value will bank accept?

Question

Hi. I'm thinking of making an offer on a home listed at $240K that will be a short-sale. Realtor says bank appraised at $252K, and would likely accept at 80% of value. The house will be sold at sheriff sale in 50 days and also needs some foundation work. Wouldn't the bank go below 80% since it is so close to the foreclosure date? Original mortgage (according to realtor) was $320K still being owed?!?

If the bank has to sink another $167K to buy at sherifff's sale, the bank would be on the hook for $487K, and if it COULD end up selling at appraised $252K, the bank's loss would be $235K.

Is something wrong with my logic, or wouldn't it make sense for the bank to agree to short sale now at 60% or 70% of appraised value to avoid having to go REO?

Thanks in advance for advice- Tim

Answer 1

Yes your numbers are wrong regarding the bank's buy in

Bank's decision is simple:  how much of a loss are they willing to take?  They have $320K in it, and  if it is appraised at $252K, are they willing to take anything less than appraisal?

Answer 2

Do not forget, the banks carry insurance on the loan so if the loan goes to foreclosure they can recoup some of the difference threw the insurance policy

Answer 3

Realtor can't make that determination....period.

I have listed short sales from banks, and they absolutely DO NOT give Realtors that information, b/c their goal is to still sell it for the highest possible price.

She is just trying to get you to make some type of offer so she can hurry up and get paid.

The bank won't take a low-balled short-sale if they feel it will get more at a foreclosure sale.  They would have already researched what foreclosures are auctioning for, to make that determination.

Your reasoning is all wrong....if the original mortgage is $320K still being owed (and the Realtor is NOT going to be privy to that information if it's bank owned), then where in the heck are you getting a $487K figure from?  

Banks don't always lose money on foreclosure sales.

I think the Realtor is pulling a fast one with you.  Don't fall for it.  She is also not permitted to share any information with you that would cause you to make a LOWER offer...which she clearly has...that is unethical and she can lose her license for doing that.

Answer 4

Some banks might, but a lot of them have policies in place to not to go too low. A remnant from the recent housing boom. Banks take a while to modify policies. I know it's silly, but I tried to do the same thing and the bank refused and came back with an offer at about 90% of their listing price.

It won't hurt you to make a low offer (most banks won't be offended), but don't expect them to jump all over you.

You will probably get better results if you can manage to get a hold of someone at the bank who is responsible for the mortgage and talk to them (in person or on the phone).