How to Get a Lender to Accept Your Real Estate Short Sale

In this unstable economy, real estate is plummeting and people are losing their homes left and right. What does this mean for the average real estate investor? Money! Not only can an investor help a homeowner in distress, but he or she can pocket some money as well. Sounds great, but there is the pesky little obstacle of getting the lender to agree to accept a lower price than what the homeowner actually owes!

The first step you need to take is to determine what the Fair Market Value of the home is. You can do this by researching recently sold comparable homes. What did they sell for? The average of these “comps” is your Fair Market Value, or FMV. You will need access to the MLS for pulling comps. You can easily enlist the help of a Realtor friend. Be sure your comps are very similar to your investment property in size, location, age and condition. You don’t want the lender to have any reason to refute your comps.


After you have 6 comps available, you will need to find the “average.” The easiest way to do this is to throw out the highest and lowest number and average the remaining four to get your price.


Next, you need to compute the “After Repair Value” or ARV. This is the value of the home after all repairs have been completed. You can find average repair costs by using the help of a GC or carpenter. There are also many software programs out there that will help you make a spreadsheet of costs.


You need to keep in mind that the final BPO or Broker’s Price Opinion is what really sways the lender. It is usually written by a well-known BPO specialist in the community, someone who knows the market very well and knows how to find the value of a home with a high accuracy rate. That person will sometimes simply drive by the property, or go inspect the inside.


With short sales, the investor will low-ball the home to get a short sale started with the lender. He or she will offer maybe 60% of the FMV or ARV of the home. Just because a home is headed toward foreclosure, it doesn’t mean that it is necessarily a great investment. You need to look out for properties that need repairs, have more than one mortgage, have liens, and have homeowners who cannot afford the payments. The last one is very important. Banks will work with people who are genuinely in financial distress. Please don’t waste your time on homeowners who simply do not want to pay or are using the money for things like vacations and other frivolous expenses.


You can either look for nice looking homes, homes with need of minor repairs, or downright damaged homes. Each type has its pros and cons. One factor that seriously helps or harms your ability to get a short sale through is the type of financing a home has. Conventional loans are the best, as they are flexible and willing to work with short sale investors. FHA and other government backed loans are very difficult to work with, as they have set requirements that are hard to meet.


As long as you follow this basic advice, you should have no problem sorting out the goods deals from the bad.

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