I want to make an offer on a short sale that is listed, but the realtor wants a 3 % deposit. Is this true or he doesn’t understand short sales. I thought you could give a $100.00 deposit because the bank doesn’t really care. Can someone help me with this…
Thanks
Delpert,
Your question is hard to answer because of the lack of information, but I’ll try…First, I’m a Realtor in the DFW area. The first clue is the fact that you’ve implied a Realtor is involved in the transaction. If there is a Realtor that has a listing, then his first priority is to help the seller.
You didn’t comment on where you are? For example, things are done one way in Michigan another in New Jersey, another in North Carolina and even another here in Texas. Here in Texas and to show the strength of the deal, a potential purchaser may be asked to put up at least 1% of the purchase price of the property or $1,000, whichever is greater. Again, other states may vary.
Many Realtors will try to make a determination as to whether they are wasting their time or not. Remember, it cost a Realtor to do something and they want a ROI. Think of it like this, if you’re putting up $100, would I think that you’re for real, or just kicking tires? On the other hand, if you put up $1,000, I know I have a legitimate buyer on my hands and I’ll go out of my way to help.
From what you’ve stated, you’re working with a listing agent. He not only wants to make sure that he’s protecting the seller, but he wants to make sure that he’s not wasting his time.
The one thing that a lot of people forget is that if there’s a listing agent involved, and it’s on a foreclosure or a short sale, that agent is trying to prove to the bank that he can do the job right and professioinally. This is so he might get more business in the future.
I work in conjunction with the #1 agent in the State of Texas. To try and get a deal past him, that deal must be extremely strong. And by strong, I mean the amount paid for a property, quickness of close and the amount of earnest money deposited.
Another implication is that you stated that the bank doesn’t care. I’ve been involved in about 30 different short sales and I would have to say that in many instances, the bank doesn’t care…They don’t care about deals where $100 is put up as earnest money. They know that is a very weak deal, so they probably don’t care. It’s not about the money. It’s about the deal.
Now put a deal together and put up $2,000 or more in earnest money and you have gotten someone’s attention.
I’m an investor as well as a Realtor and when I went to purchase my home in 2001, I put $35,000 down with $500 of option money and wrote an earnest money check for $5,000. There are many that will try and tell you not to do this. Well, it depends on whether you want the home or not…And that’s exactly how the bank will look at it. With $100 of earnest money, just to show you the difference, the bank may look at it and say, this buyer really isn’t interested. Remember, there are “4” things a party to the offer can do…1) Accept the offer, 2) Counter the offer, 3) Reject the offer and the one that most forget about is 4) Nothing…as there is no law in the State of Texas that states one must respond at all…So with $100 of earnest money, and if you were dealing with me, I’d have to ask a simple question, "do I want to write this offer and throw it up against the wall, knowing that it basically has no chance of working because the bank will look at it as weak. If I did write this offer, I’d be taking a chance of getting a bad reputation and then when banks saw offers coming in from me, they’d start ignoring me…
I know this is a lot of infomration, but hopefully, it will help…
See where I thought your Question is really simple. If they want 3% tell them they can have a promissory note for 2% And date that 72 hours after the lender accepts the offer. I would never give anyone a dime of real money on a Short Sale and I have done thousands of them. The reason why is simple you never know how long its going to take and I don’t want my money sitting in there account making interest!
I agree that was one of the most difficult questions to answer…
My contract calls for a deposit to be paid to escrow in the amount of 10.00 prior to the close of escrow… The word “Prior” is important
In California we have a short sale addendum used with purchase contracts that has a clause that reads something like… all contractual dates to begin when the sellers supplies to the buyer a formal letter of approval of a short pay from the mortgagee(s). If you insert that within your purchase agreement I think you’ll be fine…
Summitt,
Probably some good advice if you can do it? You say you’ve done thousands of these so, I’ll take your word for it, but would add the following as a Realtor. You say that you wouldn’t put a dime into something and have your money tied up. Well, isn’t that exactly what you’d be asking an agent to do, put up all of their time and expertise and wait…Just like you don’t want to put up any money, I wouldn’t want to put up my time unless I knew that someone was serious and the only thing that shows me one is serious is $CASH$…I know of no one here in the Dallas area that has ever done a single offer like you’ve described. Hey, but that’s just my opinion. If it’s working for you, by all means keep it up…
I have to say that if a Realtor is willing to work for 3% which they split with their Broker in the first place then they are already working for free…
I could never figure out why a real estate agent is willing to work for 1.5% of the deal when they could make 20%… I think its the free coffee in the lunch room… Or maybe boredom… Not certain
Michael-Real Estate Investor
PS a California Broker too.
kentate,
Well the way I see it is Earnest money (Deposit) is a waste of time and energy anyway. That is why I will offer the promissory note. I really dont care what State your in every contract has at least 4 ways to get out. Inspection- Buyer can get out for the smallest thing. Appraisal- The value was not what I was thinking it was going to be and I want my money back! And all of my offers say contingent on buyers approval of property, Thats right I never physically look at these houses until the numbers work!
So let me ask you this as a Realtor… How many Short Sales are you doing? And how many of them really close?
Last month we closed 96.84% of my files. Don’t get me wrong I will put the money up yet if I have someone else working the Short Sale and its out of my control then I am not going to put up REAL money on a property that will take 4-6 even 12 months to get done. When I could leave that money in my account or use it for something that will make me $CASH$ as you call it.
Don’t get me wrong at all there are some great realtors out there. Yet 90% of them do not understand the full in’s and out’s of a SHORT SALE! Thats why the other 10% make 90% of the money. Until I know I am working with one of the 10% I will give 0% trust…
Michael,
Great point. I work as an investor and agree 100%. Why would I work for so little if I can make it big…
Summit, your ideas are good, but that’s if you can get it done your way. Don’t get me wrong, you say you can and in fact you say you’ve closed 96.84% which is outstanding…As I’ve said many times in the past, I’ve closed about 30 in the past 5 years…I don’t really keep them separate, but since almost 100% of my business is either foreclosures and/or short sales and the majority of it actually being foreclosures, the 30 number is a guess. But that is 30 closed transactions. I think I’ve had about 4 to 6 that haven’t closed over the past few years, which would mean that I’ve done, or tried about 35 to 36.
But there is a very good reason why. I do keep track of the number of short sales advertised on the MLS here in Dallas and currently there are only 52 active short sales. So reaching a thousand would require me, or anyone for that matter to close every single short sale in the North Central Texas area for years to reach the numbers that you’re claiming.
I know there are some ways out of a contract, after all, I’ve been doing this since 1986 (starting in New Jersey), but it’s kind of like the old car or house furniture as it’s not what it’s worth to me if I made a loan on that kind of stuff, but what it’s worth to the one that owns it. Yes, you know you can get out of a earnest money contract, but how many lay people know that? Actually, there is a form going around the Dallas area on foreclosures and even some short sales called an earnest money addendum that states the earnest money in non-refundable after a “trigger” happens…And again, this is usually only used to show strength.
Since 1986, I’ve only had one person ask for the earnest money to be in the form of a loan and that offer was immediately rejected…Notice I said “rejected”. There wasn’t even a counter-offer. I’ve read books that say this is a good tactic, but I’ve tried other things like this and have never had one accepted and in fact have been told this makes the deal look weak and if there’s another agent invovled, he/she will present the offer to the seller as being weak, and that includes listing agents on short sales…I tell my client that if you want the property, let someone know by providing a strong offer.
It should also be noted that at this point in the Dallas area, multiple offers on short sales and foreclosures happen all the time…Last week I had two deals I was trying to work, both foreclosures and one had 8 offers, the other one had three…I’ll have to disagree if you think your tactics will work on a bidding war…
I also agree with the 90/10 rule and can say that I’m in the 10% that do most of the work…Those numbers can be verified. I don’t blame you for wanting to give zero trust…I would advise all people to make sure they’re working with one of the top agents…
See now this is becoming a great thread!
The key to using the Promissory note is to show the Realtor that you really have the means to back it up. I personally have a great track record that will allow me to do so. Now that being said even if I didn’t I would still not give 3% that is totally insane. With the normal Short Sale taking 4-6 months or longer there is no way I would give that in cash. Yet like kentate said personally they would not take you serious and to that I would simply say.
If I offer on 100 properties at 3% say 200k houses that would be $600,000 in Earnest money now if I have 600k locked up I can’t 3 of the houses. So here is my deal here is a proof of funds that show I personally can pay $CASH$ for this house are you really worried about a promissory note until the lender accepts my offer?
Or if I were to only be in the market for 1 house and I didn’t have enough to offer on more I would ask
How long until I get the lender will accept my offer…(WAIT FOR ANSWER) Then I will post the Earnest money within 72 hours after they except. Here is my pre-qual letter and a promissory note.
FACE THE FACT without a offer the lender will not even negotiate a Short Sale you are doing them a favor by offering on the property!
Summit,
First let me say that you’re very impressive. I can tell that you not only know what you’re doing, but that you do it very well and anyone that doesn’t listen to you probably shouldn’t be on this forum.
Second, a very small story. Back in the 1960’s I needed help getting started. My father walked into a store in North Carolina to help me out with a purchase of a Washer, Dryer and Fridge. The negotiations reached a point of no return. My father looked at me and said “come on, let’s go find someone that wants to deal”. On the way to the door, the salesman actually came running after him…Anyway, dad got his price.
I thought this was a good ploy, so a few years later, I went into a store to buy a riding lawn mower. I tried the same tactic. But no one came after me. You see, this store had a different policy…
And that is what we have here. You see, I’ve escalated short sales to upper management and have been told that I was a PIA and they wouldn’t deal with me on this deal or any other deal. Yet, you seem to have success with it, at least with Citi.
It’s a good idea to think that you’re doing the bank a favor by trying to buy their home, but the banks that I work with have a totally different way of thinking. I could write a book on how banks work and deal in today’s market, at least in the North Central Texas area. Your area may vary, but here we’re in multiple offers, at least on foreclosures and short sales. Each market may vary.
I work with the top agent in the state of Texas for his company and he has also told others that he would just pass along to the account manager that certain individuals require too much effort and he would suggest that they wait for a easier client with which to work. Again, it depens on the market. If one is in a hot market, I don’t believe that Summit’s idea will work very well, but if one is in Detroit, go for it.
I do agree with Summit, this is a great thread and he has presented a good case and to anyone reading this, just like I with my dad’s idea, by all means try it, but also don’t be surprised if it doesn’t work. It depends on the shop and their way of doing business…
See and once again I agree with you as well. I do things and march to a different drum then most people. That being said I also am in a bulk position with all lenders. At any givin time I have more then 10 files with each lender and sometimes more then 60 so I think that is where I get the pull from. Not to mention I have been doing this for years and never take no for an answer (Yeah I am kinda a @#$ at times) yet even with the smaller banks I push them to the point of no return. Here are a few pointers that will help anyone in there negotiations.
Example…
Most will ask “When can I expect the Acceptance letter?” This is very open ended you never know when they will send it. Change your approach on this. “When can I expect the acceptance letter TODAY OR TOMORROW?” This leaves them only two answers. Then I add “Do you have a pen handy? I will wait…” This is funny because you will hear them search for a pen… Give them your email address and a fax number. Then add “If I don’t see that tomorrow what is your direct email and number? oh and your direct supervisors name is? And what is there number?”
BE PUSHY… REMEMBER YOU HAVE FRIENDS THEY ARE NOT YOUR FRIENDS.
Never accept no for an answer and never tell them no either. Even if they ask “Can you come up on the offer?” the answer is YES… Expample " YES I can ask the buyer if that is an option… With that in mind are you willing to pay the full 6% to the Realtors and all closing costs?" Notice I never said I am going to come up by 100k or a dollar! YES I WILL COME UP!
Never offer a even amount on any property. If you want to buy a house for $90,000.00 offer $88,747.25. It truly helps with the negotiations That way they will tell you how about 90k where as if I were to offer 90k off the bat they will counter at 120k. When you offer a off the wall number it makes them think you really did your homework and know what you need to buy the house for.
I will add to this later if anyone wants to read it I am off to spend time with the kids before bed!
Oh and Love the Dad story. I am the same way I bought a truck once and had the Manager tell me he would sell it to me for that price as long as I never came back. THAT IS HOW YOU KNOW YOU GOT A DEAL!
I agree with this post. There is no way in the world that I would risk a deposit on a shortsale, too much of a crapshoot and no gaurantee that it’ll work. If the realtor doesn’t want to work with you, find another deal. Trust me there are plenty of shortsales out there.
As for deposit amount for the short sale, I would list it as $10, but only due upon bank acceptance of shortsale offer.
Must say I’ve enjoyed this conversation so far even though I’m not a part of it. Summit, I would love to hear a bit more negotiation tips. The way I look at it is no knowledge can hurt me. The more the better! :smile
Summit,
I’ve talked with several of my co-workers, ALL saying what you’re doing just isn’t possible…Call it professional courtsey…Call it intuitiion. Call it whatever you want, but I like the way you worded this and tried to help. At this point, I’m about ready to throw away 24 years of being trained a certain way and open my mind and try some of your ways of doing things…I’d hate to be sitting around in my rocking chair and be thinking that I should have tried something…
So I have a question to start with…The main question is simply, where do you find these thousands of short sales? As I stated, there are currently only 50 on the books in Dallas as active for sale. I must assume that you’re getting to them before they go on the market. I’ve tried that from many different angles, but this is now not about me, but about you and how you find properties…So any help would be greatly appreciated. Hey, if I’m doing things wrong and it’s costing me money, I need to swallow my pride and open my eyes…Any help would be greatly appreciated…
First off I get fresh credit pulls by zip code of people that are 60-90 days late on the Mortgage. These people have not even gotten a NOD or NED yet. They are simply 60-90 days late. So this puts me way ahead of any other Realtors or Investors. I pay a high price for this list. So I get 500 leads for 200 dollars. From there I find 25 to 30 deals a month using creative marketing.
And also I do negotaitons for some Realtors and Investors nationwide so not all of them are mine.
And its nothing personal to anyone on here I am not looking for anymore business I stay busy enough. I will guide you and help I am just comfy right where I am. Notice I don’t even have a website. LOL
So you caught me I cheat! LOL
you’re paying too much… My list only costs 280 for 1000… You will actually get a great response with 60 day lates… Nice thing is that the foreclosure laws don’t come into play… You have to be careful to mail a piece that conforms to Federal Laws and Credit Bureaus Regs… This is about the only list that makes sense to canvas… You can create a cluster map which makes it fairly easy just be strong enough to also perform a six-pac …
How far down do they scrub that list for you? Do they do it by Zip code or the price of the houses?
My provider will give only areas that I want and house prices. Its really a great way to do business and I totally agree on the Fed Regs.
Summit,
I wouldn’t call it cheating. I asked a question and like most of the other responses that you answered, I believe you answered honestly.
So naturally, the next question is where do these lists come from? Where can I purchase one?
There are all kinds of list brokers…