Determining the Purchase Price

I’ve been working on short sales for the past six months or so. I’ve had modest success for just getting started and am improving everyday. One thing that I’m a little unsure of is how to determine what price to come in at for the first offer.

I’ve been taking the approach that I am going to make three offers with the first offer being around 60-65% of market value. However, when talking to the bank I get the feeling that they’re not really taking me seriously and understandably so since I have not had a property yet that I could actually justify that low of a price on. It is especially uncomfortable when they ask me how I’ve arrived at my price and there is about $40,000 that I can’t account for and am basically just asking them to give me.

So, here’s my questions. Is my first offer just too low if I can’t articulate the justification for the offer or am I just doing a poor job of justifying my offer?

Hello Bellingham

Justifying the price to the lender is a Investor Job Description. With that said I use a figure of 50% of what I believe the house is worth on average.

Keep in mind you cannot look at paper comps alone to justify value. You have to get out in the field and knock on some doors and ask very pointed questions to “Just Solds” and active on the market properties.

You also need to understand how to create a BPO and be able to communicate your findings to both the lender and the lenders real estate agent. You’ll need to know the additions or deductions for lot size, view, location, and other forms of obsolescence.

In a declining market you have to almost have a crystal ball and value the property into the future, since it will typically take months to resell the house and at the time of resell you need to still have equity.

Convincing a seller of a low ball offer is a piece of cake and getting the lenders to agree is becoming easier as well.

I just completed one where our first offer of 140k was accepted without a BPO or Verification of Funds…BTW I think the value is 100k more… The bank gave me a month to close and if I need more time I am certain they will honor an extension…

Michael Quarles