A short sale occurs when a bank allows a property to be sold for less than what is owed to the bank. Investors as well as end users have been purchasing properties in this way for years. Typically, you see more short sales take place in states like New York and New Jersey where the foreclosure process takes many years.
So how does a short sale work? A property that is “under water” (more is owed on the mortgage than the house is currently worth) is listed by a real estate agent on the market as a short sale. Buyers will submit offers the same way they would on a non short sale. The highest offer will be brought to the bank for their review. At this point the bank sends either a BPO agent (broker price opinion) or an appraiser to evaluate the property on their behalf. Once the value comes back the bank can either accept the current offer or reject the offer due to a discrepancy in the value. This is where the magic happens.
Often banks don’t understand the true market value of a property because they don’t work in that market everyday. Furthermore, appraisers and BPO agents are market value experts, not construction cost estimators. It’s for these reasons that values and contract prices vary widely. So how can an investor get the bank to understand the true market value of a property?
Handsome’s value dispute method
Every good value dispute has three key components: An independent appraisal, detailed letter about the property/neighborhood, and a construction estimate. Prior to the BPO have your own appraisal done on the property. Make it fair. Don’t purposely skew it and come in low because the report will be dismissed. Second, have a licensed contractor generate an itemized written estimate of all repairs that need to be completed to bring the property up to standard. Make sure to suggest the appropriate level of repair. Don’t have your contractor budget $30,000 for a Wolf stove in a $350,000 house. Lastly, put together a letter describing the property that is short and to the point. The letter should discuss the reno, value, specifics on the house, area, school district, and more. The goal is to make it easy for the examiner to understand your position and perceived value of the property based on facts. These steps have worked for me and will work for you as well.