If It Sounds Too Good To Be True It Probably Is
In this episode of Tuesday Morning Coffee John Jones discusses the downside to shopping for homes that are priced "to good too be true" and points out some of red flags that will help buyers recognize when they need to be particularly careful of getting involved with the purchase of a home that may simply not be possible.
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JOHN: Hey, guys. John Jones with another edition of Tuesday Morning Coffee. Today’s title is “When It Looks Too Good To Be True, Usually It Is.” And more specifically today we’re going to be talking about short sales and how they’re priced and what a short sale price really means. Real quick, a short sale definition is when a distressed homeowner owes more on the property than the property is worth. They’re trying to sell the property to the public and take an offer to the bank and get the bank to short what is owed on the property, thus avoiding foreclosure for the homeowner and the lender.
And both parties don’t want foreclosures. But this came up the other day. I was at a listing, and we were looking at the subject property with the seller, and we were looking at the competing properties. And this house was let’s say $125,000 to $135,000 house. Well, as we were looking at the competing properties, we saw one of them almost identical. In fact, I think it was the same floor plan if I remember correctly, and it was priced at $89,900. And he kind of went, “Oh, my gosh. How can I compete with that?” And as we dove a little further into it, we realized that the $89,900 home was a short sale listing.
Well, the first thing I told him is $89,000 doesn’t mean anything. They have put a price on this to try to garner and offer quickly. And that’s what you’ve got to be careful with on short sale listings. Sometimes the listing agents will put a price so low and it looks so great to get a quick offer. Well, that has nothing to do with what the bank will accept. The bank is going to do their own appraisal or BPO (broker’s price opinion) on the property, and there’s a certain percentage that a bank is going to take. What we’re generally seeing—and it can go from lender to lender—we’re generally seeing that the bank wants to accept somewhere in the 80% neighborhood.
And that can go either way a little bit, net to them, of what their appraiser or their broker opinion says on the property. But they’re not going to order that until they have an offer. Would you say that’s unethical to throw a price out there that short? I kind of would, but by the same token, if the agent is advocating for his sellers and trying to keep them out of foreclosure, maybe a foreclosure date is two weeks off and he’s doing whatever he can to get an offer to postpone that foreclosure and get the bank moving, then I guess you can say he’s doing the best job he can for the seller at that time.
But the point I want to get across to you is be careful when you’re looking at pricing and looking on the Internet and you see something that looks too good to be true, typically, it probably is. More times than not it’s probably going to be a short sale price out there that you’re seeing, and you probably won’t figure that out until you actually call the agent or find out a little bit more about the property because that is usually not disclosed on some of the websites that are out there right now. They don’t pick up all our MLS information that would tell you that it is a short sale.
So I hope this helps you guys, especially buyers out there on the search. Be careful. Get with an experienced agent that knows what they’re doing so they can ask the right questions to the listing agent who’s potentially listing the short sale to figure out if that agent has experience working short sales and that kind of thing. That is crucial to a successful short sale transaction. Thank you and we’ll see you next week.