There were a couple of posts on Active|Rain today that reminded me of a situation I encountered a couple of years ago.  It was a short sale/foreclosure.  Let me summarize the posts that made me think about this…

  • The first post was from a couple of agents out west that I have met and respect.  They were decrying that they had presented an offer to a REO specialist agent regarding a property that they had a buyer for.  The agent wasn’t really local, and the appraiser that was hired by the bank also wasn’t really local.  They felt that the price offered was fair.  After six weeks, it was shot down.  Their point was that it would sit and eventually get sold for what they were offering.
  • The second post was from an agent that handles REO (real estate owned… bank properties) as well as buyers.  He was complaining a bit about the rap that REO agents get for not returning phone calls, presenting offers in a timely manner and generally not cooperating with other agents trying to sell their properties.
  • The final post was from an REO specialist and she was upset that buyer’s agents only wanted to give 45 days for the bank to respond… the bank expected 90 days with another 30 if they needed it… and the buyer would be locked in during this period.  Frankly, that is downright STUPID.  The banks DESERVE to lose a pantload of money if they think this is good business.

So, on to the story…

A couple of years ago, I ran across a property that was right up the alley of one of my investor clients.  It was priced at $460k, and had previously been sold for $600k.  It was in fairly sad shape.

  • vacant for over a year
  • mold in the finished basement
  • poorly finished basement
  • overgrown yard
  • poor drainage around the garage
  • moisture damage to the garage walls
  • crappy fixtures
  • dead HVAC

We identified a few other little things here and there that would be addressed in the restoration.  But, it was a possible gem.  The homes in the neighborhood were selling around $700k to $1m.  But, this house needed an infusion of about $200k.  The work looked like it would take 2-3 months… at least.  Of course, one must plan for the unforeseen.

After doing an inspection, we made an as-is offer… warts and all, of $400k.  That was all we were willing to offer.  They required 45 days for a response.  A month and a half…  And when they countered, we have 36 HOURS to deliver our answer.  They need 45 days, we aren’t worthy of 45 hours.

And they did counter.  The counter was for $450k.  Now, during this 45 days, the price dropped to $440k.  So, effectively they countered at $10,000 OVER the current list price of the property.

We sent back a note, a copy of the new list price and an offer of $400k.  That was ALL we were willing to do.  They turned us own a few weeks later.

But that isn’t all…

I kept an eye on the property.  And it sold.  After 15 more months.  But it sold for full list.  Of course, at that point the full list was $360k… $40,000 under our offer.  And the condition had deteriorated… a lot.  I went back into the property about a month before it sold.  It needed another $50k in work.  At least.

Point?

The bank carried the property for an additional 15 months, and then got $40k less.  Not a good decision.  I’m sure there are some smart people there, but their poor organization and bad information cost them $40k in cash, plus the costs of carrying the property for over a year.  With the minimal stuff they were doing, there was still another $10k in estimated expenses.  And I wouldn’t know where to start with indirect expenses.

That is one of the reasons I’m not a fan of short sales.  But, I do have some contacts that play that game.