I answer this question a lot, and just wrote an email to this effect to a client asking how much to offer on a short sale listing. The intuitive response might be to offer low. But there’s important context to understand first.
I have a lot of experience negotiating short sales, bank owned foreclosures, and standard sales. They are all a little different. But there are several factors to consider when choosing how much to offer
1. What kind of market are we in? Is inventory tight or are there more listings than can be sold in the time that sellers want to sell? Right now, inventory is tight. Sellers own the market.
2. Next, who are the sellers and what are their circumstances? In a short sale situation, the seller is the owner of the home who is still living in the home usually, and they have defaulted on their mortgage. The seller also owes more than the property is worth. There really is no purpose in “shorting” the bank in a short sale unless the property value is below what is owed. Makes sense, right? Most sellers don’t care how the sale proceeds. Usually the agent listing the property is alone in making the decisions on a short sale because the seller doesn’t care.
So…….that’s the context that explains the MAIN POINT…..on short sales, agents choose the price in their own self interest because they want an easy sale. So to get an easy sale, choose a high price or a low price? The answer is a low price. Lower prices will generate more offers and then the agent can choose the best offer from the most qualified buyer. The agents that represent the buyers making the offers know what’s happening, so they tend to bid beyond the price, closer to the actual market value.
So basically, you might still get a discount on the property but the discount is below what the actual market value is – not what the list price is because the list price probably does not reflect true market value. You just have to choose how much you’re willing to pay, and how this short sale opportunity compares to all the other opportunities (listings) available on the market.