Flipping, Foreclosures and Short Sales, this Glendale home has it all
Purchased as a flip in April of 2006 for $766,000 – this Northwest Glendale home just closed escrow as an approved short sale for $770,000.
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MLS Stats:
April 2006 –2 & 2, 1475 sq ft - sold $766,000
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As sold in May, 2008 –3 & 3, 1993 sq ft - sold $770,000
Interesting to note that the MLS remarks of the 2008 short sale listing note “Seller is real estate licensee”. Proof that the Realtor which purchased this home as a flip in 2006, thought the market would continue to escalate and a tidy profit would be made. The result was the opposite: tax records indicate that the Realtor/owner had a loan of $542,500 – I am assuming that they lost their $130,000 down payment plus any costs of remodeling in this flip gone bad.
I hate short sales; most lenders are not approving them, and generally short sales are a colossal waste of time for all concerned but most particularly the buyer and the buyer's Realtor. Remember as a Realtor, we only get paid at successful closing. A short sale brush up:
1) Buyer makes offer
2) Seller and seller’s agent review the offer, then because they are not the decision makers the offer is submitted to the lender
3) Buyer pays for and conducts physical inspection, buyer pays for buyer’s lender to appraise the property
4) Buyer and seller wait on lender
5) Lender is thinking it over and orders their appraisal
6) Buyer and seller wait on lender’s appraiser
7) Lender receives appraisal
Now, comes the fun part, the lender can now decide:
1) they will approve the offer – the patient buyer has been rewarded
2) they will counter this buyer’s offered price (negotiate price)
Another short sale scenario:
While patient buyer has been diligently moving forward in the purchase, another buyer appears and as the lender has not yet approved the short sale, the other buyer which has a higher offer is now offer #1 in the short sale approval line. Patient buyer can now engage in a bidding war with this buyer or withdraw their offer.
Let’s look at the this short sale's timeline according to the MLS history:
1/13/08 – home listed $789,000
1/29/08 – back up (offer received) listing agent reports sale as in escrow, accepting back up offers
4/24/08 – pending – listing agent reports sale as (stronger than back up) pending (contingencies removed) – it appears that it took the lender from 1/29 – 4/24 to approve the short sale of $770,000. I was not a party to this transaction, so I don’t know what the original offer was – only the $770,000 selling price.
Last week, I signed a contract for buying a short sale for about 4.5% less than the asking price. This was an "AS IS Contract for Sale and Purchase" and the second party (The Seller) also signed it, and my deposit was cashed by the realtor. The contract has the clause "This property is subject to a short sale and third party approval... This offer is subject to the bank accepting this offer " and also is subject to a property inspection within 10 days of bank approval.
Then, my realtor who is also the seller's realtor submitted this contract to another agent who handles her short sales for a portion of the commission. That agent submitted this contract to the bank.
Then, another buyer made an offer on the same property and this contract was also signed and accepted by the seller. Is it legal for the seller to sign multiple contracts after he already accepted and signed one contract? Initially my realtor said that both contracts were submitted to the bank, but a few hours later she called me saying that only my contract was submitted.
Is it legal for all the contracts to be submitted to the bank? Is it possible to find out how may contracts were submitted to the bank and what exactly was submitted for my contract?
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This is the "trouble" with short sales. It appears that your offer was "shopped" and used to find a better offer. Normally when an offer is accepted, it is noted in the MLS as under contract, but a short pay is not accepted until the lender accepts the contract - which as you saw takes awhile.
I am not a real estate attorney and can't advice to legalities, but in my experience, the first buyer on a short pay is often a "guinea pig". In my Los Angeles market, the neighborhoods that I work (Pasadena - Burbank) only about 20% of the short pay offs are being approved - so you as the first buyer/offerer in my market would have less than the 1 in 5 chance of being successful.
I am sorry for your pain, find a home with a seller that can actually sell it (either a foreclosure or a "regular" person's home) and try to avoid the short pays.
For the rest of your questions, ask your Realtor, if you don't receive a satisfactory answer, why don't you try to have a meeting with your Realtor's manager?
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Thank you for the reply. In the case that multiple contracts are presented to the bak, do you know if the banks have to give the right of first refusal to the primary contract if the backup contract is higher ? I don't understand why there is the primary and backup contracts if everything can be submitted to the bank and the bank can chose the best offer. This seem to be a silent auction and should not be advertised on the MLS.
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"In the case that multiple contracts are presented to the bank, do you know if the banks have to give the right of first refusal to the primary contract if the backup contract is higher ?"
I think the bank can do whatever they want, remember until the bank accepts your (any) offer you have an offer ONLY signed by the homeowner and unfortunately it means diddly.
I don't understand why there is the primary and backup contracts if everything can be submitted to the bank and the bank can chose the best offer. This seem to be a silent auction and should not be advertised on the MLS.
My point exactly! This is BS (pardon me but this is what it is) - a price is advertised in the MLS and often it is a ridiculous asking price and that's why it catches your attention. Buyer # 1 is often a guinea pig - sorry.
And, once again, the disclosure: I am a Realtor, not an attorney -but you probably know that
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