Wednesday, June 27, 2007

Another Short Sale falls through

I had been working on a short sale in the nice town of Amherst for several months but alas the auction is to be held tomorrow. The owner owed $179k on the house which the bank had appraised at $194k when they doled out the loan. During the short sale process the BPO (brokers price opinion) came in at $154K. The investor for the loan was willing to take $142k. Based on my analysis I thought that the house might be worth $186k after repairs. Due to the limits of my hard money lender I am limited to borrowing $130k, so I was reluctant to meet the investors price. My analysis was that the house needed $15k in repairs. I eventually offered $135k but was refused as of 3 pm today. The bank loss mitigation officer seemed determined to get the auction postponed 30 days but the investor would have nothing of it.

This is the second house I have lost by less than $7k. Both houses only had a first mortgage which makes negotiation harder. I'm sure the Amherst house will fetch more than $142k at the auction. In fact, if my kids lived in that school district I would move into the house myself, since I think it is a good buy for a homeowner. But, for an investor, the carrying costs make it unprofitable to hold for the 6 months it would take to repair and sell. My analysis spreadsheet showed costs for closing, holding and selling of $20k. Add $150k for acquisition and repairs and I am up to $170k. If my $185k selling price is wrong, my profit disappears. So someone will get a good deal tomorrow.

One mistake I am making with these short sales is not being with the appraiser when he does the BPO. This appraiser missed all kinds of problems (roof replacement, ceiling damage, exterior paint, etc.) and only noted a bad kitchen floor. I think had I been there, I could have gotten a lower BPO. But that is the dilemma of having a full time job and trying to do real estate on the side - I just can't get away for every little thing. Maybe next time I will reconsider and make it a higher priority.


Anonymous said...

06/28/07 Paul, I have owned houses and factory buildings and,currently, a condo and inherited land,and I know that except for paying them, appraisers do not want you "up in their business" so you might want to rethink your plan. Also, if you would use a friendly local bank for financing,they could advise you of best locations to purchase, plus they can help you with "worst case" scenarios. My opinion is worth what it cost you. Ha, ha. Take care.

Paul said...

I wasn't intending to be in any apraisers face, however, Don DeRosa who set me on this course says he always is present when the apraiser does the BPO just to point out the flaws of the house. Homeowners don't want to point out flaws as it puts them in a bad light.

Anonymous said...

06/29/07 Paul, I never heard of Don DeRosa. Is he a TV Guru? When I got started, I studied various courses at the CC--RE investing, appraisal, brokers, etc. I didn't want to sell or appraise,as I had another career. I just didn't want to NOT know what was important. I also spent a lot of time at the public library. I was able to retire at 54; my husband was 58.
PS-"Up in their business" means following them around making suggestions; "Up in their Grille" means arguing with them or more literally, getting in their face. Gotta get the lingo right.Neither is desirable. They are professionals and have a code of conduct. Take care.

Paul said...

I've written about Don DeRosa on this site several times - you can search his name. Not a TV guru, but a guru from Atlanta.