Welcome back!
This is a quick update to my post, Dear Mr. Negotiator. I had negotiated a short sale for my seller and had gotten an offer on a home that was $137,500. This, to me, was an incredibly strong offer because the home needed an extensive amount of fixing up. It had been occupied by a single mother with a very low income and she had not been able to keep up on the maintenance on the home.
The bank refused the offer I brought them, insisting on another $12,000. The buyer walked and the bank foreclosed. They listed the home at $125,000 AFTER already paying fees for the foreclosure. The house just sold today for $112,000. So how did they lose $62,000? Here’s the run-down.
$25,500 – Reduction in purchase price
$30,000 – Legal costs of foreclosure
$ 5,500 – Realtor commissions paid
$ 1,000 – Other closing costs.
$62,000 – GRAND TOTAL
The moral of the story is twofold: (1) A short sale really is more beneficial to the bank than foreclosure. (2) Banks don’t always do what is in their best interest financially – I think we already had that one figured out though.
2 responses so far ↓
1 Lisa Wright // Apr 1, 2009 at 2:25 pm
I have a question, I have been watching this happen since I started looking at Tucson real estate 2 years ago. It would seem that a short sale is in the interest of the bank yet, so often they let perfectly good offers go…. To me this is a puzzle.
Banks are in business to make money and it would seem with these kinds of transactions that they are loosing money so the only thing that I can figure out is that they are still making money on the transaction somehow.
My thought is that they have insurance on the debt… the insurance pays out and then they sell the house win, win for them. What do you think?
2 Robin Willis - Tucson's Expert Agent // Apr 1, 2009 at 5:58 pm
Interesting thought, Lisa. I wish that we could give the banks credit for being so smart. LOL Oftentimes the bank does have insurance on the debt, but the insurance will also pay out on a short sale loss. Keep in mind that the insurance only covers a portion (top 10% or 20% of the loan, for example) so many times by foreclosing they incur liability greater than that and end up losing more.
Sadly, the reason that many banks can’t make sound decisions is that there are too many decision makers. They have the manager at the bank, the investor, and often, the insurance company. If these two or three don’t okay the sale then it is rejected and everybody loses!
You must log in to post a comment.