How much to offer on a short sale

How short sale pricing works

A short sale is a sale where the price won't cover what the owner owes on the mortgage, so the lender has to agree to take less. That changes who you are really negotiating with:

• The seller signs, the lender decides. Your accepted offer is conditional until the lender approves it in writing.
• The lender values the home itself, usually with a broker price opinion or an appraisal, and compares your offer to that figure.
• The list price may not be the lender's price. It is often set by the seller's agent before the lender has looked at the home.
• Every lienholder taking a loss must agree, including a second mortgage or home equity line, and unpaid HOA dues or taxes have to be settled at closing.

So a low offer doesn't work the way it might with a motivated owner. The owner usually isn't receiving any money from the sale, and the lender is comparing your number with what it believes the home is worth.

Six steps to a short sale offer price

1. Confirm it is a short sale. Look for "short sale" or "lender approval required" in the listing's special conditions, and ask the listing agent whether the lender has already approved a price.
2. Find fair value from comparable sales. Use closed sales, not list prices, of similar homes nearby from the last few months: same size and type, ideally the same floor plan or building. This range is your anchor, because it's roughly what the lender's valuation will be based on.
3. Read the listing history for the lender's number. A sale that went pending and then came back on the market, or a price increase while a sale was pending, often means the lender rejected an offer and named its own price. An offer below a price the lender already turned down is very unlikely to be approved.
4. Price in the as-is condition. Short sales are normally sold as-is, with no repair credits. Estimate visible repairs and deferred maintenance and plan for them in your number rather than asking for them later.
5. Check for other liens and unpaid charges. A second loan, unpaid HOA dues, back taxes or other recorded liens all need to be resolved for the sale to close (see how to check liens on a property). More lienholders usually means more delay and a higher chance the deal falls apart.
6. Set your number and your terms. An offer close to the supported fair value, minus realistic repair costs, with strong terms (a preapproval letter, a solid deposit and a flexible closing date) is the kind a lender is more likely to approve.

A worked example (hypothetical numbers)

Suppose a three-bedroom townhome is listed as a short sale at $300,000. The numbers below are made up to show the reasoning; they aren't from a real property.

What this suggests: the closed sales put fair value around $315,000 to $330,000. The change to $318,000 during the pending sale looks like the lender's valuation, and the relist at $300,000 is more likely meant to draw offers than a sign the lender will take less. So an offer of, say, $270,000 would probably be rejected after months of waiting. A buyer in this position might decide that something near $305,000 to $310,000 (fair value less the roof) is the most they would pay, explain the roof with the quote attached, and accept that the lender could counter higher. The owner's $345,000 purchase price fits a short sale, but it doesn't prove one on its own: what matters is the loan balance still owed, which depends on the down payment, payments made and any second loan. That's why the listing's short-sale label and the listing agent's confirmation count for more than the purchase price.

This is an illustration of how to reason about a short sale offer, not a recommendation for any real property. Your agent, lender and local market conditions matter.

Common short sale offer mistakes

• Lowballing because the seller is "desperate." The seller usually isn't the one who decides; the lender is.
• Treating the list price as approved. Unless the listing says the price is already lender-approved, it may not be.
• Ignoring the listing history. Failed pendings and price changes are the best public clue to what the lender wants.
• Planning on repair credits. Budget for repairs up front instead.
• Locking a rate or giving notice on a lease too early. Approval can take far longer than a normal closing.
• Skipping the title and HOA checks. Unpaid HOA dues and extra liens are common in short sales and can delay or derail closing.

Public records to check before you offer

• Listing and price history on the major listing sites: price cuts, pendings that fell through, relistings and days on market.
• County assessor or recorder: when the owner bought and for how much, and any recorded mortgages. These are only clues: the balance still owed isn't public, so confirm the short sale with the listing agent.
• County tax collector: whether property taxes are current or delinquent.
• Foreclosure filings: a notice of default or notice of trustee sale (or a lis pendens in states that foreclose through the courts) tells you a foreclosure clock may be running.
• HOA, if there is one: current dues, any special assessments, and whether this unit owes back dues (see condo HOA red flags).

Public records only go so far. Recorded liens are often searchable only by owner name, so the preliminary title report from your title company is the definitive lien check.

Short sale vs. bank-owned home

A bank-owned (REO) home is different: the lender already owns it after a foreclosure, so the bank is the seller and there's no separate lender-approval step like a short sale's. Bank-owned homes are also usually sold as-is and come with the bank's own contract addenda. It's still worth checking for unpaid HOA dues and utilities, and the price is still best judged against comparable sales.

Where a BidWise Home report fits

A BidWise Home buyer report does much of this homework for one address and your offer price: it notes special conditions such as short sales and bank-owned homes, lays out the listing and sale history, gives a fair-value range from comparable sales charted against your offer, checks the property tax payment history, covers HOA dues, reserves (where public) and upcoming repairs where they apply, and ends with negotiation points and what to verify. The sample report is a short-sale condo, so you can see how the lender's signals are read. It's $10 per report and is not an appraisal, inspection, title search, or legal or financial advice.