An Offer They Can Refuse?

QUESTION:

We’re in the process of buying a “short sale.” The house was on the market for $97,000, and we offered $95,000 cash, an offer that was accepted by the owner and the real estate office representing the owner. The lender now wants an appraisal on the property, even though they have verbally accepted our offer. It seems funny that banks say they cannot get rid of these properties, but when someone has cash they don’t want it.

ANSWER:

In a short sale a property is being sold for less than the mortgage balance. To have such a transaction the lender is being asked to take a loss. A lender in such situations does not have to accept a short sale, in fact the only reason a lender would agree to such a deal is that an outright foreclosure of the property might represent a bigger loss.

This is not unfair. As I tell folks, if the value of the property went up the borrower would not give some of the addition profit to the lender, why then should the lender have a loss if the value of the property goes down?

So what about your transaction? The owner and the real estate company think the deal is perfectly fine, however they don’t speak for the lender. A verbal acceptance is worth the paper it’s written on. To the lender the big question is not whether they can get $95,000 for a property offered for sale at $97,000, instead the question is how much will they lose on the transaction, the difference between the check they get from closing and the remaining loan balance.

The lender wants an appraisal to assure that it’s getting as much as possible from the transaction. It may be that $95,000 is a good price, maybe it’s too low, or it could be that foreclosure is a better option. Alternatively, if the loan was simply repaid in full then you wouldn’t even need to bother with the lender.

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