Bottom line price set by Fed? Or BoA Rules?

I have an offer in on a SS. Short story is:

* Originally listed for $300k (Oct 2010)

* Put in an offer at $250k. Offer accepted by seller

* Bank countered 8 months later with $302k. Thought about it, then...

* Told them they could have it

* They came back with $283k. Told them ok. After waiting for another month an no approval letter, rescinded my offer

* Realtor calls me a month later, says property is back on the market at a 'bank approved' $272k. I tell him write it up.

* After waiting another month, he sends me the following message:

Their response is because of federal guidelines regarding Short sales and internal Bank of America rules the bottom price that they can accept is $277,200

What gives? Has anyone heard of this type of price fluctuation before or is it normal?

I'm not in love with the house, I can walk. But at $302, I was also told that was their 'final offer'. Should I counter again possibly even lower?

 

Thanks!

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Permalink Reply by Jeff Payne on October 7, 2011 at 2:39am
Not sure, do you know who the investor is on the loan?  The value of the home in Bank of America's eyes is the appraised amount and depending on the investor on the note, they could have a specific guideline for the NET amount.  VA loans require that they NET 88% of appraised value.
Permalink Reply by peter on October 7, 2011 at 4:55am

Thanks for the input Jeff. I do not know who the investor is and it is not VA.

When you say 88% of appraised, is that the BPO value? I had the property professionally appraised 3 months ago and it was over $350k. I think it has gone down some since though with this market.. I paid for that appraisal though, so not sure what figure BoA is using.

Permalink Reply by Jeff Payne on October 7, 2011 at 10:42am
It is 88% of the banks appraised value,  not yours.  Hopefully they would be close but the bank goes by their value.  Most govt loans with an 88% threshold with use an appraisal, not a BPO
Permalink Reply by Kathleen Lordbock on October 9, 2011 at 3:17am

With your own appraisal of $35000 and a bottom line price of $277,200 you still will not buy this property? What are you waiting for- Either buy it or not!

Permalink Reply by RoJane Maybee on October 9, 2011 at 7:35am

I agree -- however, knowing what the bank's appraisal came in at is the real information you need -- then you can calculate from there to create your offer, but I concur that if you have an appraisal at $350,000 -- you should buy this before someone else gets it!

Permalink Reply by peter on October 9, 2011 at 9:30am

The reason I'm not jumping is four fold:

* The property is in FL in a declining market - the appraisal was done back on 7/1. I don't know what the new appraised value would be

* A house five lots away just sold last month for $108/SF vs this house's $122/SF . The other house was on a more desirable corner lot. It is a different style house, but I believe comparable. At $108/SF, this house will be valued at $240.

* It is a very nice house, but not our dream home

* We do not plan on living there, but using it as a second home. I may be able to rent it, however the rent will not cover the mortgage payment.

 

I may move forward and wait for the new appraisal to come in.

 

Appreciate all the input.

Permalink Reply by Paul Francis - Vegas Short Sales on October 9, 2011 at 1:58pm

Well... it certainly does not sound like a portfolio loan so B of A has to follow along with whatever guidelines they are given..

Price fluctuations for a short sale? LOL! See it all the time....

Personally.... I could really care less what a home appraises for. (Except when a buyers loan depends on it... LOL!) If a home does not have the potential for a positive cash flow in this particular market/environment with these ultra low interest rates or if it does not have a decent Cash on Cash return after expenses... Certainly nothing that me or my investors would be interested in.

That's just us though...

Let's not forget all of the properties that were "Appraising" back in 2004 though 2008...  Just because something Appraises for a certain amount does not mean it's a good investment...

I only bring all of this up to begin with because it sounds like you are in no rush to buy and just waiting for the right opportunity.

Just my thoughts...

Out of curiosity... what would this home lease out for?

 

Permalink Reply by peter on October 9, 2011 at 2:02pm

Thanks for the input Paul. You are correct, we are not in a rush - I thinking of interest rates are so low they can't go lower - but I've been saying that for about 2 years now...

 

Seasonal rental would be around $3800/mo - good for 3-4 months per year. Annual rental around $1400. Both these figures exclude management expenses and upkeep - pool, lawn, etc.

 

I am with you on the appraisal. I think the $277k is about market value for this home, maybe a little low, but I don't think a steal. Something is only worth what someone will pay for it right regardless of appraisal? ;)

Permalink Reply by Paul Francis - Vegas Short Sales on October 9, 2011 at 3:15pm

Spot on... The bottom line of a typical Appraisal only tells you what other people recently paid for what in the surrounding area. It does not evaluate their intelligence in buying or what their resources are. Obviously there are buyers out there with plenty of resources that could care less and are buying because this is (I'm assuming) near the coast somewhere... ;)

Second -- when it comes to interest rates... no matter what the interest rate is...  it's the end result of the investment calculation that matters. (With these artificially low rates though... it should not be difficult to positively cash flow properties in distressed markets.)

The Catch 22 that is taking place today. The Fed can't raise rates right now because the economy will suffer even more.... and home prices would go down even more. So if a property can't cash flow right now....  the chances of it being a good investment based on the speculation of future appreciation when rates go up somewhere in the future are even slimmer.

Keep in mind that I'm talking about long term real estate investing and not flipping. Regardless... If a property has a positive cash flow with a good cash on cash return in an uncertain market... that certainly reduces the risk of further declines in value.

There are areas out there that are so undervalued because of the distressed property fiasco taking place.. and areas overvalued where the foreclosure fiasco is being manipulated. (Areas where it is taking well over a year longer then normal to foreclose on a property for one.)

$277K for something that will rent out for $1,400 a month and not even subtracting management / maintenance expenses.... Hmmm... Interesting. I'm punching in numbers with what the norm is for Property Taxes and Insurance for Vegas with 20% down and coming in at almost break even Before Expenses are deducted. (I have no idea what Taxes and insurance are for this property in FL... or what typical Management expenses are.)

Tough to say... I'm in Vegas where a $277K purchase can get you $2K+ a month in rent for a straight rental so take all of my opinions with a grain of salt....

Best wishes... shoot for less then $250K IMO. It does not sound like the property is going anywhere at the current price and Appraisals are good for a negotiation tool.

Just recently closed a B of A short sale where they started out wanting $210K, then they went to $190K, then $175K and finally got them to accept $162K plus paying $4,680 in the buyers closing costs...

 

Permalink Reply by Jeff Payne on October 10, 2011 at 5:47am

OK, here are my thoughts as a Florida agent. Not sure what part of Florida you are in.

1st, Sure the market is in a decline, that depends on area and even neighborhood.  Highly doubt that since 7/1/11 that this property has lost much value, even 2% per month, the property is still worth more than what you are paying for it based on the $350,000 appraisal. if the comps were fairly new, the same comps may even show the value is still $350,000

2nd, forget square foot price, that is an old tactic to sell properties in a hot market.  Only really accurate if you are comparing very similar properties.  The most recent sale was less but what condition was the interior in?  Were the appliances removed?  Was the A/C still intact?  Was the interior in the same condition as the subject property? There are alot of reasons why it may have sold for less.

It looks like you may be dreaming, no offense intended.   If you can buy this home for $277,000 and you have a recent appraisal of $350,000 and you still wont buy it, I would say that you are just kicking tires and are not a serious buyer.   

There are great dangers in "waiting" if you are a serious buyer.  get your calculator out and tell me what happens IF the price drops another 10% but the interest rates go up one point.  Timing the market is dangerous because prices and interest rates can swing fast, faster than most will be able see until it is too late. 

Remember that you are also affecting the seller too, if you dont want the home, move on and let the seller move on to a motivated buyer.

 

Permalink Reply by peter on October 10, 2011 at 6:19am

Thanks for the input Joe.

 

The comps were sold in April 2011. So about 6 months old. Nearest comps were 8 miles away due to the low density of the home for sale. Appraiser said they were comparable.

 

$/SF. The feek homes are comparable. Story goes it was sold by the owner at that price to save his business. home was in great condition, Key West style, pool, etc. This home is also just 5 homes way vs the 8 miles in the appraisal.

 

Re: Kicking tires - good point. I'm not trying to time the market - agree it is a dangerous game. I get enough fun with the stock market ;)

 

I am waffling for the following reasons:

* This is not my dream home. It is a beautiful home, but certain amenities leave it lacking (proximity to town, in an unfinished development, layout).

* If I could flip the home, I would - however this home was also on the market at $272 for over a month and no one bit. My experience has been if the home is a superb value, it will not last more than a week. This is strictly standing on the sidelines observations of other houses I wanted that either went into a bidding war and/or was closed by the time I jumped and/or I was outbid.

* If I could rent the home and cover my costs, I would do that. As it is now, I would be on the hook for about $800/mo additional.

* If I move forward with this home and the 'dream home' comes into play, can I still pick up the dream home? I found one listed that I like a lot more, not a short sale/REO, but at $450k. If they would drop to $340k, I'm in but being a new listing, I'm sure they will give it time - and I have some of that...

 

Last point on interest rates - believe it or not, I'm not too concerned. I think interest rates will be in the 3.5 to 5% range for awhile. Whatever I do, I will probably pay off early. I would rather let my decision on purchasing something this big be made on solid information and not on interest rates.

 

Permalink Reply by Jeff Payne on October 10, 2011 at 6:43am

SOunds to me like you need to move on, don't drag the seller through more than is needed, let them get it back on the market and find a buyer who will purchase

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