Negotiating the Price of Short Sale Properties

Reader Question: If a property is advertised for short sale can a home buyer get the house for less than advertised amount?

[For those of you not familiar with this topic, you may want to start with this overview of the real estate short sale process.]

Yes, it's possible to purchase short sale properties for less than the advertised amount. However, you may not have as much negotiating room as you would when purchasing a regular listing. Here's why.

A short sale is a preemptive alternative to full foreclosure. When a homeowner is unable to make the payments on a mortgage, they will face a foreclosure. To avoid this, some homeowners use the short sale strategy, in which they list and sell the property for a very good price, typically less than the true market value.

In most cases, however, the homeowner must get approval from their lender before selling the home in this fashion. After all, the lender is going to accept a payment for slightly less than the loan balance (in many cases), so they have to give the green light for a short sale process.

That's the first reason you may have trouble renegotiating the price lower -- the homeowner and listing agent typically cannot make such decisions on their own.

There's another reason why you may not be able to negotiate the price of a short sale property. It's already favorably priced, relative to the local real estate market. So the listing agent and homeowner will be fairly confident that the home will sell quickly. That's the whole point behind the strategy of short sale properties.

Of course, all of this depends on how active your local real estate scene is. If you're in a slow market, where listed properties tend to "linger" a while before being sold, then you will have more bargaining leverage. Remember, the mortgage lender wants to get the non-performing / defaulting loan off their books as quickly as possible. If they feel the market is slow and offers are few and far between, they'll be much more likely to entertain a lesser offer.

So while it's possible to negotiate a short sale price even lower, it all depends on the market and the lender. In a market where short sale properties are selling like hot cakes, the lender will be less likely to lower the price anymore than it already is. In a slower market, the lender will entertain such offers.

It also helps to have some documentation as to why you are offering a lower amount. "Because I want to save money" is not a proper justification. For example, if you can cite some damage or disrepair (or anything that else that negatively affects the value), then you'll be taken more seriously.

Hope that helps!

Related articles:
What is a real estate short sale anyway?
The foreclosure buying toolkit