Canadians discover new bidding strategy for U.S. short-sales

“Short-sale properties often represent a better deal than foreclosures because they’re usually in better condition,” Matt McKillen, a mortgage broker and director of sales and marketing for The Calum Ross Team, tells CREW. “The problem is that it can take several months to hear back from a bank about whether your offer has been accepted. It may be more realistic to put in separate offers on as many as three short-sale properties at the same time.”

 

It’s also what a number of U.S. investors already do as a way of hedging their bets in a section of the market marked by extended waits and uncertainty.

With a multiple-bids strategy, buyers aim to even up those odds. They effectively increase the likelihood of closing on at least one property within a six-month timeframe. Given the inherently high failure rate on short-sales, waiting for a decision on one offer before moving onto the next could set back acquisition attempts by years, not just months.

Generally, short sales – deals where the lender limits the borrower’s liability to what they can get for the house, sometimes tens of thousands of dollars less than what they owe – take longer to close than their foreclosure counterparts.

In a U.S. market where the national average home price remains 23.7% down from the May 2007 peak, those distressed sales are increasingly considered a prime investment opportunity. That’s especially the case in Florida, where investment property is still being picked up in some cases for less than 50% of the insuredreplacement value.

In contrast rental prices have remained relatively stable, increasing the attractiveness for Canadians looking to grow the ROIs outside the buoy domestic sales market.

The fact that most sellers continue to live in their home during the short sales process means they rarely need the same level of capital investment in terms of repairs and renovations as repossessed homes, say fans of those deals.

Short sales also leave buyers with the option of hanging onto a home inspection clause. Repos are usually sold in “As-Is” condition, making it harder to back out of contracts due to a property’s condition.

That’s an important distinction, argues McKillen, a mortgage broker with more than two decades of experience in the Florida market before coming home to Canada earlier this year.

“It means that buyers still have an out,” he says. “So even if they do get offers approved by more than one lender in a multiple bidding scenario, they aren’t obligated to take any of them if problems come up in the inspection.”

Still, Canadian investors looking to use the strategy should be prepared to close on all contract offers submitted under the strategy, he says. “It’s why the strategy is really only realistic with no more than three properties, unless you have unlimited capital.”

Real estate investors considering short sales but gun-shy about multiple bids can still get into that market, says McKillen, pointing to “approved short sales,” where the lender has already negotiated and approved a reduced  price for the home based on a prior and now defunct sales contract. REOs -- completed foreclosures -- also represent a good opportunity for Canadian investors looking to avoid the delays associated with acquiring distressed properties.

“Those can close much sooner,” he told CREW.

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