How Dave Bought His Home By Short Sale and Saved $60,000

ANTHONY: Hi, today I’m talking with my friend, Dave, who recently closed on the purchase of a new home via short sale. And a lot of folks out there hear a lot of things about short sales and how they might be a good deal, but how there might be drawbacks in terms of the difficulty of the process. So I thought it’d be useful for everyone to hear Dave’s story. Here we go. Dave, thanks for talking about this with me. And really I just, I’m very interested in getting your perspective as somebody who’s been personally involved in buying a short sale. Actually, but first can you talk a little bit about your background with real estate so that we can understand that you’re a little bit more sophisticated than a normal buyer off the street.

DAVE: For the past 15 years I’ve been involved in construction, commercial, and real estate. And for the first two years of that was property management. And I’ve been involved with purchasing and selling maybe about eight to 10 commercial properties and three residential properties.

ANTHONY: Is that three residential properties over that span?

DAVE: Yes, three residential over that span.

ANTHONY: So I know you’re not really, I didn’t ask if you wanted to be an expert on short sales, but rather for your personal experience, but to the extent that you understand it, what is a short sale? Can you give us sort of the definition for like on someone who’s never heard of it before?

DAVE: Yeah, my understanding is that it’s when the bank allows, or the mortgage holder, allows you to sell the property for less than what’s owed. So if say the owner runs into any financial issues or let’s say their property value dipped a lot more than what they bought it for and what’s owed, then the bank and they’re having a hard time paying back the loan, before it goes into foreclosure, they will allow you to sell it for less than what’s owed.

ANTHONY: So just to give a clear example in case anyone doesn’t, hasn’t really wrapped their head around that, if there’s a house that’s worth, let’s say right now the fair market value is $200,000, but they bought it at a time when the market was higher. Let’s say the mortgage is, the balance on the mortgage is $250,000, so $50,000 more than what the house is worth, banks will sometimes understand they need to cut their losses and give permission to sell the house for less than what they’re owed, and just kinda write it off, write off the difference. Is that what your understanding is?

DAVE: Right.

ANTHONY: So this one’s kind of a broad question, but just from a higher level how does a short sale work?

DAVE: The short sale that I was involved in everybody kept telling me that’s not the norm, because everybody told me that it takes a long time. The process is really drawn out. So everybody that I’ve talked to from brokers to sales agents to even friends that are in real estate, everybody’s response was very negative. They all told me not to get involved with that. Good luck with that. But for me, I mean I was able to, I found it through, I found it listed on one of the websites. I can’t remember if it was Redfin, or Trulia, or Zillow, one of those websites, but I saw a listing that had a short sale, and I didn’t really pursue it at first. It just happened that I ran into the sales agent that was selling that house at a different event. So that’s how I came across that. And the process went fairly quick. I was able to look at the place, put an offer in, and close within eight weeks.

ANTHONY: You closed within eight weeks from when you made your offer? That’s amazing, even for a non short sale.

DAVE: All the other house purchases that I’ve been involved in was always a drawn, it was pretty long. All the paperwork, and then between me, and my employers, and the bank, and what they’re looking for, so it was always really long, but I was really surprised that we were able to get this done within eight weeks, and actually everybody was. When I was at the closing, from the buyer side, from my side, to the seller’s side, everybody was surprised that they were able to get this done so fast.

ANTHONY: Did anyone specifics? I mean, it sounds like everyone thought it would take much longer, did anyone give any specifics, like oh this usually takes X number of months, or X number of weeks?

DAVE: Nobody gave me a specific time, but most of the responses were it’s just drawn out. That’s all they told me. It could take months. And they told me that even at the end of that, even at the end of months of waiting, the transaction might not even go through. I was willing to take the risk ’cause if I couldn’t get it at that price, then I was willing to just renew my lease at my current residence. So I wanted to take that risk, and why not? To get it a little lower than market value.

ANTHONY: So when you say you were willing to take that risk, that makes me curious. So what would’ve been the downside if the deal fell apart at any point? I mean, would you have been out of money, or just time? Did you put any sort of, did you spend any money on professionals like advisors, brokers, or attorneys to help you, anything like that?

DAVE: Yeah, the only money I would’ve lost, I mean, I would’ve gotten my, they asked me for a 10% deposit right away, but the only money I would’ve lost was appraisal and title search.

ANTHONY: And for folks who don’t know the ballparks, appraisals are what, like 100 bucks typically?

DAVE: Around 600 to 800.

ANTHONY: And then the title search?

DAVE: I think that’s around 1,500.

ANTHONY: And for anyone who doesn’t know, that’s where you hire a company that is good at researching property records to make sure that the person who’s saying they own it actually owns it and other issues. About right?

DAVE: Right. Usually the lawyer handles that, so what I did initially was after I saw the house and I wanted to put an offer in, I met with my lawyer right away, and I told her what I wanted to put it in, and she made the offer right away. And she did the title, and part of her fee was to do the title search.

ANTHONY: So you’re talking about Elizabeth Kim out in Bayside, is that right?

DAVE: Yes.

ANTHONY: Okay. So we talked about this by email that this would not really be in your wheelhouse, so you can just kinda say skip, but are you able to talk about comparing buying a foreclosure versus buying a short sale?

DAVE: Well, this is also my understanding, I was never involved with a foreclosure, but from the people that I’ve talked to in the industry, they’ve told me that if the bank’s willing to let you sell the house for what’s less than, less than what’s owed, that’s considered a short sale, but if, and the owner still actually has the house in a short sale. Whereas in a foreclose it’s gone over to the bank, and then they’re takin’ a bigger hit. So the bank’s actually prefer, the mortgage holder actually prefers that you do a short sale over a foreclosure.

ANTHONY: And that makes sense, right? Because foreclosure means they have to go to court, sue you, get you out, and then there’s a lot of extra steps and costs probably, yeah?

DAVE: Right, and also the, from what I heard was that since the person that’s living in the house or that specific residence, they don’t really take care of it anymore once they stop making payments. So most of these houses will be in really bad conditions.

ANTHONY: This is really out of order and this is sort of proof that I’m new to this and I need to practice, so bear with me. Can you just sort of tell us the story of your personal story of getting involved with the short sale? Sort of starting from how you stumbled upon the listing and where you’re at now.

DAVE: So I was looking at a lot of houses in Long Island, anywhere from New Hyde Park to Mineola, Williston Park, Plainview, Syosset, Those are the main towns that I was looking at. And when I was looking, so every day I would do research on Redfin, or Zillow, or Trulia. I would just look there every day in those specific towns. And there’s actually a house that I wanted to look at that was next to that house. It was pretty identical looking. So I went to go take a look, and when I was there and I was talking to the sales agent, I asked her about the house next door that I seen that it, I seen that listed as a short sale. And then she knew about it and she got me in touch with the broker that was, or sales agent that was handling that house, and that’s I fall into that house. And once I take a look, I talked to the sales agent. They told me a short sale. They told me there’s some offers already, but it didn’t hurt to try, so I put an offer in. And the process is little bit different, because normally when you buy a regular, when you purchase a house, you put an offer to the owners, and it’s up to the owners to decide whether to accept that or not. And then you can hire a lawyer to put an offer in, you put your deposit, 10% usually, and then you get your paperwork together to get the loan. But in this case, nobody, we submitted our offer, but I wasn’t sure if it was accepted or not. And we never got a response from their bank. And my attorney told me that we should just proceed as if the loan was accepted. So we proceeded to get all the paperwork ready. I started my mortgage process. And maybe a week or two into that, I got a response from the bank saying that they’ll accept that price and they actually wanted to close within a month. And my lawyer actually asked for an extension because we weren’t able to do that within a month.

ANTHONY: I’m still blown away that you closed on a short sale, that was not all cash, that you had to get financing for too, in eight weeks. I mean, that’s just insane.

DAVE: Yeah. I was actually surprised myself. I was very surprised. When I first, when the bank first got back to me saying that the offer’s accepted, we need to close within a month, I knew that even, any loans it’s almost impossible to close within a month, so I knew that we had to ask for an extension. And even then, I thought at that point that maybe I’ll lose the house because there’s no way that we could meet that date, but they were willing to wait, gave another month, another four weeks. And yeah, and that’s how the whole thing went down.

ANTHONY: This must’ve been super sort of exhilarating and exciting to have such quick, everything moving so quickly. How did you and Judy feel about this process?

DAVE: Well, this is actually the first time for Judy to go through a mortgage process. I knew what to expect. I knew that these things take time because there’s so much information going back and forth, and it’s gotta be done in a correct format. And so I know that these things take time, so I wasn’t, we were excited to get a house at a discount, but maybe because I’m in the industry, I had to forgo a lot of things. I forgo’d the home inspection, and it’s a risk that I was willing to take, because they weren’t gonna see anything that I wouldn’t see. And just because we were short on time, we skipped that. I guess not everybody would be willing to do that, but that’s one of the things that we had to take a risk with. And there wasn’t that many chances to actually inspect the house, because the person was still living there. And, like I said before, lot of short sales or foreclosures, from what I heard is that they’re not in the best shape because the person living there usually once they stop making, once they’re not able to make payments then they stop maintaining the house.

ANTHONY: From the estate perspective, I’ve heard of examples where the tenants not only stop taking care of it, but that they’re angry that they’re losin’ the house, and they actually do things like they damage the place. So that’s a grade higher.

DAVE: Yeah, I had the chance to meet the owners and I think she was very attached to that house. I think she raised her kids there and they went through the Syosset school systems. And when I went to meet her I was, I had my son with me, and she enjoyed meeting me, just talking to me. And we just went over what we wanted, what I planning on doing, renovating a little bit, and raising my kids in the suburbs like how I grew up. So I think she really like that. And it looked like she was very attached to the house so the brief, the short time that I had in the house, it didn’t look like it was in bad shape at all. And I knew I was gonna renovate the place anyway, so I wasn’t too concerned.

ANTHONY: So you mentioned that you talked about your story about how you kinda stumbled upon looking at this place ’cause you were looking at the place across the street. Before that, were you actively looking for short sale listings, or for deals, and if so how were you doing that research?

DAVE: I wasn’t looking at those, just because, just from talking to everybody. I have a couple of real estate sales agent friends, and broker friends, and even people in the mortgage industry, and everybody talked me out of it. For me, I thought that’s the best deal, so I wanted to find stuff, I wanted to find foreclosures, short sales, but everybody talked me out of it. So I wasn’t actively looking for it. It’s just that when you start looking on these websites for, when you’re just browsing through the neighborhood, short sales kinda just pop up. So I was always interested, but I never really actively pursued it, except for this one.

ANTHONY: So compared to a normal closing, or a traditional purchase, what are some additional costs involved with a short sale? Does a lawyer cost more? Is there more title insurance? Anything like that?

DAVE: I don’t think there was any additional costs, no. Just having a risk and I guess your time of, like I don’t know if, I guess it depends on your current situation. If you’re renting, or if you have to get out by a certain date, or if you needed to sell your house to get this, I guess it, you know. But for me, I was pretty flexible, so that’s why I was willing to just take the risk of buying something at a cheaper cost, lower cost.

ANTHONY: What are some of the benefits of buying at a short sale? Is it generally good for the buyer or I guess what are the good parts of it?

DAVE: I think the only good part is that you’re getting it for, at a discount, whether, I mean, technically it’s just means that the bank’s willing to let you sell it for less than what’s owed, but the first person could’ve taken out another loan, or their mortgage could be really high, so you can’t, I can’t really say that it’s, in my situation, it wasn’t a big discount, but I knew that I might’ve saved about 10% because the house next door’s identical and they just sold for $60,000 more than what I bought it for.

ANTHONY: Just to be real clear for anyone who is struggling with the math. If we’re talking about a $500,000 house, I mean, you’re talking about a $50,000 savings. And that can be a huge difference for a lot of people, yeah?

DAVE: Yes, in my situation it was 10%. I’ve heard that you can, some people have gotten it for much cheaper, maybe 20% lower than market value. But I don’t think you get anything really at a steep discount because at that point then there’s really no point in selling it as a short sale.

ANTHONY: Right, might’ve well foreclose then, right?

DAVE: Yeah.

ANTHONY: Just lastly, what are some of the drawbacks, or cons, of doing, it sounds like your situation was, fortunately for you, super smooth and muggy. But can you see, or can you identify, some of the drawbacks that you’d wanna warn other people about? They’re probably excited to follow in your footsteps.

DAVE: No, actually a lot of people ask me about the short sale, and they’re telling me that they’re looking online and I always tell ’em what I’ve always said before. That it could be a drawn out process, and there’s always, even though you put in an offer, we didn’t get any response back for a long time, not long time, but we didn’t get a response. You kinda just go through the process just under the assumption that they accepted your offer.

ANTHONY: Even though you don’t know, yeah.

DAVE: Even though you don’t know, you just kinda go, under that assumption, you go ahead and pursue the mortgage. So that could be time consuming for a lot, I mean, you have to provide a lot of information. It’s not just a pre-approval, you actually have to submit all your paperwork to it as if you’re actually getting the mortgage. And your mortgage broker has to do the work as if that’s the mortgage, the loan amount, that you’re going for.

ANTHONY: Did you get your mortgage with Ace?

DAVE: I got it with Wells Fargo, not through Ace.

ANTHONY: Just wondering. The Yukon boys. How Connecticut–

DAVE: Well the only reason why I went with Wells Fargo is because I’ve done another mortgage with them before recently, for my lawn and for the apartment I did a refi. And they already have my information, even though they can’t use that information again, ’cause that’s how it’s closed, the broker I was dealing with, he just was able to expedite everything, so otherwise I would’ve gone through Ace.

ANTHONY: How does this story end? Where are you at now? Are you moved in with a white picket fence? Is it all a beautiful happy ending for you?

DAVE: Everything’s good. We’re still in the renovations, it’s just getting renovated right now. That’s why, like I was telling you before, I wasn’t in an urgent situation to move ’cause my lease is until middle of September. And when I started this it was back in, I think it was back in May. I started this back in May, and then I closed at the end of June, and then I’ve had about a month to reno.

ANTHONY: So are you still in renovations now, when are you guys moving in?

DAVE: Expected move in date is middle of September.

ANTHONY: I wanna circle back just one second, in terms of the drawbacks of a short sale. You talked about how you weren’t allowed to do an inspection, but you didn’t care, you personally it didn’t matter to you, because of your personal expertise as a developer and contractor, but for somebody who doesn’t have that expertise, who doesn’t have the eyes to examine the property on their own, that could be a risk area for them, yes?

DAVE: Yeah, but it wasn’t that they didn’t allow me to do it. It was just in the interest of time, because when we submitted the offer, they wanted to close right away. And in order to close right away, I didn’t wanna wait another three, four days just to wait for, to set up the home inspection. And then wait another day or two for the report. So I feel like without the home inspection we probably shaved about three to four days, at least.

ANTHONY: Dave, can you tell us a little bit about your business, and what you do, and the kinda people who you really help out?

DAVE: I, mostly we, I do new construction under 75 feet and I work in mostly Brooklyn, Manhattan, and Queens. So usually mostly commercial, I would say about 80% commercial buildings and 20% residential. Yeah, I get involved from anywhere from purchasing to construction and then selling at the end, that’s part of my business. And the majority of it is it’s just construction to actually have clients and investors to work for them to build a building from start to finish, and to get them the Certificate of Occupancy at the end, and all the sign offs for the job application.

ANTHONY: Are you taking on new clients, new developers, or investors?

DAVE: Yeah, we’re always looking. And our business is growing. We’ve done a long of Asian banks in Flushing. We’ve done a bunch of townhouses in Manhattan. We’ve done a lot of commercial buildings in Flushing. We did a, we worked on a commercial building in College Point that was sitting on about 4.7 acres. I mean, most of it is parking, but the building itself is about 75,000 square feet. That was probably our biggest project. But I generally stay away from single unit renovations, or things like that, ’cause it’s just too small of a job.