Why Do Short Sales Fail?

As a foreclosure investor working short sales, you've probably had some deals blow up in your face (I have). There are numerous reasons why short sale transactions can fail-even with all of your hard work and diligence. Sometimes the deal blows up and it is our fault, and other times it is not. Let's discuss five of the big ones that can cause our next deal to fail.

First, the most obvious deal killer is that we do not buy the property ourself or a third-party buyer does not materialize.

Second, the broker price opinion (BPO), that the lender requests, comes in at a value that is too high for us to buy and resell or too high to yield a third-party buyer offer.

Third, an unknown bankruptcy filing by the seller in an inopportune time, whereby the current buyer walks from the deal and we are not able to find a new buyer prior to the foreclosure auction.

Fourth, judgments or liens that may come about only after formal title work reveals them can spoil the deal because it mathematically does not make sense or the time needed to correct and negotiate the liens is more than the buyer can wait for.

Fifth, mathematical errors that show up on the preliminary HUD can sometimes cause your net profit to get reduced on the final close to the point where closing the deal does not make financial sense.

Generally speaking, my cure for failed deals is to have a lot of deals in my pipeline. Keep in mind, that I fight to the end to close deals. Losing a deal just prior to closing is sort of like fumbling a football on the 1-yard line in the "big game." However, I realize that these fumbles do exist.

The fix and flip market is still profitable today, even though we make less money than a few years ago. The key point is to understand that we have to be ever more diligent on calculating the offer. Note, formulas used to calculate offers on long-term hold real estate are not at all related to fix and flip formulas, and these deals are normally disastrous for the unsuspecting investor.

We talk much more about this in our REI mentoring program. After years of doing these calculations by hand, my partner and I have developed an online real estate software to make our lives much easier. We can now crank out offers and determine the exit strategy in seconds.

To Your Success,

Tom & Svein