Home inspection contingencies etc...
I am pretty sure I already know the proper way to handle this but just curious as to how some of you other agents handle contingencies when dealing with a short sale.
I just had a 40 minute phone conversation with a buyers agent who has never been involved in a short sale transaction. Long story short he wants to do home inspection after we receive short sale approval which I told him is not the proper way to do things and that we should stick within the timelines of the contract for any and all contigencies and mistakingly tried to explain the dynamics of how a short sale works and that there are other factors(in this case a Federal Tax lien) that may play into the timeframe and just want to make sure that his and his buyers(son in law and daughter)expectations were realistic. This was border line an argument as he began asking me questions if I was aware of the "federally mandated" 30 day response time from the big lenders and all of the agents in his office have an attorney negotiate their short sales and that no agent in his office ever does any type of home inspection, appraissal etc until they receive final bank approval which as far as know is not the proper way to do things and at that point we were butting heads as to what is the right and wrong way of handling things.
Im beginning to think that maybe I went into too much detail but I just try to make sure buyers and buyers agents know what to expect and just curious as to how some of you handle buyers agents that really do not understand and some advice as to how to handle them because I obviously want to help my seller avoid foreclosure and get the deal to the table. The kicker is he has not even sent over an offer nor agreed on price!
Replies to This Discussion
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Permalink Reply by Mike Rosania on
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Just a quick follow up, as expected he sent me an offer 30k below market in a subdivision which has not had 1 distressed sale ever and when I countered him he laughed and said "but this is a short sale why would my buyer be willing to pay anywhere close to market value"!? Need I say more. I told himthey should just move on to another short sale listing is a less desirable area plagued with distressed properties and he will probably find his buyer a great deal at which point he told me he was going to run comps(he never did prior to submitting offer). Wow
I just thought I would share.
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Permalink Reply by Smitty on
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HAAAAA....OMG. Any agent that touts "federally mandated" blah blah has never done a HAFA short sale...ya right HAFA was supposed to speed things up too, but ended up a joke. Response time could mean anything, i.e., "Hey list agent, we got your package" - sooo funny
I always make inspections within 7 days of signed contract ( or sooner) I also have mortgage contingencies within 45 days of executed contract...I've had buyers agents squak, but they seem to think SHORT SALE and start treating it differently than a regular contract. No, get your financing in order, get your inspection, pay for your lender appraisal, get me anything else I need so the minute I have approval we can close.
Good luck.
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Permalink Reply by Richard Oreck on
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We use the California Association of Realtors forms which is very common in CA. The boiler plate of the Short Sale Addendum states that all time periods of the contract (including inspection periods), except for prequalifying letters and verification of funds do not start until 1 day after the buyer receives from the seller the short sale lenders consent.
This is the standard of practice in our area.
It makes sense to me since the seller cannot provide any assurance to the buyer that they can sell the home until the lender consent is received.
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I'm not an agent, but bought a home in a SS.
We did not do the formal inspection until after approval. I'm glad we did otherwise I would have had to pay for multiple inspections (it took almost a year to get approval). We treated it as a normal transaction:
I submitted offer
Offer was accepted by Seller
Bank Countered (and we danced for awhile)
Finally had agreement with all parties on SS
Received Approval
Did inspections, appraisal, pest inspection, etc.
Closed
Even though the seller agrees to a price, the bank may not agree. Because of this, I held off on any expenditures until we had an agreement on price (approval). The condition of the property may change during the time it takes to get approval.
Although I did pay for an appraisal out of my own pocket when we were doing the negotiating dance.
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Permalink Reply by Bill Dobbins on
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I have a 5 page agreement the buyer and the buyer’s agent signs. It states that expect a 90 day plus bank response time, inspection will be done and removed prior to bank submission, earnest money will be at least 1% and will be delivered within 72 hours of purchase agreement acceptance.
If they do not agree with this when we will not consider the offer. I use a law firm that has 1200+ files in house all of the time, in the past year I have had 100% success in approvals and closing.
If the closing is successful and the bank won’t the law firm I will out of the proceeds of the sale so the seller is protected. I never charge the seller anything for the short sale work.
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That is similar to what we do. We have disclosures that say the passing of the title is approximately 90 days from submission and that inspections need to be within 7 days of execution of a P&S. My job is to protect the SELLER. I've seen deals go south because agents waited until approval to do inspections and then what?? Oh they found an issue and then wanted to resubmit their offer for a lower amount...NO WAY. DO YOUR DUE DILIGENCE UP FRONT. If you find an issue, then resubmit an amended P&S. All our properties are sold AS IS anyways. Mortgage contingency is 45 days from executed P&S. If the buyer can't get financing, I don't want to waste 45 more days on top of that. It's ridiculous.
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Permalink Reply by Richard Beach on
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Nevada has a short sale addendum that can start contingency time frames at the execution of offer and acceptance or after lien holder(s) approval. I would never advise a buyer to give up their inspection contingency or do a loan lock if the seller can't even tell me that theyre allowed to sell their home. Lien holder approval is a far greater contingency than an inspection.
The agent was probably referring to the AG settlement which is requiring all servicers to respond or request more documentation within 30 days of receipt of the original short sale package. good luck monitoring that.
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There is no "right" answer to when the inspection contingency period should end since a short sale is not a normal transaction. Normal to me when a seller has the full capacity to transfer their property and puts it on the market. Since we do not know in advance if the sale is going to get lender approval and we do not know if there will be inspection issues we can't predict the most logical approach.
One concern I have with contingencies being done before lender approval is that you must have a buyer that is willing to risk hundreds of dollars (or more) to make an offer that may never have a chance. The risk narrows the buyer pool and consequently may diminish the selling prices of the homes, possibly drawing down overall market values. We want short sales to be as attractive and approachable to as many buyers as possible and there is already enough to drive them and their agents away as is.
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I completely disagree. A short sale needs to be treated as a normal sale and the only difference is it is subject to lender approval. My job is to make sure the sellers have the most qualified buyer possible to close. I can't take the chance that when approval is issued the buyer may not have obtained a mortgage comittment OR THEN starts their inspection. Just like any sale, the buyer needs to do their due diligence. Anytime a buyer does an inspection there could be negative results. It doesn't matter if it's a short sale or traditional sale. If the buyer and seller can't come to an agreement on a price reduction or seller concession, the buyer takes on RISK. Well, just as the buyer takes on risk so does the seller, by allowing a buyer to WAIT until approval to do an inspection or mortgage appraisal. Most lender issue an approval for 30 days. If there is an issue with the house at that point, you can bet the house won't close on time and that is a HUGE risk for the seller. They could be up against an auction or dealing with a not so kind negotiator that may kill the deal because the buyer didn't do their job up front.
A buyer that will commit to an inspection up front and get their mortgage contingency deadline taken care of before approval has skin in the game and is much less likely to walk. There is NOTHING holding a buyer to a deal if we allow them to wait for an approval.Sorry, that's too much risk to the seller.
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Smitty,
Are you saying that prior to submitting an offer on a property (short sale or not) I should pay for an inspection? That is crazy, I don't even know if the seller would accept my offer and I'm out a few hundred already. In the houses I've purchased, my offer always states contingent upon inspection and I've found this customary in FL and NC.
With the short sale I purchased, there was also the inspection contingency but I did due my due diligence and knew the property. The inspector did find some items - all small and I agreed to proceed. Now if they inspection found something (say Chinese drywall) then I would have withdrawn my offer. In my experience, most issues with an inspection can be taken care of in a couple of weeks - if not, then there is definitely larger problems with the home.
There is risk both ways, agreed. That is the general nature of buying and selling anything.
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No Peter, if you read above you would see I wrote "I always make inspections within 7 days of signed contract ( or sooner)"
I want issues out of the way up front...NOT on the back end of the short sale when I have approval in hand as that poses WAY more risk to the seller. I understand your position as a buyer, however, my job is to protect the seller and WAITING for some buyer who may not even be qualified to buy the house, is NOT in the best interest of any seller, so as a short sale list agent, I would never encourage a seller to take an offer where all diligence was performed AFTER approval.
A buyer needs to do due diligence on any property they purchase and a short sale is no exception. There is risk to any buyer AND seller in ANY sale. My only issue is buyer's agents suddenly thinking a short sale needs to be treated differently than a traditional sale. When I get an approval in hand, the buyer better be ready to just schedule the closing as some lenders only allow a week or two to close. It's too much risk for the seller allowing a buyer to wait to perform an inspection
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Got it Smitty. I'm with you. I think where we differ is that in a regular sale, a signed contract is good. In a short sale, a signed contract is not final without approval.
I agree that the buyer should be pre-qualified and vetted. No question. But to ask the buyer to start shelling out money without approval for sale does not make sense to me.
The seller is also free to line up additional buyers in case the first one does not come through (my agent called it 'active with contract').
You represent the seller and that's fine. You need to protect their interests. I'll protect mine.
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