Why not have the buyer do inspections prior to submitting to the lender?
I am the listing agent on a property that has many problems. I knew that once we got to inspections after the lender approval, it would reveal a failing septic system along with a pest report that would show the termite's were holding hands to keep parts of the structure upright. When I listed the property, I discussed with the seller the short sale process and what usually happens at this point that either the buyer accepts the condition, backs out or I have to renegoitiatefor a credit with the lender.
We received 2 offers on the property and as we reviewed the contract seller says point blank, "I don't want to wait around for inspections and have them cancel in the end." So we countered the highest offer that they were to complete inspections within 10 days of acceptance and they would deposit $5000 into escrow. They did their inspections and decided not to proceed without ordering any formal reports. The lower offer came in with an even lower offer and seller countered with the same terms. They signed it without any questions. But when it came time to remove contingencies, they balked. Partially stunned I reminded them of the what they signed. They eventually came around got the formal reports they wanted and they removed the contingencies today. Bad news is the septic is failing and the pest report is a major document...and the good news is we a submitting at the agreed price and all sorts of written documentation describing the condition of the house.
So my question is why don't we do it like this more often? In my opinion the buyer's are better off knowing up front what the condition is instead of waiting forever only to decide to back away. It saves everyone time and once we get approval, we don't go through a time consuming renegotiation.
Replies to This Discussion
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Permalink Reply by Kevin - Greenville, SC on
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In my Market with very few Distressed Homes (yes Short Sales are Distressed no matter how the Serivcer/Investor wants to value them) as an overall percentage of the Market and even fewer Buyer's for such properties, it would be tough to put yet another obstacle for an otherwise qualified Buyer.
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Permalink Reply by Jim Schneider on
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I'd say Kevin is right, and so are you, it depends on the situation. If you have a strong hand or the buyers want the seller to take a chance on a lower offer, negotiate for inspections up front. If you're hanging around with no activity, I wouldn't suggest pushing this on the only buyer to write an offer.
On the buyer side I've put this on the table when my client really likes the property, and there was competition, or where the buyer just valued their time more than the inspection costs.
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Permalink Reply by Smitty on
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We never take a listing unless the seller knows inspections are to be done within 7 days of executed P&S. It's a waste of everyone's time to do it after. Mortgage commitment within 45 days of executed contract and inspections done up front.
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The Buyer not having the inspections done up front (prior to an Approval that may or may not come) have not really created any significant problems for me.
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Permalink Reply by Satar Naghshineh on
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I think you are going about this the wrong way. Instead, why don't you team up with a licensed contractor and have him give you a high contractor's bid for the repairs needed. Then give that bid to the BPO agent so they can adjust value accordingly.
Another way is if you know the damages to the property will cost 10k, then when the buyer makes their offer, verbally tell them to re-write the offer for 10k less in expectation that there will be 10k of damage and the buyer will resolve it without issue.
Whatever solution you do, I suggest it be done upfront. I wouldn't allow my buyer to pay for any fees or costs until I see an approval letter.
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All our P&S's are prewritten with verbiage that inspections are in 7 days and mortgage contingency is finalized within 30-45 days of executed contract. I would not negotiate for 60 days only to find out a seller isn't able to close on the loan or the inspection came back with something significant. Not all lenders are happy about doing an extension and MOST lenders issue 30 days for approval to close. My team makes sure when approval is issued, there is nothing left to do but close.
The problem is when someone sees SHORT SALE in the listing, they suddenly start treating it differently.
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Permalink Reply by Bill McKinley on
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I agree, why treat a shot sale any differently than any other sale. Makes the offer stronger IMO.
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You lost me at hello!
Are you stating that as a buyer's agent on a short sale, you allow your client to pay for inspections before getting a short sale approval?
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If you want to be considered a serious strong buyer, YES. If I have two offers in front of me and one buyer has to wait until short sale approval to THEN start the inspection or financing process, why would I do that? When the approval comes in a buyer should be READY TO CLOSE...imagine negotiating for 3+ months, having a list agent go through multiple BPO's, counters, submitting paperwork over and over, investor approval, MI approval and you're ready to go only to find out your buyer REALLY didn't qualify for a loan or there was such a big issue with the house they had to start over with a new offer?
Thanks but NO THANKS! NEXT.
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OK, thanks for the clarification. Although I agree that the buyer be qualified to get a loan, I disagree with spending a dime (as a buyer) before getting a short sale approval. In my area, that's around $300 for a property that you might not get.
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Satar, you still have to spend the $300 in a traditional sale and if you can't come to terms on the results, you're out that money. Sales go south all the time. Buyer's are out money all the time and that is the risk of potentially buying a home. The Buyer MUST spend some up front money in order to show they are serious. They need to be commited to the property.
Buyer must pay for appraisal which runs $300-$400 for an appraisal if they are financed. Again, that should be done up front. BEFORE approval. I actually had a Wells Fargo rep ask me for a full commitment letter before they would issue approval so the buyer HAD to get an appraisal and thankfully it was already done.
Short sales are sold as is. As a buyer why wouldn't you want to know up front, what you were getting into instead of wasting 3-4 months of time to find out later there is an issue you can't resolve.
Due the due diligence u front.
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In a traditional sale, the majority of my negotiations are already accomplished. Also, whatever I find, will pose as an issue for any future buyer so I can use that as leverage to negotiate with the seller. However, with a short sale, I do not know the acceptable terms or if it will ever be approved. Totally different situation.
Regarding loan approval, the appraisal means nothing. The buyer is approved for a certain amount. It is up to the agents to determine what the property will appraise for and if the buyers can purchase the property beyond the appraised value if need be.
"Short sales are sold as is. As a buyer why wouldn't you want to know up front, what you were getting into instead of wasting 3-4 months of time to find out later there is an issue you can't resolve."
Even more reason for the listing agent to handle this responsibility.
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