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 Smitty on
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Exactly and the responsible thing to do is to get the inspection done up front and not waste peoples time. By the time the approval comes in buyer's should have done an inspection already so...about $300 and then also got their financing in order which includes another $300-$400 for the appraisal. Most buyers on ALL of my properties have shelled out approx $700 before we even get to approval.
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Permalink Reply by Satar Naghshineh on
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"By the time the approval comes in..."
Here is the fallacy I see in your argument. Can you guarantee that we will get an approval and the approval will be based on the terms that we have agreed upon? The answer is "no". So if you want my client to commit to expenses BEFORE an approval letter is given based on our terms that we have already negotiated, then your client will need to be in a position to refund my client's expenses should they fail to remove their contingency.
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Permalink Reply by Kevin - Greenville, SC on
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It's tough enough in my Market to obtain one offer on a Short Sale at or near Market value. If I had a few to choose from and the offer price was near identical, of course I would advise my client to go with the Buyer who was having inspections done on the front end.
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Permalink Reply by Bill McKinley on
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How long have you been using this as your standard of practice and how much resistance do you encounter?
The reason I brought this discussion up was because of the various responses I've gotten from other agents in my office and market area. The agents who were opposed expressed the same response as Satar. However many agents were very supportive of the idea, with a but.... One opinion that was expressed is that agents won't do that is because they're afraid of losing their buyer. Another opinion was most agents want to close and get paid quickly so they want to leave the door open to cancel without recourse should a property come up that would close sooner.
The way I see it, It seperates the serious from the sorta serious.
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This has been our model for over two years. It's NEVER an issue because we disclose it right up front on the MLS in the paperwork we include for the buyer. Before they even make an offer it's spelled out for them.
I work with agents who get their short sales under contract within 30 days in most cases. I have seen short sales sit month after month, but usually it's because they are priced wrong.
I don't see agents losing a buyer. The buyer's agent is there to give advice to the buyer. If the agent opposes it, they may lose the buyer, but if the agent says, "Hey, this is a stipulation of the sale and if you want the house, it's part of the contract." and then advises them that in short sales, there are no guarantees, I don't see that agent losing a buyer.
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Permalink Reply by Evelyn Santiago on
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I as a listing agent insist that all inspections be done up front or waived. Why would I pull the listing off the market for a buyer that is not committed to the long haul. Just because its a "short sale" does not make the contract process any different. You need earnest money, attorney review, inspections and a mortgage application within the terms of your standard contract. 3rd party approval is just another contingency just like financing. Why waste everyone's time and potential exposure to more commited buyers because the buyer "can't fork over $300" bucks.
If they are that tight on money they may not be the best candidate's for homeownershp. There are still listing agent's out there that are willing to take an offer without earnest money, without inspections, etc. and submit offers to the bank. I think they are doing a disservice to their sellers.
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It's not an issue of "can't". It's just not a wise move on part of a buyer's broker to have their client commit such funds to a transaction in which a seller's contingency may or may not be removed on the terms negotiated. Depending on the listing agent, it might be better if the buyer bought $300 worth of lottery tickets! ;)
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It's your responsibility to find out as much as possible about the capabilities of ther short sale agent before you put in an offer. How many short sales have they closed? How many liens are involved? Have they made contact with the servicer? Check property records yourself via assessor and/or tax records. Is the agent presenting the offer themselves to the lender or using a 3rd party? Is it an attorney that may be learning to do short sales for added income or a seasoned pro that has done hundreds of short sales?
There are risks even in traditional sales such as - is that pre-approval letter a guarantee that the loan will close?
In our business there is a certain level of trust that we must have with the other professionals on our team. I have to trust that the buyer's agent knows that the buyer is in a good position to actually get a mortgage, wants the short sale home badly enough to hang in there through the process. I need to trust that the buyer's agent has set expectations with their buyer that this short sale process is not for the faint of heart. That if you want this home then you have to have patience, that you are able to deal with an "as is" purchase and that you are willing to risk a small amount of money compared to the full purchase price as price of adminission to a "below market" home.
If you don't ask the questions, you won't get the answers. If you didn't pre-qualify the buyer or speak with the mortgage officer to make sure that the pre-approval letter is worth the paper it's written on then the fact that the buyer was on the edge will not surprise you.
Saavy agents ask the questions. As a listing agent that has presented offers to the banks dirctly and has also used attorney's I rather deal directly with the lender and present the offers. I can defend the value better than an attorney since that is my area of expertise. I use the attorney to deal with contract language, title issues and legal explanations that the seller or buyer will need.
When I have th4ee buyer I tell them its in their best interest to find out if th4e home has issues now instead of wasting time after the approval to find out he does not want the home after waiting months for the approval when he could have pursued another home.
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I can argue this in so many ways:
1. No matter how good the listing agent is or how good you think they are, the seller contingency is out of the control of the seller and their agent.
2. The seller has a vested interest in knowing all material facts that will affect the property value since the seller is mitigating the loss on the seller's debt settlement. Therefore any resources and/or costs associated with this should reside with the seller.
3. Risks in traditional sales are minimized in correlation to the number of contingencies and in which those contingencies can be decided upon and acted upon by the parties under contract. A good example in a equity transaction is a contingency to sell or purchase a property.
4. In regards to trust, a buyer intends to purchase a property in which he/she negotiated in good faith with the seller and trusts that the seller will honor the contract. A buyer cannot trust that the seller's lender will also do so. ;)
All things in real estate are negotiable. However, I am simply stating the logic as to why I would advise my clients against spending a dime until we get an approval letter regardless if your listing is the hottest ticket in town and you are a short sale listing God!
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With so many properties on the market you can avoid the short sale properties and not bring your buyers to the "hottest" listings in town. As long as your buyer's don't mind missing out on short sales then you will be doing fine. Or as long as you are able to find other agents that are willing to put their seller's out of the market to protect your buyer's "pocket book" then your all set.
In my market, in the Northern IL greater Chicago metropolitan area, we have everything covered with enough short sale addendums that I am glad that attorneys and our various Boards are recommending that a short sale be treated like any transaction with a contingency.
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Permalink Reply by Bill Dobbins on
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As a listing agent we make sure the seller requires two things prior to submission to a third party for approval.
They are:
1. Buyer will do an inspection and remove the contingency prior to submission to the lender. If they are not willing to do so we just say NEXT. We have never had a problem. It also removes the buyers/buyers agents that make offers on more than one short sale and wait for the first approval and cancel the rest. I have many buyers represented by other agents call me and say their agents recommend that process. Inspection requirement removes them from the mix.
2. Earnest money must be delivered within 72 hours after final acceptance of the purchase agreement.
These two requirements keep the buyers committed to the property instead of losing them after bank approval and then do the inspection and finding things the lender won't fix and the seller can't afford. Find out up front. The past year that has been our requirement and we have had 100% short sales close. The problem buyers/buyers agents don't make offers which we don't want any way!
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Permalink Reply by Mike Horton on
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Guys I do short sale listings and buyers so I know both sides of the coin. In my experience as a buyers agent there are too many unkowns for me to committ my buyer to doing inspections up front. I do ask for a seller property disclosure up front which will alert my buyer to any potential problems. There are just too many unkowns, like poor BPOs, HOA issues that happen between the time of the offer and the agreement notice, agreement notices that have promissory notes, and unkown issues with other liens to name a few. If I want a committed buyer as a listing agent, I ask for non-refundable earnest money until the approval letter from the lien holder is agreed to be by the seller. Many of my buyers are from out of state and see the property once and then go back home to wait on the results. Do they remember everything about the house 60 to 180 days later?
As a selling agent, there is more risk involved contractually. When do they turn in the buyer inspection notice indicating that have accepted the property? Contractually they are bound to turn that in within the inspection period, yet the contract time clock (days for tasks) does not start until the agreement notice is delivered. By AZ standard contract requirements, the contract is not executable until the agreement notice is agreed to by the buyer (the agreement form created in 2012). So now inorder to have a contract that is fully enforceable and not one that is based on "that is what i meant to say" there needs to be a significant over haul of the standard contract wording. You are making a significantly complicated process worse with these conditions. Can you get away with it because everyone else does, Yep. But with the one client who balks, your in court with some shaky legs. Just my opinion, but I think contract issues need to be addressed in detail before jumping on this band wagon.
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