How To Keep A Buyer A Party To A Short Sale Transaction Without A Signed P&S Contract
During this past week alone , I have received ten new short sale requests. As a short sale negotiator, my services are generally not required until the buyer and seller execute an Offer to Purchase. Once the offer is signed, the buyer's agent inevitably calls me to request the seller attorney contact information so the parties can immediately execute the purchase and sale contract. In each and every instance, I inform the buyer's agent that it is unnecessary to sign a purchase and sale contract until we have third-party short sale approval. Given the increased volume of short sales, coupled with the amount of "new" agents working on these transactions, it bears mentioning why, when the proper procedures are followed, it is not necessary to sign a purchase and sale contract until third-party approval is obtained.
With regard to short sale transactions, most of the attorneys and real estate agents with whom I work prefer to execute the purchase and sale contract after having received third-party approval. That way, the attorneys don't spend time drafting and negotiating the contract if the sale never gets approved. In order to get a firm commitment from the buyer, however, the offer usually contains an addendum requiring the buyer to remain a party to the transaction during the short sale approval period, which is typically 60 to 90 days. During the approval period, the seller agrees to refrain from accepting back-up offers. Upon signing the offer, the buyer generally places a 1% deposit, or at least enough money to ensure the buyer will remain a party to the transaction. In consideration of the seller no longer accepting offers, if the buyer chooses to walk away during the initial short sale approval period, they lose their deposit. If the approval period passes without third-party approval, the buyer has the right to extend. The addendum also states that, upon receipt of third- party approval, the parties have 5-7 days to execute a purchase and sale contract and collect the remaining balance of the 5% deposit. The purchase and sale contract typically calls for the closing to occur 30 days from receipt of written short sale approval.
While every short sale transaction is different, most lenders only require a signed offer to purchase in order to consider a short sale request. As a result, if you are able to eliminate the 7-10 days it typically takes to get a purchase and sale contract drafted and agreed upon, you are one week closer to receiving short sale approval. As a real estate agent, you can now focus your efforts on getting new listings and more signed offers. Keep in mind, I always require the buyer to conduct a property inspection, or waive their right to do so, prior to submitting the offer to the short sale lender. The reason being, if the offer is submitted subject to a property inspection, the short sale lender will not allow for a price change due to any property condition issues revealed by the home inspection. Thus, if a buyer objects to spending $300-400 dollars on an inspection prior to submitting the offer to the lender, they probably aren't the right buyer for your short sale. I would rather find this out at the offer stage, instead of 60 days down the road after having spent many hours negotiating the short sale with the lender.
If you are a real estate professional currently working on short sales, contact us today if you need assistance with your short sale offer addendum.
About the Author: Greater Boston Short Sales, LLC (GBSS) is Massachusetts’ leading short sale negotiator. GBSS assists homeowners, Realtors and attorneys with getting their short sales closed. Contact us today if you are a homeowner facing foreclosure or a Realtor seeking assistance with a short sale transaction. GBSS is a MARS provider. Please read our disclaimer HERE.
Comment
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Comment by Andrew Coppo on May 24, 2011 at 4:41am
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Beryl: Initially, I would say about 25% of the buyers balk at the prospect of having to pay for the inspection prior to submitting the offer to the bank. After explaining the reasoning behind this rationale, however, 100% of the buyers and their agents understand that it is necessary in order to submit the "highest and best" offer to the lender. Keep in mind, the lender will not allow for price reductions due to any property conditions revealed at inspection, so it doesn't make much sense to allow this contingency to survive the offer. As a short sale listing agent, you are looking for a buyer that is committed to the transaction, not one that will walk away during the approval process. In all of my short sales, the lender always accepts or counters the initial offer, so any argument that the buyer is potentially throwing away money on an inspection is an uninformed argument.
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Comment by Beryl Gosney on May 22, 2011 at 3:54am
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What percentage of the buyers refuse to hold an inspection before short sale approval? Do you have a ball park figure based on your experience?
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Hi Andrew, thanks for the response....
You post is still very confusing to me, sorry.
For those that argue that you need a signed "contract". The offer is a signed contract because it states offer, acceptance and consideration which are all necessary components of a contract. Most lenders these days only require a signed "offer", not a full purchase and sale contract. This is merely a method to submit an offer to the short sale lender while binding the parties to a contract, via a signed offer to purchase.
I dont disagree that the lenders require a signed offer. What do you consider a signed offer compared to a full purchase and sale contract? A signed offer to purchase? I am assuming that the seller is signing this document or you do not have an acceptance of the offer, unless I am missing something.
Jeff:
Let me preface my comments by stating that I am not an attorney. That said, the Offer to Purchase is signed by BOTH the buyer and SELLER. In a non-short sale transaction, the parties would usually bind the Offer to Purchase with a nominal deposit. Per the terms of the Offer, the parties would then have a certain number of days to execute the final Purchase and Sale contract which reduces the terms of the "Offer to Purchase " into a "Purchase and Sale contract", at which time the buyer would then place the remaining deposit amount in escrow. In a short sale transaction, the parties are BOTH signing the Offer to Purchase, which includes a short sale addendum, as well as placing a "more than nominal" deposit to ensure that the buyer won't walk away during the approval process. If they do, the "bargained for" agreement states that they lose their deposit. This fully executed offer is submitted to the lender along with the short sale package. Upon third party short sale approval, the parties then execute a "Purchase and Sale" agreement which recites the "final" lender approved terms of the offer and they place the remaining balance of the deposit in escrow.
Again, this may not be a solution in all states, but Massachusetts is what lenders commonly refer to as an "attorney" state and I have yet to encounter any problems obtaining short sale approval with a signed offer to purchase. One of the biggest obstacles in Massachusetts is finding attorneys to represent short sale clients because they do not want to draft and negotiate the P&S contract unless they know they are going to get paid. This method merely delays the time in which the attorneys execute the Purchase and Sale contract while at the same time binding the buyer to a contract (the Offer) during the short sale approval process. I hope this clarifies any confusion.
****IMPORTANT NOTICE****GBSS is not associated with the government and our service is not approved by the government or your lender. Even if you accept any offer to use our services, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating. You may stop doing business with us at any time.DISCLAIMER: GBSS IS NOT ENGAGED IN THE PRACTICE OF LAW AND DOES NOT PROVIDE LEGAL ADVICE. GBSS DOES NOT PROVIDE TAX ADVICE. ALL RECIPIENTS ARE ENCOURAGED TO SEEK ADVICE OF AN INDEPENDENT TAX PROFESSIONAL OR LEGAL COUNSEL WHEN CONSIDERING A SHORT SALE.
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