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!
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As you can see there are many varied answers. In California as stated in an earlier response the short sale addendum offers a choice as to when the timeline starts. Generally it is after the seller's lenders have given their approval letter.
Although it is a risk for the seller, I do not find buyers in our area would ever pay for inspections prior to the lender approval. Where we are there is not 100% lender approvals being given so the buyer would be out their inspection money.
I am now collecting a 1% fee upon signing of the contract. I work to ensure the buyer has knowledge about short sales, the fact that it is an as-is sale and no repairs will be done, and that they can secure the loan.
Good luck. I love to see all the responses!
"In California as stated in an earlier response the short sale addendum offers a choice as to when the timeline starts."
Actually Pat, that is not what I said. The California Assoc. of Realtors Short Sale Addendum does not offer a choice of when the timelines start. It clearly states that they start once the buyer is given notice of the Short Sale Lender's consent. The deposit does not even go into escrow until that point.
Smitty, aside from how it is commonly done in various areas it also depends on who you are representing. If we write an offer for the buyer our fiduciary duty is to them at that time and we are serving their needs. If it is a dual agency when we present it to the seller our fiduciary duty is to them in going over it. Perhaps you only represent sellers.
Richard -
I think you need to reread your California Assoc of Realtor - Short Sale addendum - under page 1, para. 2. Time Periods - (ii) (if checked) shall begin as specified in agreement. There is a choice.
It is important we know what the contract states so refreshers on that document might be in order from time to time.
Pat, you are correct. There is that option.
Not knowing what state you are in, absolutely would not do the home inspection until the Approval Letter has been issued, the buyer or seller may not be able to comply with the terms of the Approval Letter so why waste someone's money?
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.
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.
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.
Completely agree Smitty. I too have had inexperienced SS buyers agents insist the buyer should wait until after lien holders approval for inspections and I have learned to keep my explanation simple: My seller is not willing to take the risk of delaying the home inspection and will not accept the offer unless the inspection is done within 10 days of the seller's acceptance of the offer.
If the buyer's agent doesn't "get it" they're not going to do a good job of explaining it to their buyer.
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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