To make a long story short: I am buying a short sale home. The house was selling for $359,900, I made an offer for 330,000. The bank countered by $5,000. I accepted the counter. After waiting over a month, the bank accepted the offer and said they will approve the sell. Yesterday, my agent called me and said that the listing agent informed her that I have to also pay an extra $5,264.00 for a Mortgage Insurance Contribution that must be paid before closing, which is the end of December. I assume this came from the bank. Since I really want the house, It looks like I will have to bite the bullet and fork up the extra money.
Would someone please explain to me what is the purpose of the buyer having to pay a Mortgage Insurance Contribution. What the heck is this!
I'm not an agent but, just a buyer. As a buyer, your agent should be asking DIRECT questions to the listing agent about why this contribution is being now being negotiated into the deal rather than earlier. They've backed you into a corner. It's either Fold, Flee or Fight. It sounds like someone on the seller's negotiating team dropped the ball.
A mistake on their part, does not constitute an emergency on your part of the deal. Your own bank may require mortgage insurance on your loan, however the seller's MI should have been part of the original negotiated deal. Ask the listing agent to take a cut in their commision and then watch the look on their face.
This a common requirement in a short sale transaction. The Mortgage Insurance company on the seller's loan is requiring that the $5,264.00 be contributed to their loss in order for them to approve the transaction. Apparently the seller is not in a position to pay this, so the listing agent has advised your agent that you will need to come up with the extra funds in order to proceed forward. Again, this is very common as MI typically wants a contribution towards their loss. The decision is up to whether to decline, attempt to negotiate, or accept and move on towards closing.
I simply do not agree what Richard has said. When you said that "they accepted the offer and said they will approve the sale", did you receive this in writing?
Let me say, from a seller viewpoint this would be a solution. However from a buyer's viewpoint, this should have been negotiated earlier. It all depends on how much the buyer want the house, doesn't it? Buyers need to start making others more accountable. At some point, all parties, including agents have to be accountable. Why is it the buyer is always the person that ends up bailing everyone else out? Please keep in mind, not all short sales are great deals in reality.
How do you know the listing agent dropped the ball? How do you know that this should have been negotiated earlier? In many cases the file will come to an agreement with the short sale lender before actually being submitted for final/written approval. For example with BofA, all terms are agreed upon in the Equator system and then the file is actually submitted to the Investor and MI for final approval. I have seen countless times where the file will come back from the Investor or MI and the terms have changed even though we previously agreed on everything with the servicer. You have been a part of one single short sale transaction and I don't think it's correct for you to make an assumption that the listing agent dropped the ball, when in fact, this type of situation presents itself frequently. People come here for advise based on experience and I think it would be beneficial in absolutely no way for this buyer to go back and make accusations to the listing agent about their negotiating tactics when this may have been out of their hands.
With that being said, the buyer has a choice to walk away from the transaction, negotiate, or accept these new terms and proceed forward.
I know it's quite difficult to read people's emotions when reading emails or forum posts, but I am not arguing or trying to come off as rude or anything. I am just giving my opinon as someone who has been in the game for a while and has closed quite a few short sale transactions. I also would like to see you be able to purchase a property from a good listing agent so you can see the good side of these types of transactions.
1st, I know that you're not being argumenative. This is just good old fashion debate. And, I think it's good for the site because there are buyers that come to this site as well as sellers and agents. For me, this is good education away from my own professions of civil engineering and project management. A lot of my strategies and advice have been drawn from both of those professions that have served me well throughout my career.
2nd, I certainly understand the terms do change and yet it is up to each and every buyer to refuse or accept those terms. My point is, it should be up to the listing agent/negotiator and lienholder/lenders to get all their facts on the table up front and negotiated in the seller's and buyers best interest rather than nickle and diming buyer at the end. I've been trying to stress on this site that buyers are a huge part of the solution, rather than how some think of the buyers.
It could be any number of individuals on the negotiating side responsible for these late costs request, however the buyer will never know, because they are not a party to those negotiations or the sellers file. Most agents don't want them to be a party of those negotiations, yet somehow LA have no problem coming back and asking for more money. It's almost as if they are thought of as an open check book.
When I enter into a transaction, I approach my purchase from a viewpoint used in most major industries. Realizing these are not traditional sales but rather they are short sales, a price cap still have to be placed somewhere on the purchase. If cost are exceeded, then there needs to be an explanation, not just someone just saying 'we ran over the estimate". At that point, someone or something has to account for it. If I can't get additional value for my dollar, then why pay more for a product? Therefore, I let the agents know it's my best price. I also have a drop dead price I will not exceed and fully intend not to be negotiating any major costs later.
Remember, its a two way street out there. I think buyers should set limits and stand up for themselves, just as everyone else.
To further illustrate my point, I'm having (3) 2,000 to 2,500 s.f. homes completely re-roofed this week. I have one contractor doing the work. I received 3 seperate cost-not-exceed estimates from the contractor. So, why should I pay more money for the work already agreed upon when he had a chance to fully inspect those homes prior.
If something is hidden or he wasn't allowed to fully inspect the homes, then he would be paid T&M or cost plus basis. I would have that option. But, this is the reason to make the properties fully available to him, so that there are no hidden costs at the end.
You may have guessed it by now that I'm a proponent for letting the buyer's agent have more insight into these transactions as opposed to being totally in the dark. I'm not necessarily saying that they should have access to the complete file, however it seems too many times buyers and their agents are left in the dark and at someone else's mercy. I'm saying the person that is furnishing the greenbacks (the buyer) should be a bigger part of the solution and not just a bailout for someone else.
I too, am symphathetic for sellers with TRUE hardships. But, I'm convinced by what I've personally seen that today's buyers are not the ones that got us into this mess. And, with so many homes being short sold, today's buyers can be the solution. I'd say, the real estate community should give them a little respect!! I think a lot of people overlook this.
I'm sure a lot of people won't agree with me, however what other transactions do you enter into where you're being asked to invest hundreds of thousands of dollars and have virtually no say in that investment? I don't do that with stocks, bonds etc., so why should I do that in purchasing a home? If you're buying a business, I'm sure you want your accountant to look at its books, right? The days of bidding up the prices and ripping the buyers are over. And, buyers need to know that.
Richard, I have said it a million times, your agent dropped the ball just as much as the listing agent did. If I had a short sale that was going the direction that yours did, I would have been camped out in the listing agents office or their brokers office until I got the answers that I needed and I can assure you that I would not have waited more than a few weeks and would not have let it go 6 months or more.... Shame on the listing agent who won't communicate and shame on the buyers agent for not advising their buyer differently
Keep in mind MI is usually the last part of the puzzle. The investor could have approved the sale and THEN sent off to MI. Also keep in mind some homeowners have NO IDEA there is MI on their loans as sometimes the lien holder will take it on after the loan was already secured.
The thing that buyer's agents should be doing is seeing how much the buyer is willing to pay (TOP DOLLAR) for the property, and THEN they should be reducing their offer into the lender. So for instance I know I'm willing to pay $150,000 for a property, my first offer may be $120,000. That way there is PLENTY of wiggle room if the MI company wants a contribution or a lender wants more money that the seller just doesn't have. Most times, the sellers COULD get the money from somewhere if they had too, but many have just given up. I realize that the seller SHOULD be as vested in the property as the rest of us, but most are not. That leaves the listing agent, buyers agent and buyer up to trying to come up with a solution. How bad does the buyer want the property? I always tell buyers agents to put in a lower offer and reserve their max offer if needed. You'd be surprised at how many times we've been able to get their first offer approved, so now the buyer got a deal, but it's like an ace in the hole if you KNOW the buyer is willing to go up to $150,000. It's all strategy with the MI companies and lenders. DON'T EVER go in with your highest offer.
Great advice, Smitty!
Agreed for sure. We try to find the "range" of values that we think the house falls in and make the offer on the low end of the range AND we tell the buyers to expect a counter offer for the high end of the range. If the buyers disagree and say they wont offer any more than low end, then we explain they may lose the deal or it wont get approved.