Hi All,
In November we put an offer on a short sale house. Recently the listing agent said it was approved in the online system, although we are still waiting on the approval letter.
We have an inspection coming up once the letter comes in.
If we find major damage ($5,000+), we may want to reduce our offer to allow for the cost of the repairs.
Question: If we void our initial contract, are we going to have go through another 3-4 month process, or is it possible to make a simple call to the bank to see if they will accept a revised offer?
I suggest you make your counter addendum to the original contract with it basically stating that after ther inspections set forth in paragraph (whatever) you have elected to reduce your offer by $XX for a total sale price of $XXX, and if such amount is not acceptable to the seller, to terminate the agreement as allowed in the referenced paragraph with seller allowing all earnest money deposits tobe immediately returned. Be prepaired to walk away. I assume you had contingencies in your contract for this option. Good luck.
I will keep this in my back pocket. My agent says in order to renegotiate the price we have to void the whole deal and resubmit. He may not know though, so I will mention an addendum if it comes up.
I negotiate on behalf of agents and I find this is rarely to be true. You have an inspection contingency and when you receive the inspection report, you should include a repair estimate along with the submission of your counter offer.
It is exactly the same as a traditional sale, but the lender, in the case of a short sale, can reject your counter-offer.
Of course, the listing agent may not want to go through the extra steps that are necessary and you may have to wait additional time for review, but the fact is many lenders will allow for necessary repairs.
However, keep in mind, if your already buying the house at a discount, your less likely to get concessions from the lender. Also, if your looking for a credit for lipstick and mascara, then you probably will not get it.
Jason, that's a good question. I haven't purchased a short sale yet, but I would think the due diligence would have to be done after the approval of the sales price, because that approval process can take months. What if something happens with the house while you're waiting?
Agreed, Jeff. That's why the "Inspection Contingency" is a part of the contract and you have to "waive" it along with the new offer. Let us know how the inspection goes, Andrew. If the reduction is justified, make the agent work for it.
>Of course, the listing agent may not want to >go through the extra steps that are
>necessary and you may have to wait >additional time for review, but the fact is >many lenders will allow for necessary >repairs.
>However, keep in mind, if your already >buying the house at a discount, your less >likely to get concessions from the lender. >Also, if your looking for a credit for lipstick >and mascara, then you probably will not get >it.
>Good Luck!
Scott,
Thanks this is great info. We probably won't do a counter offer unless substantial work is needed.
If the bank rejects a counter offer, do we still have the option of accepting our original deal? Or is the offer toast at that point?
So I am not sure my OP is right now. The I have doene 2 short sales with the same listing agent. I am not working on two more with another agent. I got them signed by the seller today (not the bank), and he claims that my inspection period starts today!
I am confused. It would make no sense to shell out money for inspections if you dont know if the bank will agree.
Florida has an addendum that reads something like.....:"all times for performance such as inspection, finance and closing do not begin until the seller has received third party approval."
I speak from my experience and it is better to not counter lower but to ask for a repair credit instead when your using a mortgage lender. (Note: A repair credit will likely only be approved for major issues that may make the home unsafe or uninhabitable.)
If your using cash, then it would be most appropriate to counter a lower purchase price instead of asking for a repair credit. Again, you should only counter if the reduction in price is justified by necessary repairs.
There are many variables to consider and I cannot accurately predict, at least without knowing the circumstances of this file, what the lender will or ill not do. Whenever you counter, you open yourself up to the possibility of getting the sale cancelled. More likely than not, you will be given a chance to perform under the approved terms.
In my opinion, if you are unhappy with the price your paying now, you will likley be more unhappy after it closes. So, you need to decide whether the risk is worth the cause.
First, thanks to everyone who responded to my question!
Jeffrey - This is the reason I asked. I submitted an offer on a short sale a couple weeks ago, and the agent required that I sign *HER* contract and stipulations sheet, which basically read as follows (not in these words, but these ideas):
- Buyer has 7 days for due diligence/inspection starting when contract is binding (i.e., when buyer and seller sign it)
- Closing date is March 30, 2011
- If the bank approves the sale before the closing date, the buyer is obligated to close and has no contingencies
- If the bank doesn't approve the sale before the closing date, buyer can back out (or submit counteroffer)
So, basically, this contract was saying that there was a set closing date, and once my due diligence period was over (starting when the contract was signed), I was obligated to buy the property if the sale was approved before the closing date and not obligated if the sale wasn't approved before the closing date.
I wasn't sure if this was a standard short sale contract or not, which is exactly why I asked the question.
It sounds like from the other posters this isn't standard, and was probably just the way this particular agent wanted to handle things...
As a listing agent, I strongly enforce what you've stated. The contract is between the buyer and the seller, not the buyer and the bank as the lien holder. The inspection period starts the day the contract is signed, not when the 3rd party approval comes in. I recommend to my selling clients for multiple reasons, including: the buyers are more willing to hang on for 3rd party approval if they have a vested interest (by having paid for an inspection), and if there are issues - address them now with a reduced price instead of when 3rd party approval is granted (which means you essentially have to start the process over).
Too many buyers feel that they don't have to do the inspection until the SS is approved. (Furthermore, many don't want to up the EMD until the SS is approved). Contractually, this negates the process, unless agreed upon by both parties.
For clients whom I'm representing as buyers, I also try to get the listing agent and sellers to agree to the inspection after SS approval, but even the listing agents are getting sharper for the reasons I stated above.
I just read over the SS adendum that I signed with this last offer I just put in. It was drafted by a local lawyer. I guess on this one all contingencies start the day the seller signs (not the bank). I will be forced to escrow my EMD and do my inspection starting today.
I never escrow money with a realtor and only with a title company or my lawyer's office. This might be strange because the bank has not signed off on the deal.
In my opinion, this is unenforceable because, in a short sale, the buyer, seller, and third-party (lender) must all agree to the sale for it to be binding. In a traditional sale, the contract becomes binding when the seller and buyer sign the offer acceptance. This is when the due diligence period begins unless otherwise waived.
Now, in a short sale, the seller and buyer may sign the offer acceptance, but the lender has the right to accept, reject, or counter. Therefore, the contract is non-binding until the lender, buyer and seller come to terms.
Some agents believe they can dictate terms in a short sale, but ultimately, it is often up to the lender. Fact is, this violates terms in a number of programs namely HAFA and FHA's PFS program. Plus, I believe some lenders may actually take issue with the binding language.
Personally, I would take issue with the drop-dead date becuase this would force me to do my due diligence too early in the process. Things could go wrong between the first 7 days and the drop-dead date.
What about a walkthrough?
Sounds like to me that the agent has had too many buyers walk away.
I agree with Scott. While I have never seen or had an agent attempt to have me sign such a contract, I don't see how it is enforecable nor would I sign it.
Key factors: Never order or pay for an inspection BEFORE theSS is APPROVED. Why? You could spend $ with the end result of not having the SS approved and thus be out of the $.
Second: Having an inspection period start and expire before a SS approval is given is crazy. Why? Because the approval could take months (I have even seen over 18 months before) and thus, the property could be in a different condition than that when the inspection took place.
And finally, if the SS approval was months done the road, market conditions could change negatively affecting the property.
Will Barnard, Barnard Enterprises, Inc. E-Mail: info@barnardenterprises.com Website:http://www.barnardenterprises.com info@barnardenterprises.com
I didn't expect this to be such a controversial issue...I guess it goes to show that short sales are in such flux these days that even the guys who are doing a lot of them are having different experiences...
I guess my MO from now on will be to submit contracts that clearly state that the inspection period begins when the lender approves the transaction, and if the listing agent has an issue with it, I'll move on.
Normally, I never ask for an inspection period, but given that the home is being lived in (and therefore further damage can be done) and given that the short sale process can take many months (and who knows where the market will go in that time), I see no reason to give up all my contingencies at the outset.
Now that I've written that above, it makes me realize that the biggest reason not to give up your contingencies early is that the market could drop over the next 6 months, and you could be forced to buy a property well above market if you sign a short sale agreement that has no contingencies after lender approval.
This is probably the most overlooked thing in this picture. The property is a short sale for a reason; if that reason is inabililty of the borrowers to make payments due to income reduction - then they certainly don't have the necessary money to perform maintenance and upkeep. Under those circumstances, condition WILL deteriorate over the time it takes to get an approval from the lender.
