How to Win During Inspections When Buying a Short Sale

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Let’s assume that you’re the type of buyer that is A-OK with putting in an offer on a short sale. (I’ll give you a second to clean up the coffee you just snorted out from laughing).

Let’s stretch a little and say, said short sale has been accepted at a price that seems to make some sense. (You must be in stitches at this point, but bear with me!) The inspection period is a critical and often deal-breaking point of the transaction where buyers will walk, and understandably, in some cases. What might have appeared as a good deal to start turns sour upon inspections, when the bank won’t concede to a price that makes sense for damages, repairs, or unknowns that pop up at that point during the short sale process.

Let’s look at a couple different tactics and break down the crucial points of where you, as a buyer, can work with the parties involved to grease the wheels in motion towards your favor, shall we?

1) Ask for Seller Concessions from Day 1

When you initially turned in your purchase contract to the Listing Agent, once they gathered the rest of what they needed (HUD, Proof of funds or Prequalification) and turned it in, this officially started the short sale process.

This is also the first opportunity to add a buffer for later on, should the bank be unwilling to budge much in asking price. Ask the title officer who is preparing the HUD for your contract to add on Seller Concessions, starting with 3%.

Even if you are paying cash, ask anyway, since if you are using hard money you could have fees, etc that are on the Buyers side of the HUD. If you’re financed, it makes even more sense to add them on. The worst they can say is “No!” and make them be removed at a later date.

If they do stick though, and the Lender(s) have little room to move on the price, at least it builds in any sort of buffer for you as a buyer.

2) Provide an Inspection Report Summary & Repair Cost Estimate

The inspection period will not formally start until an Approval is issued. To that regard, comparing this to a traditional sale, there is no difference of what you are allowed to negotiate during inspections while you are buying a short sale. The main difference is, obviously, is the powers that be are the lender, servicer, or MI company that get the ultimate say, instead of Sammy and Susie Seller.

To that affect though, you’re not reasoning with a person who is more aware of the condition of the home to concede. In essence, you’re convincing an automaton to plug in lower numbers into their algorithm to accept a lower net value, plain and simple.

With that, make it simple for them by including a concise breakdown of what’s wrong with the property, how much it will take to fix it, formalized by local professionals via an inspection report summary and professional cost repair estimate (which of course, should be listed at retail estimates).

Let’s say there is arguably $10,000 in repairs listed on your Repair Estimate. Why not ask for $7,000 off? Might it appear that you’re willing to take less than what’s actually needed, hoping they might reciprocate by landing on a purchase price a few thousand dollars lower, if not the full concession?

It’s noteworthy that even if the house is being purchased in As-Is condition, you still have every right to negotiate on repairs. You’re not asking them to fix anything, simply to lower the price. Even in a normal transaction, As-Is does not negate the buyers ability to ask for any sort of concessions.

Couple this with a new HUD, price addendum, and perhaps comps of other short sale houses that were in the same condition. Again, you’re pleading with number crunchers, so, provide them with quantitative data churned into information for them.

We can’t control the powers that be that ultimately decide if accepting your short sale is better for their bottom line or not. If you are out there making offers though, understanding the short sale process and learning to try to work it to your advantage is crucial, much like any other acquisition method.

What do you think? Do you have other helpful tactics during inspections while buying a short sale? I’d love to hear from active buyers and get their take, and thanks in advance for your responses!

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About Author

Tracy (G+) is an Arizona Short Sale Realtor, Investor, Rehabber, and Foreclosure Expert. She also is an avid blogger, vlogger and consultant on all things Arizona Foreclosures.

5 Comments

  1. What’s the problem with short sales? I’m in escrow on multiple deals right now. There’s great money to be made in shorts. I just don’t manage them myself (use agents) so that my time can be better spent elsewhere.

    • Hi Michael, there isn’t a problem, just more opportunity for the ready, willing, and educated! If you can get someone else to manage your deals though, like you’re doing, it will free up time to do other money-making activities though. Thanks for sharing.

  2. Susan Gillespie on

    We’ve had great results with short sales. I’ve been pleasantly surprised when we actually GOT seller concessions in a recent deal. I agree – put concessions in your offer. The worst they can say is no, the best outcome is that you get some or all of the amount.

    I’ve never (yet) walked away based on the inspection. I consider the inspection a learning tool that informs my decision and helps limit my risk. It helps me refine my numbers when others may simply panic and bail.

    I have nearly walked – several times, from several homes – due to months of zero communication from banks during the short sale process. Frustrating. I like your idea of sending an inspection/repair summary. If the bank isn’t communicating, but you are, maybe it would bring some attention to your bid, or some level of response. It shows you’re engaged.

    Short sales for banks are all about the numbers. Same for investors, but I like shorts because traditional buyers often don’t bid or drop out of the picture. It’s less competition, but that’s changing as the market heats up.

    For me, short sales are all about attitude. Hope for the best, plan for the worst, and add a good dose of patience.

    • Hi Susan, thanks for sharing your insight. You are one of the few that understanding the inspections can be a tool, but also that communication between involved parties is imperative, even if you have to force it at times. Glad to hear short sales are working for you!

  3. A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property. In addition, the property owner cannot afford or chooses not to repay the liens full amounts.

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