Mortgages & Creative Financing

How to Address Closing Cost Credits in Short Sale Transactions

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short sale credits

Agents, buyers and sellers are abuzz because it's a seller's market again. Just a few weeks ago an agent friend of mine received 24 offers on his short sale listing, and another property in my area got 10 offers the very same weekend.

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When reviewing short sale offers with clients, it is important to look at the type of loan that the buyer will obtain: VAFHA, or conventional financing. And, will the buyer require a closing cost concession from the seller?

One of the unknown factors often associated with a short sale is whether the bank will approve the closing cost concession. For example, you may have an offer from a buyer that needs a 3% closing cost credit. However, it is entirely within the realm of probability for some short sale lenders to have guidelines that would prohibit them from approving that 3% closing cost credit.

Then what do you do? 
A short sale seller is not going to net any money at closing and will not pay that closing cost credit out of his/her own pocket. But, there are two easy and obvious solutions:

  1. Suggest that the seller select an offer that does not ask for a closing cost credit.
  2. Write a counter offer whereby you specify that approval of the short sale closing costs by the short sale lender is not a contingency of sale.

If you opt for the second option, then the buyer agrees to move forward if the bank does not approve the closing costs. Of course, there is always a way for a buyer to walk away from the deal with his/her head held high. However, this method could help make the short sale transaction a little more airtight.

Photo: ericlbc