Selling Rehabs to FHA Buyers

[Justin S.]

How is everyone doing selling their rehabs to FHA buyers? I'm finding it too much of a pain and would rather hold for conventional buyers. Anyone care to share stories or thoughts?

[J Scott]

Originally posted by Vikram C.:

1. How do you force a buyer to use your mortgage broker? What if the are reluctant to do so?

In my experience, you shouldn't force a buyer to use your broker, but you should provide incentives for him to do so. Here are the incentives I provide to buyers who use my broker:

- I pay for their inspection
- I pay for their appraisal(s)
- They can put down less in EM
- They have longer financing contingency
- They have longer appraisal contingency
- They can have extensions to the close date if there are issues

The one exception is if it's an FHA sale pre-90 days. I don't know many lenders who can get this done, but mine certainly can. So, in these cases, I insist that the buyer use our broker/lender, or we won't accept the contract.

2. Typically what percent of closing costs are you willing to pay if they use your lender?

For FHA, the legal maximum is 6%. I always factor 6% into my formulas as a worst-case, and will pay up to that amount. Many times they ask for less.

3. Does the EMD go hard after the 14-day appraisal contingency?

EMD goes hard after all contingencies are cleared, which is generally after 14 days.

4. Do you mention the $100 day at the time of extending the deadline to close or do you have that mentioned upfront at the time of signing the contract?

I let them know that if they use my lender and closing attorney, they can have as many extensions as necessary to get it closed (assuming the buyer doesn't do something stupid like mess up his credit). In other words, if it's my broker or attorney that is holding things up, I'm willing to take all the risk without penalizing the buyer.

If the buyer uses another broker/attorney, I let them know that if they can't get the job done in the time allotted in the contract, I'm not going to be very flexible about extensions. But, I don't mention the $100/day up-front. I like to let them think I'm going to keep their EM, and then offer the $100/day as a concession.

Of course, I'd prefer they use my team, in which case none of this is an issue, as I'll gladly extend the contract if my team is slow.

5. Do you also have some provision in your contract to prevent the buyer from asking for frivolous repairs?

We let the buyer/agent know up-front that our utmost concern is safety. If the inspector finds any safety issues, we'll fix them no-questions-asked. We'll also pay to fix something that we should have gotten right the first time (for example, in my last house, the vinyl flooring in the kitchen wasn't staying glued down very well, so we completely replaced it before they moved in without them even asking).

But, we don't pay for frivolous repairs unless they've made a very strong offer and we really don't want to risk the deal.

And we don't put any of this into the contract, as I'd prefer to deal with these things on a case-by-case basis. Generally, by the time the buyer has had their inspection, they are very emotionally vested in the property, so I'm not really worried about losing them due to refusing to make upgrades.