Thursday, October 17, 2013

A term that I have noticed coming up more often in short sales

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Probably, both a result of it become more of a seller's market locally, and agents become more experienced in short sales (and how to best represent the interests of their clients), I have noticed a number of sellers implementing a term necessary for these short sale homes for a buyer to accept, if he/she want to purchase the home.

I have always coached buyers of short sales to say in short sale contracts that the contingency dates start after the short sale is approved by the seller's lender(s), as opposed to the contingency dates starting after buyers and sellers come to an agreement on all the terms on the contract and sign off (like "standard" sales).

Short sales can take months to be approved (depending on the bank, the short sale negotiator and if 1 or multiple seller lenders have to approve the contract) and during this time period the market can change. There are buyers who lose patience during the approval process and at a point void the sale when their contract allows them to (if a certain time comes and the seller's lender(s) hasn't approved the contract). When this happens, sellers have to remarket the home; buyers wonder what is wrong with the home and or think they can get a good deal on the home because it has been on the market with a buyer(s) who walked away.

Even after the short sale is approved, in many cases there is an inspection contingency (usually a general inspection, with property being sold as is since the seller won't make repairs) which allows buyers to void the sale if they are uncomfortable moving forward after the short sale is approved.

When this happens, the seller is in a bad position, having to market the home over again, perhaps in a worse market (which could command less favorable terms than the first contract) and/or buyers will notice that the home has been on the market for a particularly long time, be concerned with what might be wrong with the home since it went back on the market. And, those buyers who like the home might offer a lower price than the seller's previous contract because they noticed how long ago the seller listed the home and that one buyer (or multiple buyers) backed out of the contract).

One measure sellers have started to take in the short sale contracts is saying that buyers must have a home inspection within X days after the contract is signed by the buyer(s) and seller(s). In other words, when this scenario comes up, sellers are telling buyers that, as a condition of the sale, they (the buyers) must have a home inspection before the seller's lender(s) approve the short sale. Sellers don't want to wait for weeks and months on a short sale contract, only to have a buyer void a contract on the home inspection after the short sale is approved, which would result in the seller's home having to be on the market again.

By implementing this condition (inspection contingency starts before seller's lender(s) approval of contract), a seller will know sooner rather than later if, based on an inspection, whether or not the buyer(s) is going to go forward with the contract, once the seller's lender(s) approve the contract. From the seller's standpoint, at least when a buyer chooses not to go forward based on the home inspection, he/she (seller) can get the home back on the market for the next buyer, without much time elapsing (and hopefully, for their sake, the market conditions not changing, unless they improve).

In addition to knowing rather quickly (before short sale is approved) that the buyer wants to go forward with the purchase (if buyer was satisfied with inspection), another advantage of telling buyers, that as a condition of the sale they must do a home inspection before the short sale is approved is that the buyer has invested financially into the home purchase. So, if at any point during the short sale approval process the buyer is losing patience and wants to walk away from the contract, the buyer may think twice because he/she spent time and money on a home inspection...and were satisfied with the results...they want the home, so it is worth the wait!

Given what I have said above, everything is negotiable and not every short sale listing has been saying that an inspection has to be done before the short sale has been approved. This is just becoming more prevalent and I wanted to share this with you, so you are not surprised if/when this comes up.

If you are looking to purchase a home being sold as a short sale and 1 term is that the buyer needs to have the inspection before the short sale is approved, a buyer can opt to cross that condition out, write in that the inspection contingency period starts after the short sale is approved and see if the seller will sign off on that or if the term is firm. When buyers go this route, they should consider up front whether or not they are willing to risk another contract being accepted over theirs because a different buyer agreed to this seller condition of the sale. If a buyer is considering countering this term, then he/she should look at such things how long the home has been on the market, if the home's price has recently been reduced and if it seems as though there has been lots of other buyers checking out the home (i.e. if you see many real estate agent's business cards in the house--they showed the house).

I hope this information is helpful to you.

Whether you would like to talk about short sales, foreclosures or standard sales, the real estate market and/or you have a real estate question,

call:  (301)943-4370 or email me:! 

Whenever you know someone who is thinking of making a move or has a real estate question, tell them to contact Adam Bashein.  I always have time for and appreciate your referrals.

Life is good!

Adam's Cell:  (301)943-4370
office:  (301)469-4700 - ask for Adam

Adam Bashein
Licensed in MD & DC
Long & Foster Real Estate, Inc.
information deemed to be accurate but not guaranteed