Understand the types of buyer financing
A Realtor® friend of mine called the other day to discuss a dilemma surrounding her short sale listing. In her explanation, she told me that her short sale listing would require some repairs and some pest control work. She also mentioned that she had a handful of offers to purchase the property—the highest of which was a buyer obtaining an FHA loan. She did not know how to proceed.
A+ to my friend, and A+ to anyone who can identify when they need to ask questions and obtain more information before advising their clients.
Here’s the deal. This particular property will require several thousand dollars in pest control work, and the pool needs to be resurfaced in order to be functional. With an FHA Loan (and I am not claiming to be an FHA loan expert), there needs to be an FHA inspection and there are generally items listed on the report that need to be repaired prior to close of escrow. So, in this situation, even if the bank approves a credit for repairs, it may be difficult to make some of these repairs prior to close of escrow. (Yes, I know, that there is a 203(k) rehab loan, and that could also be an option.)
What’s the moral of this story?
Well, no moral. But, I think that there are lessons here for both buyer’s and seller’s agents working in the short sale arena. For buyer’s agents, the reality is that it may prove difficult for your buyer (if s/he is obtaining FHA or VA financing) to purchase a short sale that is in disrepair. “That’s not to say that you are home free with a conventional loan either,” says John Yeager of Summit Mortgage.
For seller’s agents, the lesson learned here is that you really do need to pay very attention to the type of financing that the buyer is going to obtain—especially when you are working on a short sale listing. If, for example, the buyer is buying with a VA loan, this would mean that the bank would have to agree to pay all closing costs. Will that happen? It may. I have closed several short sales with VA buyers, but I have also had a few banks refuse to pay buyer closing costs.
In general, it’s a tough call for my friend because everything will come down to that inspection. But, at least she has identified a problem that may resurface later on. She will also be better equipped to deal with it because she has a plan; she will now be holding back-up offers just in case something happens at the eleventh hour.
So, when working short sales, make sure to have all your ducks in a row, and always have a back-up plan. Wait a minute… That’s not a bad way to live life. Let me conclude once again: In all aspects of your life, make sure to have your ducks in a row, and always have a back up plan.
