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.
Sally Morris
November 9, 2010 at 11:57 am
Of course we would hope all agents are always be aware of what type of financing the purchaser is going to need, but in these new real estate transactions, short sales, are going to be dominating the market place it is the time pay the Closest Attention to the smallest of details in the contract. We can’t take the attitude that I’ve done this before time and time again, it is same old same old, initial here, sign here and let’s get this show on the road. Short sales are a different way of selling real estate than most agents are used to and educating oneself is vital to keep up.
Larry Sarlo
November 12, 2010 at 8:03 pm
The initial package is so important and getting it right. But even when everything seems perfect, there is always someone in the loop who will allow things to linger. You got the contracts down, financing out of the way and the negotiator is working the file so you don;t have to. What to do when nothing is being done on your file? Sometimes it’s the bank, or the negotiator stalls the process, Always ask for a supervisors’ name and it the negotiator won’t give it to you, go directly to the lender and ask for the supervisor’s name. I just wrote about this on my blog. SicklervilleShortsaleRealtor.com It’s so important to have a back up plan even if means escalating the file. Everyone seems to be afraid to upset the apple cart. I agree have all your ducks in a row. Be ready for anything that can cause your sale not to happen in a legitimate time frame. It’s good for the bank they lose less money, the seller gets out, and the buyer gets his home.