Short Sale Contingencies
Because of the market conditions, short sales have become commonplace in some parts of the country. And many buyers are interested in these properties because they perceive them to be potential “great deals.”
I’ve talked about that issue in the past, pointing out that this may not be true, since short sales attract lots of bidders, and the banks want their money so they generally will only approve an offer at market value.
But let’s assume you are going ahead with an offer on a SHORT SALE – so what are the short sale contingencies you want to include? You want to check with your agent on the specifics for your state.
First, you will want the financial contingency – unless you are a cash buyer, the offer should be contingent on your ability to obtain a loan.
Second, you will definitely want to have an inspection and your offer must be contingent on this. This is especially important for short sales, since it is likely the seller cannot do any repairs and the bank will require you to purchase the home AS IS.
Finally, you will want to make the offer contingent on the bank’s approval of the short sale AND request proof that the seller has provided the bank with the appropriate paperwork, application, and hardship letter that is required as part of the process. If that has not happened you will want written confirmation of when that is to occur.
Also, your agent should check with the listing agent to get a sense, if possible, of how long it might take for the bank to respond. Your offer can have an expiration date if you want, but it is likely that the time for the bank to respond will be rather lengthy and the offer might expire within that time. Know that if that happens you have the right to just walk away, or you may continue to wait. It’s your choice.
Author Jeff Dowler, CRS
I have an opportunity to purchase a short-sale home that is priced at least $100,000 below market. That is not to say it was worth that extra $100,000 – as you know the market is going down every day. My problem is that I have a house to sell and the “timing” could be critical. How locked in are you when you make an offer? Also, it concerns me that I am making an offer to the previous owners – I mean, who sets the asking price? Will a bank consider a contingency on the sale of my home? I could probably rent my home, but as a single person, that is a scary option for me. I have a lot of equity in the home I own, but I have heavy debts from my children’s college. Any advice you can give me would be very much appreciated.
Hopefully you are working with an agent, who can really provide some sound advice. I don’t want to interfere with any relationship that you have.
If you have a home to sell that can always be a contingency of your offer. Sellers can accept that, or not. You can also set a specific time frame for a response, and you can always withdraw and offer (here in CA) until the time that it has been accepted in writing by the sellers and a copy provided to you. A bank may consider such a contingency if there are no other offers.
I would very carefully check out your qualifications to purchase with a mortgage person, to look at the possible sale price of your home, your loan debts, and overall financial qualifications. You don’t want to move ahead, only to find out that even if you sell your home you will not be able to obtain a loan.
You are in a tricky situation, with a home to sell AND considering a short sale. I would absolutely work with an agent who can help protect OUR interests as the buyer. That person cal also help you evaluate the short sale purchase to see if it makes sense financially, compared to other homes that have sold. If you need a recommendation, let me know – I have a great network, here in CA as well as in other parts of the country.
Good luck! If I can be helpful, please let me know.
Short sales are the pits!!! Be very careful!!!! I am a first time home buyer and made the stupid mistake of making an offer on one. It was accepted 2 months later by the seller’s lender (3 days before our Purchase and Sales Agreement Expired)….and I decided to walk away b/c the sellers would not extend the closing date/contract 30 days (sellers lender requested I close w/in 30 days and they wanted me to close 14 days after their lender sent approval! ). I had doubts anyway and was ready to move on and look at a different house so I walked. We did not receive a signature to extend the contract by the required date so I thought it was my perfect opportunity to bail. I received a letter the next day that I was being sued for breach of contract b/c the sellers were now going into foreclosure b/c of my failure to fulfill my promise to purchase their home.