When Should a Short Sale Buyer Get the Inspection Done?
The simple answer is as soon as possible. I know that the Buyers don’t want to spend $350 for a home inspection before they know if the short sale will get approved. I get that, but lets analyze why it is better to get it done sooner rather than later:
1. Think “AS IS” contract. As you know, a short sale needs to be treated as an “as is” contract. The old game of negotiating an offer price, get the home inspection and then use the results to lower the price even further does not work in a short sale. If we get the home inspection results prior to the Broker Price Opinion (BPO) or Appraisal, we can use that to justify the offer price at the BPO inspection. This can help assure that the BPO comes in at or near our offer price. If we get the inspection results after we receive the approval there is usually nothing we can do with it as far as the bank is concerned. We are negotiating with the bank that is not the property owner. They only have a secured interest in the property so they are not going to fix anything. The real property owners, the Sellers, usually don’t have the money or incentive to fix anything. The only tool we have is to lower the price and we just spent 2 – 3 months getting an approval at the offer price.
2. What if the home inspection finds that substantial repairs are needed? If there is substantial structural damage we can use the inspection report prior to the BPO to justify lowering the offer price and supporting it at the BPO. This would be substantial roof damage, foundational issues, mold or something similarly expensive. We are not talking about the usual loose gutters, a leaky faucet or non-working ceiling fans. If we find out about it after the approval we are probably not going to get any concession from the bank/servicer. Sure, we have had a negotiator take a second look after the approval but it is rare. Even then it came with a lot of work and delay….all for $350.
3. Spend $350 instead of your time. If the Buyer wants to wait for the approval before he spends $350 on a home inspection then he does not value his time….or anyone else’s. If the Buyer is going to walk because of the results of a home inspection, wouldn’t it be better to walk sooner rather than later. They will lose the $350 anyway if they walk after the approval. If the buyer finds something they can’t live with they can terminate the contract and move on to another property and all it cost was $350. If they wait until after the approval, they lose the same $350 and 2 -3 months (or more) of their life waiting on nothing.
4. Play the odds. I know what you are saying…”short sales are hard and so few of them get approved.” We get most of ours approved. If the Buyer is serious about getting the short sale approved and not wasting his time, he should make sure that whoever is facilitating/negotiating the short sale knows what they are doing. This way the Buyer is not wisely spending $350 on an early inspection only to watch the short sale go south because the person handling it is clueless. Yes, short sales are sometimes mind-numbingly difficult but if you have the requisite experience and knowledge handling the short sale (hopefully an attorney) and you have a market price offer, you will get it approved. How does the buyer influence who handles the short sale? Do some research and make the offer contingent on XYZ handling the short sale facilitation/negotiations. (More on that in another blog)
5. Get it done early. The absolute best idea is to get the inspection done before you get a buyer. That way everyone knows the condition of the property from the beginning. You then put in a supportable ‘market price’ offer and the Buyer’s anxiety is down, which results in more patience from the Buyer and higher odds that the Buyer will stay through the whole process.
The bottom line is that if the Buyer is serious about getting this particular property in a short sale and does not want to waste his or anyone else’s time, get the inspection done early in the process.