Short Sales and Home Inspections… When to inspect?

Posted on 16. May, 2018 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

It is becoming more common for buyers to inspect prior to submitting to the lender.

In a typical real estate sale, the buyer does their home inspection within 1-2 weeks of the seller accepting their offer.  However, on short sales in CT, it has been most common for buyers to want to wait to do their home inspection until after the short sale approval has been received.

Times have changed.

It is becoming more common for the buyer to elect to do their home inspection within the typical 1-2 weeks after the offer is accepted by the seller and prior to the initial offer going to the short sale lender for a decision.

The reason is, it makes more sense now than ever for the buyer to make that investment earlier.

It has always been a better situation for the seller if the buyer does the inspection prior to waiting a few months to get short sale approval.  For the seller, the reason it is preferable is that if the buyer elects not to proceed with the purchase after conduction the home inspection, the seller would have more time to find another buyer if the inspection was done earlier in the process.  This is because most sellers needing a short sale are also facing foreclosure.  So they only have some much time to get it done, prior to foreclosure.

For the last several years, it was hard to find a buyer and especially for a short sale.  With a stable or declining interest rate environment and plenty of inventory to choose from, there was not much incentive for the buyer to spend the money on a home inspection until the short sale was already approved.  That is because if they decide not to proceed with the purchase after the inspection, it was unlikely their interest rate for their mortgage would be higher now than it was a couple months earlier, and there were still plenty of other houses to choose from.

But times have changed. With mortgage interest rates rising and inventory low, the buyer has much more incentive to determine if they want to proceed with the purchase, earlier in the transaction.  If they wait a couple months for short sale approval and then back out of the sale, the interest rates may have risen costing them more money for the next property and the perfect property for them may have sold in the meantime to someone else.

So here are a few reasons why it makes sense from the buyer's perspective to inspect at the beginning.

1. If the results are bad, they are out looking for another home much sooner.  If they waited, homes available now may no longer be available so they may miss the perfect house for them.

2. If they wait and back out later, they may be faced with higher interest rates either costing them more for the same loan amount or causing them to qualify for a lower purchase amount.

3. If there are issues with the property, and the buyer wishes to purchase but wants to renegotiate the purchase price, the lender has not already seen the higher price that the buyer first offered.  It is much less likely to get the bank down on their price after they have already approved a higher offer.  Going to the bank with the reduced offer up front has a better chance of success.

4. The inspection report and if needed repair estimates can be shown to the bank's appraiser or BPO agent to justify the buyer's offer.  This increases the chances that the bank agrees that the buyer's offer is current as-is market value.

Ultimately the decision to inspect early or later is the buyer's decision.  However, with more short sale properties receiving multiple offers, it is also a negotiation point for the seller during those negotiations.  A buyer willing to inspect at the beginning is much more desirable to the seller than one not willing to do so.

As always, if you have questions on a short sale I am always available to assist.

Sean Wilder

Loss Mit Services

860-265-3727