The Home Inspection Time Line in a Short Sale
In most Real Estate transactions, there is a buyer’s agent representing a buyer and a seller’s agent representing the seller. In a traditional purchase, the home inspection is generally done within the 1st week or two after the buyer and seller have executed a contract.
This is known as a “home inspection contingency” and allows the buyer and their home inspector the opportunity to carefully look over the home for any potential structural or mechanical defects.
If the buyer does not like the results, they generally can exercise their right not to move forward with the home purchase.
When a home inspection should be completed for a short sale property can sometimes be a bone of contention among listing and selling agents.
Buyers, of course, do not want to spend money on home inspections when they do not know for sure whether their short sale offer will get approved.
In the grand scheme of things, the cost of a home inspection is relatively minor. If you love the home, you should expect to take some risks. The cost of the inspection is one of them.
In many short sale offers I receive, the buyer’s agent will ask in the offer to let the buyer do their home inspection after the short sale approval letter comes from the lender.
As a Massachusetts short sale listing agent, however, I must protect my client’s best interests.
Letting a buyer wait until after the lenderās approval to do a home inspection would allow them to walk away too late in the transaction. It could force the seller into a foreclosure sale because they would not have enough time to find another buyer.
Short Sales Are As-Is Transactions
In addition, most short sales are “as is” transactions. The seller is trying to complete a short sale, to begin with, because they do not have enough money to continue paying the mortgage.
Buyers need to understand going in that the home inspection will not be an opportunity for them to present a laundry list of repairs they want the seller to remedy.
Lastly, the buyer will not be able to negotiate any costs of repairs if the home inspection was completed after the lenderās approval.
When the lender or lenders approves a short sale, it is based on a definite dollar amount they will be receiving at the closing, and they do not allow for further negotiations.
If the home inspection is done up front in a short sale, it could be possible to negotiate a credit before the offer is submitted to the lender.
For all these reasons, it makes sense that the home inspection is done before short sale approval!
As the number of Massachusetts short sales has grown, so has the number of unqualified Realtors who have started to represent home sellers.
Picking a Massachusetts Short Sale Realtor
If you are a Massachusetts home seller and need to complete a short sale, you must realize that not every Realtor is qualified to represent a short sale!
Many consumers make extremely poor choices by working with agents that don’t have a lick of experience with getting short sales approved. Picking a good Massachusetts short-sale Realtor is critical to your success.
I see many errors constantly by agents representing sellers in short sales throughout the Metrowest area. If you are considering doing a short sale, I would highly recommend reading some of the short sale articles I have written below.
The articles cover some of the considerations and mistakes you want to avoid when trying to complete a short sale successfully.
As a home seller, you must remember that tons of short sales across the country do not get approved and end up in foreclosure. Sometimes this is due to the Realtor not correctly handling the sale.
Debt removal and tax consequences are discussed below, which you will want to be familiar with.
Additional Short Sale Information For Massachusetts Sellers
- Questions to ask a short sale listing agent
- Short sale debt removal
- Short sale tax consequences
- Massachusetts short sale specialist
If you are needing to complete a short sale of your home or condo in Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, or Uxbridge MA, get in touch.
I would love to interview for the chance to represent your best interests.
I am completing short sales throughout the Metrowest, Massachusetts area. So far, knock on wood, I have a 100% success rate for short sale approval!
If you are outside of the Metrowest Massachusetts area and need to complete a short sale, please feel free to contact me, and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.
About the Author: The above Real Estate information on when to do a short sale home inspection is provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for 36+ Years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
Good info Bill!
Hi Bill, it’s really a double-edged sword. If the buyer is willing to do a home inspection before approval, it can save time for everyone. But many first time buyers may not have the luxury of spending inspection fees and then going off to do it again somewhere else, or possibly risking the seller not obtaining short sale approval (that can happen, too). But it can also be a lifesaver when the lender comes back with an approval with a less-than-30-day closing time, or the second is dragging its feet on approval. It’s a tough call and one that all parties should be advised on beforehand.
Julia as you mention it could be an issue for a buyer that is that tight on funds but they should not be looking at a short sale if it is going to be that much of an issue. There is a much bigger dilemma of a seller potentially losing their home when compared to a buyer losing a few hundred dollars.
Very informative..
If the buyer does not want the hassles that come with purchasing a short sale than they should not look at short sales in the first place. The upside to purchasing a short sale is the potential for a decent discount on the property. The downside is the length of time and the uncertainty. When purchasing a short sale you can’t have it both ways. Good article Bill. Thanks.
Kevin it is amazing how many agents don’t understand this simple fact. The seller is at risk of losing their home and heading to foreclosure if the sale does not happen. The buyer is risking a few hundred dollars on an inspection. Sounds like a no brainer doesn’t it. Some agents also seem to forget that if they do the inspection up front they can negotiate a credit if a major issue is found. That is not going to happen after the short sale approval is handed out.
Wow! As usual Bill you have written a masterpiece. Home buyers and sellers in Hopkinton Massachusetts are beyond grateful to have a real estate professional like yourself helping them buying and selling a home. This blog is very helpful for someone who does not understand Short sales. Great blog Bill.
Lanre thanks for your compliments on my article about when to do a short sale home inspection!
Bill, You have made some excellent points of why to do a Home Inspection up front that I have not even thought about. Thanks for the tips, I am putting them in my toolbox of education!
June it makes perfect sense from both a buyer’s and seller’s perspective to do the home inspection prior to short sale approval.
Excellent points – it does make a huge difference for the sellers and not everyone should be looking at a SS to buy. I will be sharing your points with other agents when they inquire about my SS listings!!!
They are not handled according to what they are traditionally used to, and they can get some amazing deals!
Bill,
I agree that the Buyers should absolutely do the home inspection at the beginning. It shouldn’t be the Seller’s problem after dealing with the short sale process (and getting no financial incentive whatsoever) to then have to worry about whether a Buyer will walk and they will have to go to foreclosure!
Anyways-hope all is well with you!!!
Marianne
Marianne it is actually better for the buyer as well because once the short sale is approved there are no negotiations with the lender regarding any kind of necessary repairs. Also a buyer could wait for months and then find out they don’t want to buy the property anymore due to some kind of issue. If a buyer is not willing to invest a few hundred dollars in a home inspection they should not be looking at short sales.
Bill what happens when the person spends the $500 for the home inspection and the bank doesnt accept their offer. What a waste of money… Would you have someone inspect a car you wanted to buy if you didnt know they would accept the price you are offering. You have failed to think about it from that perspective.
Jim you need to remember a couple of things. Short sales are typically priced aggressively and offer good value – besides liking the home this is why most people buy them. If you are not willing to risk $500 for the end result then you shouldn’t be looking at them. You also need to remember if the inspection is done after the short sale approval and their are issues you can not negotiate for a credit or repair. So what would you rather risk $500 or the potential to negotiate thousands? One last thought if you do the home inspection after the short sale approval and wait months to get it you have effectively taken yourself out of the market if issues come up and you don’t want to move forward.
Great article Bill!
Great valuable information.
Kevin’s comment are a very clear and precise too.
Congratulations!!
In my opinion buyers should always do a building inspection. Yes they are spending 500-700 dollars but they are also going to know what the condition of the property is prior to the purchase. First time homeowners or buyers with limited resources might be short on funds but imagine buying a home with structural / mechanical problems so severe that they cannot cover the repair costs. I do not let my buyers purchase a home without inspecting it first. In the case of an As Is property they have to understand that any issues that come up during the inspection will be most likely covered by them and it is in their best interest to know ahead of time what they are getting into. Very informative article Bill, thank you.
Great article. As a first time homebuyer really interested in a short sale, I was also initially balking at the prospect of doing the home inspections prior to even knowing if the bank was going to accept my offer and approve a short sale. Then I thought about it from the prospective of the seller and realized exactly what you are saying here. I also thought it might make me a stronger buyer perhaps in the bank’s eyes IF I was willing to spend the money beforehand and knew what I was getting into. I wish I had seen this before when I was really struggling with making the decision. As a buyer I also realize a home inspection can be wasted money on ANY real estate purchase if you really think about it.
Thanks for your blogging, I am really learning a lot.
Thanks for the compliments on my short sale article about when to do a home inspection. One of the things any buyer should be doing is finding out the listing agents success rate with short sales. If you find out that the agent knows what they are doing and is closing their short sales it should give the buyer additional confidence to move forward with the home inspection. The clients I help with short sales specifically choose to work with me because of my knowledge and track record of closing. If a buyer is going to purchase one of my short sales they will be required to do the short sale up front. There is no way they will be doing it after short sale approval. That is just short sales suicide for the seller. From a buyers perspective it is far more difficult to negotiate a concession as well when short sale approval is given.
Hi Bill:
My understanding is that the seller’s agent is pretty successful with the short sale process. He said he’s been doing them for almost 7-years now. I googled him beforehand and read his blogs too. š I know the short sale home is basically sold AS IS and so there really aren’t any concessions the bank is going to agree to or that I am going to ask for. Hoping to use the chimney and home inspection results to support my offer further to the bank when that time comes. I know already the chimney needs work, the garage, some plumbing…(took a contractor/roofer with me during the inspections to get a general feel)…bathroom upstairs, new cabinets in kitchen. Not asking for repairs, asking for them to consider my offer based on the backing of the 2 inspection results. Wish me luck!
I am thnking of uploading this to mls with my short sale offers and I have an addendum asking for inspections upon seller singing the offer – 7 business days after seller signs.
Short sales are āas isā transactions. The reason the seller is doing a short sale to begin with is that they do not have enough money to continue paying the mortgage. The home inspection is not going to be an opportunity to present a laundry list of repairs for the seller to remedy.
The home inspection should be done prior to the short sale approval. From a buyer’s perspective if they find out for example that the heating system has failed and it is going to cost 5k to replace you could get a reduction in sale price by the seller prior to short sale approval. After short sale approval a reduction is NOT going to happen.
If there is a large issue that is going to kill the deal it is better to find out now and use the inspection contingency to get out of the contract before you take yourself out of the market for 3+ months and then find out about it.
The other consideration is why would a buyer want to wait months for short sale approval essentially taking them out of the market only to find out they don’t want to buy the house because of an inspection issue?
Once the bank/investor approves the final HUD based on the agreed price there is no changing it. This means that if you wait for that to happen and find some smaller issues that can start adding up, there is no room to re-negotiate the price. If you have the inspection before the final offer is presented to the bank, the sale price can be negotiated accordingly It is a lot easier to wait the bank out knowing that you have made the best deal possible and that you know of all existing problems, the cost of an inspection is a small price to pay for that.
Finally, some buyers may find out that for them to get FHA financing, some minor repairs ā like GFIās need to be installed. Some buyers have improved the property before their lender appraisal is done so they can obtain financing and meet the sellerās lender approval quick close date. Some lenders give approval to close in 15 days.
We just had a $9900 septic field paid for on the HUD by the sellerās lender because we did the inspection immediately. The buyer gets a new field. If this was not done this way, all parties would not have been able to revise the sellerās lender approval and buyers would have had to walk.
You are dealing with an experienced agent with a strong track record of securing short sale approvals.
I am learning from you active rainers!
Seems to me there is a simple solution to this problem….have the seller pick up the tab for the cost of the home inspection. This way this contingency is out of the way and one fewer way for buyer to back out later in the process. It is not surprising that buyers don’t want to pay $400+ prematurely when the risk that the lender will not agree to the short sale is so high. The contract can be written in a way that if the sale goes through, the buyer pays for the inspection in the end. If not, the seller picks up the tab.
Evgeny your thought is a good one and we have done this on occasion but you have to remember that most people who are short selling their home have no money and can barely make ends meet. This is why most short sales are as is transactions as well.
Still relevant information after 11 months. I am currently representing buyers on a short sale home out here in the westcoast and we did the home inspection right up front just to know the condition of the structure and interior features. With that said, I counseled the clients on how inspection items would be addressed and taken care of even though the home is advertised “as-is”. Unfortunate yes yet manageable if the expectations are set up front and the buyers where confortable with not having any further negotiations on price or fixes based on the home inspection findings. We are 76 days into the 90 day time lienholder period for the and it has been tough on the buyers to wait with no news. On the day the lienholder approval contingency is fulfilled, either approved or not approved, the buyers will continue on with their purchase or back out and find another home.
I read this article right as an all cash offer came in on my home which is up for short sale. My agent thinks it is perfectly acceptable to allow my credit to suffer and force me to go late “because that is how they do it.” I am current at this point but in order to move out in time for COE I would have to skip the payment for that month and if the buyer, who wants to inspect right before COE, backs out I am toast because I will have already moved and can’t pay 2 payments.
My agent thinks that as long as we don’t foreclose it’s no big deal, but 30 days late and then 90 days late add to the damage done to your credit! I offered to reimburse the buyer up to half of the inspection fee IF the sale is not approved. If she finds something she doesn’t like and walks, then she absorbs the cost as she would anyway. I even offered to pay to have an inspection done by someone of MY choice for her approval. It seems SO logical but yet people get all caught up in the way they do things and the my listing agent doesn’t care WHEN it closes as long as it closes and he gets paid. An agent is not honoring their fiduciary responsibility to their client if they do not consider the clients needs first.
Sorry Yvonne but I am not sure what COE is? I can tell you that the home inspection should be done right away just like any other transaction otherwise you are taking a big risk.
Sorry, close of escrow.
How about the seller wanting to share the home inspection report before bank qualified for a short sale?
Hi Tammy I am not sure what you are asking?
Hi Bill, I’m buying a short sale house. My offer is reviewing by bank attorney. The contract with seller is not signed yet. My broker asked me to do inspection as soon as possible. The potential waste of inspection fee is not my concern, my concern is if I do it now and the condition is acceptable. Suppose it takes the bank for 5 months to approve it, if something big wrong during this 5 months, I would not know. This is one of the most important risk you did not address in your articles. Thanks, David
Dave I sure did mention that! One of the things the article discusses is the fact that if a major issues is discovered prior to short sale approval you can ask the seller/lender for a credit to remedy. After short sale approval it is unlikely you will get a credit.
Hey Bill, my questions is this, I am a buyer of a SS prop and the Inspection issue has just come up… my issue is, if I do the inspection now, prior to approval, what happens after a month or so.. what if the condition of the home has gotten worse do to neglect or other…
Carl there is always this risk when you buy a short sale or bank owned home because generally speaking you are almost always buying the property in “as is” condition.
I appreciate the good information, Bill. I have wondered for a long time though, why do buyers have to pay for possibly more than one inspection when it would seem much more logical for everyone involved to have the seller have one inspection done by a neutral and reputable party, which is standardized, and the results good for a particular amount of time? Not every buyer has a lot of bank and they too may have to squeeze to get into a new home. Lower prices may be the reason the buyer is considering a short sale to begin with. I just get a little frustrated with the concept of the process and think that it’s a bit of a racket that primarily
benefits the home inspection industry.
Dawna while I agree that your position on the home inspection is logical most buyers want to have their own inspector. They don’t want to rely on someones else’ s reporting on the home.
Hello,
6 months ago, I was looking at couple short sale properties. I had a lots and a lots of questions.
I came across your site, I thank you for all your advise.
After 6 months I not only did I not purchase the property, I spent the money to inspect the property, I spent a lot of time waiting the bank to respond. What a mistake.
After 6 months, my advise to everyone is DO NOT EVEN TRY. You should wait for it to be foreclosed. I am really sorry, it is not fair to the seller, but it is reality.
Here what I want to share
1. SHORT SALE still involved with too many creditors
2. The bank still have no idea what price to sale the properties, it will take may tries and rejections, if you are the LAST one then you get the property, are you going to be the LAST one ? BPO (Broker Opinion Price), COM(Comparable Price)…
Guess what most of them don’t listen and don’t care. Just think about it, when was the last time you yourself learn from other people’s mistaken.
3. The listing agent of the properties I bid on was playing the game with the BANK.
Rather than convince and get the price authorization from the BANK. He listed in the MLS rather low to attract BUYERS. After he get you hooked, wait for another 3 months, the BANK countered even higher than the LIST price. You wonder what is going on ? I’ll said this listing agent is very smart, by doing so, he gradually let the BANK realized the TRUE market price that people want to pay. But at the same time he pissed off a lot of people like me. Is it illegal to do that, I don’t think so and I don’t know. But you get people pissed off and wondering what was going on for sure.
I already wasted my money and time, I really don’t want you to do so. So take my advise, STAY AWAY FROM SHORT SALE, unless you really know what are you doing.
luckily I found my properties in foreclosed space. It took me one finished the negotiation, 2o days for the mortgage.
–John
John the problem that you have run into is quite common. There unfortunate part of short sales is that there are many Realtors that are listing them that have no idea what they are doing. One of the biggest mistakes that you see is what you mentioned about the bank rejecting the offer. The are many Realtors who under price the home thinking this is what you should do. WRONG!
The home should be priced around market value. It sounds like you got involved into a transaction where the seller had very poor representation. I would encourage anyone getting involved with a short sale to see what the agents track record of getting to the closing table!
Thanks you for this great article! We just made an offer on a short sale house in Illinois. Our agent advised us to wait until the bank accepted to do the inspection so we wouldn’t be out $$. In speaking to our lawyer, however, he thought we should get the inspection now. Your article explained it in a way that neither our agent or lawyer did. I know the sellers filed foreclosure a couple of months ago. I’d hate to put them at great risk of foreclosure by tying up their house and maybe backing out if the inspection showed major issues. I totally agree that a buyer going into a short sale should be willing to “risk” losing $x for an inspection for an offer that may not get approved. It seems like common decency, really!
My husband and I plan to call an inspector tomorrow!
One question… if the inspection does reveal more problems than we bargained for, can we legally withdraw the offer? (seller accepted our offer but the bank hasn’t yet). Not anticipating issues, but I am curious to know if we could back out if needed.
Thanks again – great blog!
Steph thanks for your comments on when to do a short sale home inspection. There is no doubt that it should be done prior to short sale approval for so many reasons. If you have a home inspection contingency then you can withdraw your offer.
Also with the massive amount of vacant inventory currently on the market, many properties are in very poor condition. Therefore, I would never consider making an offer on these short sale properties without first conduction an home inspection. The person on here that mentioned the car example should look at it this way. Would you actually negotiate the price of a car before driving it? No! So the inspection is the test drive and the dollar cost of the inspectio is very minimal when looking at the total cost of the investment. In most cases the cost would be less than one half of one percent of the investment.
Short Sale means ” Buyer’s market”. Both sellers and lenders need buyers’ money to clean up their finanical mess and avoid costly foreclosure. Buyers should know they have upper hands here and understand the time in their side. So, experienced buyers should only do home inspection after the short sale approval.
Sorry Steve but short sale most of the time means a good deal for a buyer. It doesn’t mean the seller should be foolish enough to improve their chances of ending up in foreclosure! I have not had one short sale where the buyer has been allowed to do a home inspection after short sale approval. Every buyer has agreed to do the inspection up front because they know they are getting a great deal. Further why would you want to take yourself out the market for months as a buyer only to find out you don’t want the house? Not smart!!
So would you then say that on an already approved short sale the buyer should not bother getting an inspection before bank approval? In my situation, someone put in an offer on this home that’s a short sale, waited 4 months with no answer from the bank…they eventually found a new house and dropped the deal and a week later the bank had sent the approval letter….so now a couple weeks later the house is back on the market and I come in with an offer that is the exact price the bank approved for prior but with closing costs…the seller has signed the contract and i believe it now needs to go to the bank, but my agent is telling me I need to set up an appointment for inspection early next week. Why would this be? shouldn’t I wait to hear from bank?… It sounds like even if i found stuff during inspection it wouldn’t matter since its already an approved short sale….what do I do?
Nicole I do not see the connection to the short sale being approved and whether you should do a home inspection? You absolutely should do a home inspection right now as the Realtor suggested!! You certainly want to find out the condition of the property don’t you? If there is something that is discovered that is a major defect you may want to adjust your offer based on that discovery. It will be significantly harder for you to get the price changed after the short sale is approved if there is a defect that warrants a price reduction.
Ok so we were involved In a multiple offer situation . We waited about a week bank said they would not say they accepted our offer but that they were only looking at ours. A few days later we received a short sale form from them. We signed and returned now they say they are waiting for the seller to sign paperwork….they stopped showing the house so I assume this means they are accepting our offer they still won’t say! Of course the listing agent nor ours has ever done a short sale. We are wanting to now go ahead with an inspection but I’m confused if the bank will even allow it now since we didn’t write that into our offer. It’s been 3 weeks since we submitted our offer I’m worried they will send the contract and want to close before we have a chance to inspect which doesn’t take that long here. A few weeks at most. Help….
Hi Andrea – there are some major problems with what you describe about the short sale you are attempting to buy. First and foremost you need to have the seller sign the contract!! Without the seller signing the contract you have no deal. in fact the seller could accept another offer until they have signed the contract.
You need to understand the the lender does not own the house. The seller does!! All the lender is doing is approving the terms of the contract that the seller has accepted. If I were you I would have the property inspected. The lender does not dictate whether you can do an inspection. Please understand however, that short sales are considered for the most part “as is” transactions. The seller more than likely is not in a position to be spending money on making repairs to the home.
Hi Bill,
So the offer is not sent to the bank until the inspection is complete? I am all for the inspection just would like to get our offer into the bank that has been agreed upon us and the seller and not wait other 10 plus days.
Thanks.
Hi Sarah – that really depends on the person handling the short sale for the seller. There are pro’s and con’s to both. Obviously if you send the contract before the inspection you are potentially ten days ahead in the process. The downside is that it is very easy for a home to not pass an inspection. You don’t want to be just sending purchase contracts to a lender only to let them know days later that the buyer will not be moving forward.