Short Sales — When to do the home inspection?
To Inspect Now or Wait Till Short Sale Approval?
That is the question I hear all the time.
So what is the answer?
Well to start, the answer is “It’s Negotiable”.
In these cases the buyer is going to have a legitimate concern with paying money for a home inspection without knowing that their offer is approved yet. That makes perfect sense. Right?
Well, yes but there is more to look at when deciding this issue.
Let’s look at a couple scenarios where the buyer may have wished they had just done their inspection at the beginning.
Scenario 1. Buyer’s offer is approved after 60 days (Pretty Quick). They do their inspection and find deficiencies in the property. They can’t ask for repair credits so they lower their offer on the property. The new offer is submitted to the lender and the whole process starts all over again. Most lenders have to at a minimum go back to the investor that owns the loan to approve a reduction in the sales price. If there is Mortgage Insurance they also must approve and if there are junior liens so do they. This whole process can easily take 30 to 60 days, especially if a new BPO has to be ordered.
So in this scenario, doing the inspection in the beginning would have saved the buyer as much as 60 days wasted time. Consider mortgage rate lock expirations as well with that delay.
Scenario 2. Buyer’s offer is approved after 60 days. They do their inspection and find deficiencies that make them decide not to buy the house.
In this scenario, the buyer could have saved 60 days of wasted time by having done the inspection up front. Plus, consider how many properties would have gone off the market in those 60 days. How many of those properties might have been “The One” for this buyer.
Doing the inspection in the beginning prevents the buyer from wasting months waiting on short sale approval or re-approval.
Not only that but consider this. By presenting an offer on the property that may not reflect it’s actual value, based on the true condition of the property, you are setting the wrong expectations with the bank. I have seen it time and time again. Once the bank has an offer in for say $200,000 they want $200,000. Even when you show them legitimate evidence that the property is now only worth $180,000, they saw $200,000 and want $200,000.
In my experience it is much more difficult to get the bank to lower the amount they want after they have issued an approval.
On the other hand, if you had the inspection report in hand when the BPO agent or appraiser came out to value the property, it is more likely that that information would be considered when determining the initial value that is sent to the bank. You would also have already adjusted the sales price to reflect that condition. So the bank would never have had an expectation of $200,000 to begin with.
In my opinion, spending $400 on a home inspection is cheap insurance against wasting months of your time and possibly never getting the offer approved after adjusting the price later. Add to the lost time, the possible loss of another property that would have suited your needs, as well or better, that is no longer available because you didn’t want to spend $400 on that cheap insurance against these issues.
And if all that doesn’t convince you of why doing the inspection up front is in the buyer’s best interest, consider this. Once you do have short sale approval, that approval has an expiration date on it. So if you find even minor issues with the property, issues that you want to get estimates for before deciding to move forward with the purchase, you have a limited amount of time to get that done, make your decision to move forward and then finish your financing approval and meet the short sale closing deadline. That puts a lot of pressure on you. If you knew about those issues at the beginning, you would have the whole short sale approval timeline to arrange for those repairs to be made before you move in.
I believe a home inspection is like insurance against wasted time and potential loss of other properties, and it’s cheap insurance.