Short Sales: Should I do an inspection before or after I get bank approval?

By Liuba Bejarano, REALTOR, Short Sale Resource Certified

You’ve been researching for your perfect home on the Internet for 6 months; then after selecting a qualified Realtor you go out on your house hunt and look for your potential new abode for 3 months; after which you get your offer accepted on a short sale, and wait 1 to 4 months for the short sale approval. Then you do your home inspections, right?

Several questions come to mind with home inspections and short sales. But before you seriously start looking at homes, make sure you consider all of the ramifications of buying a short sale to find out whether or not it is the right kind of purchase for you.

I often get asked, Will the bank give me a credit if I find something wrong with the property? Perhaps rather the question should be, When should I ask the bank for a credit? My answer to the latter is, As soon as you get into contract. Which brings up the matter of inspections.

In many cases, the short sale lender will begin processing the short sale after receipt of the purchase offer, which would include the bank doing one or more BPOs (broker price opinion) to determine a fair market value. They will calculate their expenses and request an estimated settlement statement or HUD-1. After the bank has gone through their processes they will ultimately determine the approved purchase price which they spell in their approval letter. In the vast majority of cases – after this often lengthy process – by the time the lender has reached their approved net and sales price they will unlikely agree to any requests for repair credits.

On the other hand, if you choose to do your inspections as soon as you get into contract and before the short sale approval, your chances of getting your petition heard for a repair credit increases dramatically. The lender may not have ordered a BPO yet and early in the process they are still in the “gathering of information stage” about the property being short sold. This is a prime opportunity for you to have the property inspected by a qualified home and termite inspector, review the seller disclosures and ask the seller questions.

No house is perfect but if your home inspection reveals a few minor or perhaps not-so-minor issues but that you find you can still live with, then this is the time to ask for a repair credit. The lender may very well hear you out and include the credit in the approval.

Short sale buyer tip: Take photos of items or issues that concern you about the house and have your agent submit the photos to the lender along with an explanation of why a credit is being requested.

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Published: 11-28-2011