On April 28th, I wrote an offer for a short sale in Altadena.  

The listing agent had wanted a 3% deposit made to his choice of Escrow Company and we refused; that was a deal breaker.  If escrow were to cancel because we couldn’t get short sale approval (or if it took too long) or the buyer didn’t approve the condition of the property, or the property didn’t appraise, escrow cannot return the deposit to the buyer without the seller’s signature on cancelation instructions or arbitration.  As the seller is already losing their home in foreclosure in the event the buyer cancels there really aren’t damages. A 3% deposit, especially prior to the lender’s short sale approval was not going to happen.  The listing agent also wanted the deposit to be made with a cashier’s check, again just being unreasonable.

Although, I was irritated about the commission split: 4% to the listing agent and 2% to me, other than the deposit all other terms we could agree on.  After much haggling with the listing agent and his unreasonable terms, the seller accepted our contract on May 3rd. We opened escrow with the $500 deposit.  The buyer submitted her loan application and we waited for short sale approval prior to the buyer spending money on her appraisal or property inspection.

Although the short sale had been approved for another buyer, we wrote our offer for a lower price and asked that the bank credit the buyer with 3% closing costs.  As the file was in process, we were fortunate enough to receive the short sale approval on May 13th.  The lender (Wachovia) did not agree to the 3% closing costs, but agreed to credit the buyer $14,000.00.  I was surprised that the lender agreed to the closing cost credit, but one thing to keep in mind with short sales is that each one is different.

I asked for a written copy of the short sale approval and the listing agent provided me one with blank (whited out) dollar amounts.  Just more drama with this joker!   Wachovia approved a short sale with an amount that they would net.  Before the buyer spent appraisal money or inspection money, I wanted to verify with the escrow company that this sale would net Wachovia the approved dollar amount.  On May 26th, I received the short sale approval with the net to Wachovia reflected, escrow provided me with the seller’s net sheet and with escrow’s help; I was able to satisfy myself and the buyer that we were approved.

Customarily Los Angeles home sellers provide section I (active infestation) termite clearance but I haven’t seen it happen on a short sale.  We had already ordered a complimentary termite inspection and the estimate came in at over $6,500.   Now that the short sale was approved, I asked the lender to order the appraisal and the buyer ordered her physical inspection.  Most real estate listed for sale as a short sale has deferred maintenance.  Most homeowners stop making repairs to their home when they stop making payments – they typically don’t maintain the home for the bank to take back in foreclosure.  This home was a mess and although we didn’t need an inspection to tell us that, we just wanted to know how big of a mess. 

On short sales, the buyer typically has little control, there is often a take it or leave it mentality on the seller’s part. The listing agent did not have a key to the home; the owners worked and all appointments needed to be made Saturdays at 10:00 am.  We were able to arrange for the home to be inspected on June 4th.   The 80 page inspection noted numerous defects, but the high dollar amount ones that we had not anticipated were: possible asbestos in an abandoned furnace, water leaking and going under the house/fungus, major rat droppings in the attic (possible hantavirus).  Although there were rat traps in the attic the owner neglected to note this on their disclosure to the buyer.  At the time of the inspection we smelled the septic and the owner told me verbally that they typically had it pumped every year and they had it pumped just before Christmas.  Not a good sign and also not disclosed on the transfer disclosure. The buyer had a septic company perform an inspection another $5,000 needed to repair the septic.  This home was not just a fixer but a major fixer upper. 

Although the buyer loved the house, it was not worth the price she agreed to pay.  In my experience short sales are sold as is, there are no repairs made and there are no credits.  But we were able to negotiate closing costs so we requested that the listing agent go back to the lender with the estimates and inspection report.  We were not able to get our requested amount but were able to negotiate a $22,000 price reduction.  We are closing today.

What I learned about short sales:

The commission on a short sale does not have to be equally divided (Wachovia is aware of the commission split because it is on the net sheet).  As more Realtors would have been interested in jumping through the listing agent’s ridiculous hoops, the home would likely have sold for more money if the commission to the buyer’s agent was 2 ½ or 3%. 

Some lenders may credit buyers for closing costs.

In the event of major (expensive to repair) defects, ones which were not visually apparent to the buyer at the time of purchase, the lender may agree to renegotiate the price.

Now, on to Lisa’s La Crescenta short sale.  Her clients offer was accepted by the seller on May 6th.  Her commission will be 3%.  After nearly two months, Bank of America has still not approved the short sale; the home is vacant and weeds are sprouting.   The agent Lisa is working with is more professional (than the Realtor I worked with) and did not require a deposit until the short sale is approved. As the short sale is not yet approved, the buyer is not really tied to the transaction and can cancel escrow anytime without any drama.