15 Tips on how to write a short sale contract the correct way!
|Brandon Brittingham Teaching a Short Sale seminar|
- The complete property address including zip code and state has to be on all places where the address is asked for. All buyers and sellers full names must appear everywhere applicable. Forgetting the zip code or state on even one page can cause a several day delay!
- The contract names of the buyer have to match everywhere and need to be the same on the HUD-1, contract, and buyer’s pre-approval letter. On the seller’s side it is important the contract reflects the way their name is on their loan. For example: If the name is “William Smith” that is how it should be written and signed on every page. Similarly for the buyer; if you put the middle initial on any page, it has to be on every page. Nicknames should not be used on the contract; it should be written EXACTLY how it will be titled. This can get tricky so make so everything matches if either your buyer or seller goes by a nickname or don’t commonly use their full name.
- Make sure the ratified contract is clear and legible. When dealing with real estate contracts it is easy to go back and forth before you get a final copy of a contract. A contract can easily be faxed and emailed several times before you have a final ratified copy. Make sure the copy that is presented to the bank is completely legible on every page. If the contract is faint in color or some pages are hard to make out, chances are it will be rejected.
- All blanks must be filled in on every page, where applicable. Make sure that all addenda are filled out and that no signatures or initials are missed. Miss a signature or initial and this will cause a serious delay.
- In almost every case the max amount of closing cost is 3%. If the buyer needs more than 3% closing cost a variance will have to be requested which will take additional 7-10 business days and there is no guarantee it will be granted. In most cases asking for over 3% in closing cost is not granted, and just trying to get it causes considerable delays.
- If your buyer needs closing cost assistance it is your responsibility as a buyer’s agent to make sure it is put accurately on the HUD. If it is missed and not put on the original HUD, the bank will not approve the closing cost.
- Third party approval contingency should be at least 60 days out. Please inform your buyer that in most cases there are multiple parties involved in the transaction and it is customary that it will take 60 days to get short sale approval, but in some cases, depending on the investor and amount of liens, it could take longer. If the buyer cannot wait at least 60 days for an answer then it may be best practice for them to look for a different property.
- Settlement date on the front of the contract should read “45 days from short sale approval”. Almost every bank requires this now, so save yourself the time and just have it done upfront, so later on they do not have to cause a delay and ask you for it.
- Buyer’s pre-approval must have the complete property address and sales price on it. If it is a conventional loan, you will need to provide proof of funds for the down payment. This document is only good for thirty days, and more than likely you will have to get an updated one in the process. Just a generic pre-approval letter is not acceptable to banks reviewing for a short sale.
- The property is being sold “as-is”, please include the “as-is addendum” in your contract. The definition of “as-is” can cause some confusion and potentially derail a short sale, so realistic expectations should be set in the beginning for all parties. This means the bank will make NO REPAIRS and GIVE NO concessions if you find any issues in the home inspection, it is very important that the buyer and buyers agent understands this up front. There are RARE exceptions to this rule, but as general practice I would not bet on being one of the exceptions.
- Periodically, all parties will be asked for additional contract documents and you have a short window to execute them. Throughout the contract process all parties will be asked to sign short sale documents at the request of the bank. Usually these docs are on a 24-48 hour turnaround; failure to get them in on time could cause the short sale to be closed.
- You will need to provide a preliminary HUD-1 for the short sale once the contract is ratified. The short sale bank will not review the offer without a HUD-1, so it is important to turn in a preliminary HUD with your contract to the bank.
- There is a possibility that in the process of the short sale the loan could be sold, and this will delay the timeline process by at least 30-45 days. Even though generally you can get a short sale approval in 60 days, the loan could be sold which could extend the timeline of an approval.
- It is a strong possibility that regardless of your offer the bank will counter with a change in terms or price, rarely is a short sale contract accepted as written. All parties involved need to set realistic expectations of the short sale process, and more than likely the offer presented will not be the offer that will be accepted. If everyone is prepared for this upfront, it won’t come as a surprise.
- Once short sale approval is received most banks will only allow 30-45 days to close. It is a good idea to start the lending process prior to third party approval once the BPO is received and the offer is confirmed valid. There is no guarantee the bank will grant a short sale extension for your buyer.