Ron L., Home Buyer in South Pasadena, CA

In a short sale, is it possible to re-negotiate the sales price with the seller's lender to address issues discovered during the inspection?

Asked by Ron L., South Pasadena, CA Mon Dec 20, 2010

My wife and I recently bid on a short sale, which was accepted by the seller and approved by the seller's lender. However, after the home inspection, we discovered that the garage has been illegally converted to living space. Serves us right for taking the seller's word that the garage was just a garage. Anyway, is it unlikely that my lender will approve my loan because of this? Is it possible that my lender will approve, with the stipulation that the garage be converted back? If so, since the seller probably doesn't have much cash, is it possible that I negotiate with the seller's lender to reduce the sales price by the cost to correct?

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7
Melissa Krchnak’s answer
In this case, the Listing Agent can try to negotiate with the Bank but your best bet is probably to go to the City and see what needs to be done and go from there. For your loan, you'll probably need to have all the work done prior to Close of Escrow. I just had a situation where a home was thought to be okay but when we went to the City to pull permits, realized that a lot of the work hadn't been finaled so we had to work with the City to get that remedied so my Buyers loan would work. I would work your Lender with the City and the Listing Agent at the same time. Best of luck!
0 votes Thank Flag Link Tue Dec 21, 2010
Problem is your lender and approval. All work MOST LIKELY need be completed prior to closing are you willing to invest this kind of money for a conversion.

More than likely with this situation lender MIGHT just seek all cash buyer would not require lender approval.

Probably direct question to your mortgage broker off lender requirements for you to close. If not what you want to hear best move on to another home

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
972-699-9111
http://www.lynn911.com
0 votes Thank Flag Link Mon Dec 20, 2010
Thank you for your question about re-negotiating the price of home after problems were discovered during the inspection. Please be advised that you can and many people do re-negotiate the price of a home after an inspector finds problems.

The previously mentioned suggestions are great. I suggest gathering up as much information you can: how much it will cost to cure, how long it will take to do the repairs, finding out how your lender handles these situations, finding out from your real estate agent how much comparable homes sell for given the new information, and making a decision on whether or not to attempt a re-negotiation after weighing the pros cons.

A common tactic is to offer a property below market value taking into account the defects, but not disclosing them. If this tactic was used re-negotiation or staying in the deal may be a good option. If the seller flat out lied it may be better to walk away because you do not know what else the seller may have lied about.
0 votes Thank Flag Link Mon Dec 20, 2010
I suggest you get a bid from 3 contractors or handypersons that are licensed & can turn the garage back to a garage, you can submit those bids to the listing agent to submit to the bank. Ask for a reduction in the purchase price since this was an undisclosed item by the seller. Make sure the listing agent presents it to the bank in a manner that basically tells them that they'd have to deal with this issue if they took the home back as an REO vs. selling it to you as a short sale.

Unless you're already getting the house for a really great price, the bank may, the bank may not lower their price. Short sales are always AS-IS sales, but it never hurts to try to ask the bank to lower the price.

562-430-3053 cell
EmilyKnell1@yahoo.com
Realtor Since 1996
0 votes Thank Flag Link Mon Dec 20, 2010
Hi Ron,

Easy way out is if you have a mortgage contingency, then let them reject it.

I can't tell if there are real estate agents involved by your post but if there are, that's their job.

If you don't have agents or a financing contingency, you may be required to buy the place even if you can't get a mortgage.

I suggest you then find a residential real estate attorney that does this kind of negotiating.

Good luck,

Fred
Web Reference: http://fglick.com
0 votes Thank Flag Link Mon Dec 20, 2010
Excellent question! This isn't a common situation from my experience. First of all, I would ask your lender to research the details on what your options are. All lenders are different, so I cannot speak for what they will agree to and what their stipulations may be concerning this.

You said it was after the home inspection that you discovered this. Was it the home inspection itself that uncovered this? If so, it would depend on exactly how your inspection contingency (did you have a buyers' agent and did they write one of these in?) was written to use this as an "out" if you wish.

As far as negotiating with the sellers' lender to reduce the price by the cost to correct, you can always try, but of course as you probably have already experienced, getting an answer to each question can take days or weeks! All lenders are different, so while some may not do this, others could, I guess. Good luck, Ron!
0 votes Thank Flag Link Mon Dec 20, 2010
Hello Ron L.

When you write an offer on a short sale that is usally the price you are going to pay. I have had properties go down in value and then requested the price be lowered because the short sale took so long to approve. If you saw the garage before you wrote the offer and it was a living space then you agent or you should have thought to do some discovery as most garages that are living space are without permits. I don't see the bank giving you a credit for that. Try. I have seen banks give credits on short sales because during the short sale process the property had the utility meter stolen and the buyer couldn't get a loan on it because it happened after the offer was written but this was something that was there when you wrote the offer so likely they will reject it unless the garage was converted after you wrote an offer.

Monique Carrabba
The Carrabba Group
Keller Williams Hollywood Hills
mcarrabba@kw.com
(323) 899-2900
The Carrabba
0 votes Thank Flag Link Mon Dec 20, 2010
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