HELP!! Short Sale (Re)Negotiation After Bank Approval??

Question

For a short sale property, can the buyer renegotiate the price with the bank AFTER the bank/lender has already accepted the offer?

Situation

The property was clearly in very bad shape to begin with. Several offers were rejected until we came up to the bank's asking price (their property valuation). Our further visual inspections after offer acceptance revealed repair costs that are significantly higher than initially anticipated when the offer was submitted. Closing is scheduled to take place in a few days! This has been a lengthy process and while the goal is to close on the property, we cannot do it at the price that has been accepted by the bank.

Please advise, what can/should we do? Can we go directly to the bank to renegotiate? Do we walk away, and if so, what consequences will there be?

Thank you in advance for your help.

Minna Reid · Answer

Why are you just now, days before closing, investigating the condition of the property? This is exactly why I have all my sellers force buyers to do inspections right in the beginning - because it really sucks to go all the way through the approval process and have the buyer walk away after over a condition issue that could have been found and negotiated earlier, and now its just too late and everyone involved wasted months of their time for nothing. That just drives me up the wall....BUT ANYWAY - to answer your question: You can walk away from he transaction but depending on how your contract reads you may be forfeiting your deposit. You can also attempt to renegotiate the contract with the seller and if they are in agreement they can re-execute with you and then you can all go through the approval process again. It sounds like the lender has a value that exceeds what you are willing to pay, and that value would have be disputed, and if unsuccessful, you may have to wait for it to expire - usually 3 months. The next time you want to buy a short sale, keep in mind that you want to inspect quickly, negotiate for any condition issues, and make sure the appraiser the lender sends for the short sale has been made aware of these condition issues. This is by far the easiest way to get values on short sales to come in where you need them to be.

Phil Z. · Answer

At this point, your basically going to use your inspection contingency to get out of the deal. Everyone's going to be mad about it, the buyers wasted everyone's time, the agents wasted their time (and won't be paid), and the home owners may suffer the most by losing their home to foreclosure which will follow them for years. There's a small possibility that you may be able to renegotiate the approval by showing the bank proof of new damages that came after the appraisal, but your probably looking at a lengthy process again at best. It really sounds like the buyers just offered whatever the bank wanted without caring about the condition or value and now reality is setting in..

Brett Goldsmith · Answer

There are a lot of important facts missing. Is there a foreclosure sale date? What is the value the bank has? When does the valuation expire? Is a value dispute possible or do they need to restart the whole review?Yes, it's possible though, but it's also possible it blows up in your face and delays the file greatly or kills it depending on foreclosure status, value status etc. That's one part of the equation. The other has to do with potential contractual obligations. The other part is if your EMD at risk? Have your contingencies been released? What sort of liabilities do you have if you do back out or don't close? Why is this popping up so late? Make sure you get advise from the right people on these matters.

Maryann L. · Answer

What Minna said. Short Sales are SOLD AS IS. You had an opportunity to inspect. After the inspection, within a certain time frame is when you should have renegotiated the price. On my contracts if the bank has approved and ALL CONTINGENCIES are met, if you don't close, we keep the deposit. Sorry to sound harsh, but a lot of people put in work this to get approved.

Barbara Sheppard · Answer

Thank you, @Jacob Sampson. We had minimal contingencies (we know...not ideal) and recognize that our EMD is potentially on the line now. Thank you for your reply, @Minna Reid. We did inspect the property on several occasions initially, but haven't visited in recent weeks. During the last visit we noticed some damages that were not visible previously. I appreciate the suggestions you offer, and the advice about working with short sale deals. Next time we will definitely dispute with the bank until we get the best price that will bring maximum value for the property. Hi @Brett Goldsmith! Thank you for your reply. I realize I've left out a lot from my post, but believe me, we've lost lots of sleep over the last several days about this matter. We are now seeking someone experienced to assist us (to the extent that they can) at this juncture in the deal. We are being optimistic, but realistic as well in terms of the outcome, and at minimum we have learned some very valuable lessons to use should we invest in future short sales.Thank you all for your replies, which have been very helpful!

Jacob Sampson · Answer

Did your contract have an out based on findings during due diligence? You can certainly tell the bank you are not going through with the deal and hope they don't force you to. They probably won't, though you will likely be out the earnest money.