Short Sale Purchase Price Re-Negotiation

Question from Careful Home Buyers

Dear Regina,

My husband and I put our offer in for a short sale $10,000 below its [list price]. The [list price] of the house is $60,000; we offered $50,000. I wrote a very detailed letter with my offer that included pictures of the leaking ceiling. The owner accepted; however, I feel we offered way too much after doing a week of research on my own.

I called contractors and realized the amount of money it is going to take to repair the roof that has been leaking for 3 years is more than the initial estimates. The entire duct systems needs to be replaced -- reason being mold spores cannot be cleaned out with a guarantee. The water rolling back to the wall may have internally damaged the structure. I also found out because the house is over 50 years old we need a 4.1 inspection to get homeowners insurance; it will fail for the roof.

I feel our responsibility to repair this home is much greater than $10,000 for just a bungalow. I believe the bank [short sale lender] is going to accept our offer; however, since obtaining all this new information, could we renegotiate to a lower offer?

Signed: Careful Home Buyers in FL

Hello Careful Home Buyers,

Thank you for contacting me regarding your short sale home purchase. I applaud you for doing your own inspections and research. You are smart buyers and I know you will succeed in your home purchase goals!

We are in California and each state has different real estate procedures. To address your questions, allow me to first explain our “contingency” period.

For our real estate team here in California, it is customary for a buyer to have a 17-day "contingency" period to do their "due diligence" of reviewing all the inspections, reports, disclosures, etc. before they fully commit to their purchase. That is standard per the C.A.R. purchase offer, form # RPA-CA. However, your contingency period depends upon what you and your real estate agent negotiated with the seller and the seller's agent. You may have negotiated more (or less) time than the 17 day "contingency" period. In addition, with a short sale, our buyers submit form # SSA (Short Sale Advisory) which may (or may not) give them additional time beyond the 17 day contingency period; for example, pending "short sale approval" from the seller's lender. Often the 17-day contingency period begins AFTER the seller gets short sale approval from their bank.

Now back to your question. Whether or not you can change your offer price, depends upon several factors:

1. Are you still within your contingency period (refer to the paragraph above)?
2. Will the seller's short-sale lender approve a lower price, and are you willing to take that risk of getting your offer rejected if they don’t approve it?
3. Are there other buyers waiting in line to purchase at the higher price?

Here in CA we are in a competitive seller's market right now, and many buyers are all vying for the same few properties. If you have a good deal, you may want to seize it regardless of the extra repair cost, because values may be rising.

Ask yourself: if you let this opportunity pass you by, will you later regret it? Will you be able to purchase another similar home at the same price or lower? That's something to strongly consider, because with so many buyers in the marketplace, some buyers are not able to get their offers accepted (at least here in CA).

Most importantly, you should read through your documents. Always contact your real estate agent with any concerns; if your concerns are not addressed to your satisfaction, ask to speak to your agent's Broker or Office Manager.

The bottom line is: you have to pay what you feel is a fair price for the home plus the cost of the repairs. Regardless of the comps, regardless of what others tell you, regardless of what you see on the internet, regardless of yesterday’s value or tomorrow’s anticipated appreciation, YOU must feel comfortable that you can afford this home as a long-term investment for you and your family. If so, that’s what matters in the end.

Good luck with your home purchase.  Whatever decision you make, I'm sure you will do your research and come out a winner.  And again kudos to you for being a smart buyer and doing your “due diligence” in advance!

Regina P. Brown
Broker
California Coast & Country Homes, Inc.

NOTE:  These are typical procedures from our real estate team here in CA and are not intended as legal advice. For legal questions, you should have your attorney review your contract; although I will admit that I have not seen many attorneys who are familiar with the short sale process and its implications. Short sales are a fairly new development in the real estate market place and many industry professionals (including the banks) are still learning how to cope with the complexities of short sales.