Today my buyer closed on a townhouse in Aiea. It was a short sale, listed for $366,000 and she bought it for $300,000. Price-wise, it was a heck of a good deal! Three bedrooms, two and a half baths, 1,300 square feet interior and two parking stalls. The place does need cosmetic work though. The prior owners neglected the property and it basically could use an entire remodel. The buyer has a contractor lined up and the work will commence shortly.
If you haven't been involved in a short sale yet, they can be tricky. While the owner signs the purchase contract, his bank is actually in control. The owner's bank sometimes rejects what we feel to be "good" offers. When they decide an offer might be acceptable, the bank's review period is 30-45 days. If the bank decides to accept, they suddenly want the buyer to close quickly, like a few weeks.
A buyer in a short sale is usually a bit reluctant to spend money on the appraisal, home inspection etc. because of the uncertainty of this type of transaction. They often hold off on any contingencies until the bank says "Yes" and that makes it a big rush to get the deal done on time. Meanwhile, if another buyer decides to offer a higher amount for the property, the bank can drop the first buyer and switch to the second buyer.
In our case, the bank gave us about three weeks to close. The loan officer said "No Problem" - but then she had not seen this townhouse! Basically, the prior owners bought it several years ago, had around 4-6 people living there and ran it into the ground. Water leaks were not promptly repaired and caused water damage to wood cabinets. Holes were put in the walls, patched up and left unpainted. Crayons and magic markers were used for kids to practice writing on the walls.
The appraisal came back and the valuation was okay! However, the condition was not okay. For conventional loans (Fannie/Freddie), the condition of a property must come in at least "Average." This property came in one step below, "Fair." Part of the problem was a hole in the ceiling caused by a water leak. The appraiser asked a young girl in the home whether the leak was fixed. She said "No." when in fact the leak WAS repaired (but the hole in the ceiling wasn't repaired).
This was a first for me. I've had several buyers purchase fixer upper homes over the years but never had an appraisal come in at or above value but without an average condition. This place was not that bad, it was just UGLY! Simple things could have been done to fix it up.
The appraiser requested a letter from a licensed contractor outlining the damages and estimated costs to repair. We found a contractor that could meet us quickly (we were down to about 10 days left before closing) and he wrote out a letter. Since the water leaks had been repaired, the appraiser upgraded the condition and the loan was approved!
Next problem - my customer had her money for closing costs deposited at one of those big brokerages. I won't name them to avoid hearing from an attorney. Let's just say they're one of those big financial firms that hasn't gone under. They just did an acquisition of another firm and cash was tight. Lucky for the buyer, her money was not in mutual funds. The cash was in some type of high yielding interest bearing account. She started talking with the broker two weeks prior to closing and they said they couldn't promise her the money on time!
We were up against the wall. We had until no later than October 21st or the property would go to auction the next day. On Thursday the 16th we had the escrow signing. I asked the officer how much time we had left to get the buyer's funds in. She said we could turn them in up until noon on Friday.
Friday morning, the buyer got her check from the firm. She still needed to make a cashier's check and make it payable to escrow. Luckily, the investment firm banks with Bank of Hawaii. They wrote an explanatory letter and she took it to the bank along with her check. Bank of Hawaii issued the cashier's check. I picked up her check and delivered it to escrow by 10 a.m. Whew!
Short sales are tough but they beat having no sales!
Mike Bates - Aiea homes for sale