Short Sales Give ‘Contingent’ a New Meaning

Background: A new client finds a Contingent property he likes. He wants to know what this might mean to him as a potentially interested buyer. I check the agents’ version of the listing information and discover that it is a short sale. Here is my response.

Contingent is a customary phase in all normal real estate sales transactions — however when the property is a Short Sale, Contingent takes on a whole new meaning. The Contingent phase is the period of time between when an offer is accepted by a seller and when contingencies are removed. Contingencies are terms specified in the offer that requiring buyer approval or specific events which must occur before the contract becomes binding. The purpose of the contingency phase is typically to allow buyers an opportunity to review and investigate all seller disclosures, perform any inspections of their own, and have an appraisal completed. Usually this involves a time period of 17 -30 days — longer periods being more common for country properties where well and septic inspections may be needed or for a property in such condition that more than usual research is required to determine if it is actually desirable. This time period can also be extended during the process to allow a seller to perform some corrective work that was negotiated between the parties following inspections and ends upon buyers’ confirmation of the work being satisfactorily completed.

However, in a short sale situation this contingency period is often prolonged while waiting to find out whether or not the lender will actually allow the seller to complete a sale under the price and terms agreed upon with the buyer. Multiple Listing Services require that the confidential remarks section of the listing inform agents when a property is a short sale and that actual acceptance is subject to lender approval, but beyond this statement it can be anyone’s guess as to the significance of this in regards to any particular property.

Any number of factors that are beyond a seller’s control can contribute to lengthy delays in a short sale process. When there is more than one lender involved, the one in second position may try to hijack the process in an attempt to get some compensation for their cooperation. Loss of paperwork by the lenders’ processors seems to be unbelievably common. And most disconcerting of all –the primary lender may come back to the seller after much lengthy discussion and time consuming shuffling of paperwork with an agreement to allow the sale to proceed but only if the seller agrees to some continuing liability for the difference between the sale price and what is actually owed, which will likely cause the seller to decide to abandon ship and let the property be foreclosed on.
Another hindrance — since buyers are usually not inclined to incur costs for inspections until they are sure of having a deal, buyer’s inspections typically won’t even begin until after the lender and the sellers have agreed to terms — so the buyer often doesn’t even know whether the property is in acceptable condition until far into the process and after finally delving further may ultimately decide to walk away after much time has already elapsed. So, when a short sale property changes to Contingent status this is not necessarily an indication that the offer is likely to proceed to Pending anytime soon.

Not the norm, but a sobering reality — an agent recently reported at the one of the weekly realtor meetings I attend that she’d just closed a challenging short sale — after 534 days!! Bottom line: When considering whether or not to make an offer on a particular short sale property it is very important to look beyond price — identify the lender and learn what their reputation is for efficiency in processing these transactions, to take into account how knowledgeable the listing agent is about the process and to consider how effective he/she will likely be at shepherding the process forward, find out what if any contact has been made with the lender and the history of any negotiations that have already occurred — to get an idea of how likely it is that an accepted offer will close at the price suggested in the listing and how long it might take.

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