Expensive Repairs Create Dilemma
Q:I’m buying a house that’s a short sale and “as is.” We finally got approval from the seller’s bank and did the inspections. It turns out there are a lot of expensive repairs that need to happen. Should I walk away? Buy it anyway? Ask the bank to reduce the purchase price? What should I do?
A: This is a common situation. You find a house you want that’s a short sale — where the seller needs permission from their bank to sell for less than they owe. You wait, sometimes for months, to find out if the bank is going to accept your offer. Once they do, you start the actual purchase process and the first step is getting inspections. If a problem comes up you weren’t prepared for, you have a few choices and you mentioned them above.
Obviously, you could move forward as is. This is a fine choice if you feel you’re getting a good deal even with the work that needs to be done. The second option is to walk away. Yes, you’re probably out the money you spent on inspections, but isn’t that better than having bought a house with problems you didn’t expect? If the repairs are too great, the bank won’t help, and you can’t or don’t want to pay for them after closing, then walk away.
But, sometimes the bank agrees to a sales price with a little wiggle room where they can approve a small reduction in purchase price, sometimes as much as a few thousand dollars. This might give you the consideration you need to move forward. If you need more, you can send an Amendment to the Purchase Agreement and ask them to lower the sales price or give a credit on closing costs. There are some considerations if you go this route.
First, it could take easily another month or more to hear back from the bank. Second, the bank is more likely to approve a reduction in purchase price rather than a credit at closing. If they did approve a credit, you might not have enough closing costs to use the entire amount, leaving money on the table. If it does come as a reduction in purchase price, it will likely lower your down-payment a bit, but mostly it will come off your loan amount. All of that said, you’ll need the money to make the repairs, so make sure you have enough for your deposit and the work needed.
Whatever happens, remember it’s a great time to be a buyer and if it’s not this house, it’ll be a different one.