Wednesday, April 23, 2008

Short Sale contract language and the games Sellers play

Last year the Arizona Association of Realtors created an addendum to our standard Residential Purchase Contract to help clarify and standardize the process of negotiating a short sale. The addendum was cleverly called Short Sale Addendum to the Residential Resale Real Estate Purchase Contract. I won't bore you with the legal language in the addendum, but in plain English it basically states the following:

  • Buyer & Seller agree to the terms of the Purchase Contract, but both parties understand that the bank must approve the deal (or there is no deal.)

  • Buyer & Seller are both aware that the bank might take weeks, or even months, to render a decision.

  • Buyer does not have to deposit earnest money or start his/her inspection period until the bank approves the contract.

  • Buyer may rescind the offer at anytime until the bank approves the contract.

It seems pretty simple. But then sellers (through their listing agents) figured out the loophole..

If the seller doesn't sign the contract, there isn't actually a contract (agreed to in writing), so the seller may legally continue to market the property to other potential buyers using the MLS.

Sellers LOVE this idea. They can take the first offer they receive & submit it (unsigned) to the bank. This will start the ball rolling with the bank's long approval process. The seller will leave the home as Active in the MLS, and will continue to accept other offers, presenting each new offer to the bank in hopes of getting one of them approved.

But what happens to the original buyer, you ask? So long, sucker. Thanks for nothing. That is, unless you want to raise your offer to beat out the other buyers...

From what I can tell the process is totally legal, although not quite transparent w/ full disclosure – it might actually be in an ethical gray area.

What can buyers do to protect themselves? I'll discuss Buyers' strategy tomorrow. Stay tuned...

Your feeling like a referee Realtor,

Chris Butterworth

[tags] short sale addendum [/tags]