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Dealing with a seller who has a better backup offer

Posted by LRFuller (My Page) on
Sat, Apr 27, 13 at 1:57

We found an awesome 1945 stone Cape cottage that's been on the market for 2 1/2 years with no offers. It's in great condition and we couldn't believe our luck finding it. We put an offer in, got a counter offer, accepted and signed into contract. I guess a few days later someone else put in a backup cash offer for 3k more than our offer. We are getting an FHA loan , but we're putting 20% down. The owners do not live in the house but have a grown son that lives in the house with his family. During the inspection the son argued with the inspector over his recommendation to replace the windows (they are original), and the fact that the house is listed as having a working gas fireplace and was on the disclosure as working, but the inspector could not find a gas line even connected to it. He was crazy- yelling and telling the inspector to get out of his house. We asked for only the repairs that were safety issues to be fixed, as well as the fireplace. We got a big "Rejected" on the addendum. Then we get another addendum saying that they're not fixing anything or doing anything after the appraisal so we should back out. We want this house, but their agent has told our agent that they want us to back out so they can take the backup offer. We're going forward with the appraisal with a wait and see attitude, (it's already bought and paid for), but what we expected to be stressful has turned into something worse. It's not a warm fuzzy feeling dealing with people like this! If we have to pick another house, how does that work with financing? Do we have to start all over from square one? My fear is that if something pops up and we would need an extension that they would just use that to back out of the contract so we're mentally preparing to move on. We've already paid about 1000 in fees so far so we feel like we should see it through a while longer and see what the lender wants fixed and see if it appraises out. We would fix the issues ourselves, but we worry about how any workers would be treated, and we're worried that if we do that the next guy gets stuff fixed for free if this contract goes south. Any encouragement or like experiences? I'd love to hear-


Follow-Up Postings:

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RE: Dealing with a seller who has a better backup offer

Similar situation here, but as the seller ..... I'm involved in selling my elderly aunt and uncle's house (through a Realtor) and we got an offer last week on the first day. After the inspection, the buyers insisted on various fixes to the house, which my uncle said no to. He wants to sell the house AS IS and declined. The buyers backed out yesterday.

So it sounds like the sellers in your case will do the same. Unless there are requirements where you live that safety changes must be made?


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RE: Dealing with a seller who has a better backup offer

Yeah, you are in a bad situation. They have sellers remorse since they have a backup offer, although backup offers can fall through as well, so it's not a guarantee. Did you buy with several contingencies?

I don't go FHA any longer but if memory serves some repair requests MUST be met or they won't clear the loan via underwriting. Things like safety issues mainly, although roof and fencing make the list also.

And you are correct......one small delay request on your side and they can cancel contract and keep your earnest money deposit AFTER your contingencies clear.


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RE: Dealing with a seller who has a better backup offer

With a FHA loan you may not be able to close on this house. Unless you can choose another form of financing and still make the closing date in the original contract. FHA loans are more stringent in their requirements for repairs than are conventional loans. When the home inspector gave you the report, what was tagged as needing to be done for FHA approval?


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RE: Dealing with a seller who has a better backup offer

Post the list of repairs here so we can know if any would cause a red flag with FHA. I doubt they would.
Do not let these people deter you from closing on this house!
Most RE contracts do not hold the closing date as a "Time Is Of The Essence" date... in other words it is not a drop dead date. Here in NC, as long as the delaying party can show that the process is still marching towards the closing, then the delaying party has 14 days to get to close... no matter how inconvenient it is for the other party. I have used this grace period a few times over the last two oe three years.
I actually had a seller, who had a better cash offer, actually type us up a Termination Form for us to sign. Every step of the wat was ugly, but my buyers were determined to purchase the home, per the contract.


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RE: Dealing with a seller who has a better backup offer

The few things we thought might throw up red flags aren't that expensive, really. GFCI protection for some receptacles, two wire nuts present in a breaker box, and the safety cable is missing from the garage door. Also a wall in the basement needs dry-locking. If the house appraises out, we might just roll the dice and fix the issues. The house is in surprisingly good condition. I know we're not supposed to get emotionally attached to a house but it's hard with this one! NC, we're in PA so I'm going to look into the closing date issue. That's the one I'm worried about because after the appraisal our contingencies are done. We do have the option to go conventional, but again I'm worried about the timing. They are not going to give us any wiggle room. Our closing date is set for May 15. My mortgage banker told me that the lender for a conventional loan could require repairs as well. I appreciate all your feedback!


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RE: Dealing with a seller who has a better backup offer

Conventional loans have way less strict repair requirements than does an FHA. But FHA and USDA have really laxed up quite a bit over the last couple of years too.
The lender will only know of any issues with the home if the appraiser notes them on the appraisal. And if he notes that the appraisal is contingent upon even a single repair, and the sellers refuse, you are out of luck, because you are in breech of the financing contingency.
But, I really doubt if any of those items mentioned above will be red flagged. Unless there is evidence of water in the basement.


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RE: Dealing with a seller who has a better backup offer

FHA Appraisals aren't normal appraisals. They also do some lightweight inspection tasks. GFI outlets will be tested. It's one of the normal items the FHA Appraiser has on their checklist, along with window seals, roof, chipped paint, etc. I've seen FHA appraisals return a big list of required fixes that must be remedied PRIOR to underwriting committing to the loan. In other words, by the seller.

If the seller is intentionally trying to force a failed contingency.....refusing to repair FHA mandated repairs will kill the contract, allowing them to go to offer two.


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RE: Dealing with a seller who has a better backup offer

Just curious, what are the advantages of using FHA loan when can afford 20% down?


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RE: Dealing with a seller who has a better backup offer

I think I'm missing something here, you said we are "going to put down 20%", that's different than you already put down 20% and have a signed offer. Has 20% gone into escrow? If not you have nothing to hold that house. If I understand your post correctly your offer was accepted. Then a higher offer came in at $3000.00 more. If your offer was accepted isn't that binding? Up here an offer without contingency clauses i.e. financing upon approval, contingent upon inspection, historic closing date and a myriad of other deal breakers a second offer without contingencies whether higher or even sometimes lower that suits the seller supersedes any offer with contingencies. Please educate me, even though I have had real estate dealings south of the border I may be wrong here,

As far as I can see you have sunk a grand into an appraisal/inspection. You speak of problems you might have upgrading the place to meet your lenders requirements while the individual is still in the house? why would one do any work in a property before closing? as you said;

"would fix the issues ourselves, but we worry about how any workers would be treated, and we're worried that if we do that the next guy gets stuff fixed for free if this contract goes south."

First you don't have to worry about how workers are treated, they can handle themselves, it's very nice you would be concerned but as long as they are making money they will be fine, believe me. Secondly you answered your own question, of course you do not upgrade a thing until the property deed is in hand, nothing.
So I imagine I don't have any words of encouragement, sorry.

The other thing that doesn't sound right is with 20% down why would you need a FHA loan? I'm presuming an FHA loan is some type of government program for individuals that don't meet traditional lenders qualifications and where certain requirements must be met before approval.

NC realesate guy please help educate me.


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RE: Dealing with a seller who has a better backup offer

Why FHA??

Uunles you really mean Farmers Home Administration (FMHA) and NOT Federal Housing Authority (FHA)?

FHA is for fisrt time buyers with LOW down payments for the most part (older programs waet as low as 3.5%) and charges MMI (Mutual Mortgage Insurance) instead of PMI.

The commercial insurers will not touch some of the low down payment loans FHA offers.
The MMI fund is about broke at this point and will need a federal bailout in the near future (ala Fannie ad Freddie).

They finally reached the bottom of the borrowers.


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RE: Dealing with a seller who has a better backup offer

Has 20% gone into escrow? If not you have nothing to hold that house.

The terms of the contract is what holds the house. They buyer could have put down $1 in earnest money and "hold" the house if that's what the terms of the contract spell out.


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RE: Dealing with a seller who has a better backup offer

" They buyer could have put down $1 in earnest money and "hold" the house if that's what the terms of the contract spell out."

Sort of a joke.
The seller was a fool to accept such a small earnest money deposit.

Offer them a contract addendum to increase the earnest money.


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RE: Dealing with a seller who has a better backup offer

I still don't understand.

OP put a conditional offer on a house - conditional on the inspection. In the US, if the seller does NOT want to make the fixes that are outlined in the inspection, doesn't the buyer have to decide to either waive the condition or withdraw from the purchase? Who decides what items MUST get done by the seller based on the inspection?


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RE: Dealing with a seller who has a better backup offer

What I gathered from OP's posting, FHA would require the condition to be met before releasing the loan. Since OP is using FHA loan, there is no choice for OP to waive the condition. OP is concerned if fixes would delay closing and it would give the seller excuse to cancel the contract.

It is why we are asking why OP is going with FHA especially if they could afford 20% down.


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RE: Dealing with a seller who has a better backup offer

OK, thanks azmom.


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RE: Dealing with a seller who has a better backup offer

Yes, you are correct AZMom. And to answer the question why FHA-originally we were going to just put the 3.5% down to keep more of our savings intact. Once the ball was rolling we changed our minds because of the PMI increase and the fact that it's for the life of the loan. We had to lock in the type of financing we were going for because the PMI changes went into effect April 1st. We could switch to conventional now, but that delay will most certainly give the seller the out they're looking for. We live in a small town (12,000). $1000 in earnest money was all that was required. Any repairs required regardless would be required for the loan. And although I know the workers are grown and can handle themselves, it was a lot of unnecessary drama during the inspection. We can only imagine what would happen concerning repairs. We have decided if the house does not appraise out we are moving on to the next house. We're not taking any chances losing out earnest money on top of what we've paid for inspection, radon and termite, and appraisal. Thank you guys for your feedback.


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RE: Dealing with a seller who has a better backup offer

So... What are the repiars that were found during the inspection?


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RE: Dealing with a seller who has a better backup offer

"We have decided if the house does not appraise out we are moving on to the next house. We're not taking any chances losing out earnest money on top of what we've paid for inspection, radon and termite, and appraisal."

You say this house "is in great condition". Are you sure? Why do you think it is taking so long to sell?

If the house doesn't pass the radon and termite inspection, the failed results will be required to go on any disclosures given to future buyers. This might affect how much the sellers could get from the next buyer. Perhaps this has already happened once before?

We purchased our house in 2011. We first noticed it on the market in 2010 but the price was too high. Fast forward to 2011 and two price reductions. The seller was a flipper and had purchased yet another property and needed to unload ours.

When we made the offer on our house, we knew there were several things that would need to be repaired, but the price and location were so good we didn't want to take the chance of losing it. We had dealt with picky, grumpy sellers before, so instead of nitpicking the place apart, I chose to compliment the seller on what a good job he did fixing the place up. He really had. Painted inside out, put in new bathrooms, new carpet, landscaping, removed an old swimming pool.

He accepted our offer minus a credit for what it would take to repair the basement leak and old air conditioner.

We have had contractors in to do a few things. At least two of them said they had seen our house on the market but didn't think much of it at the time because it was in the middle of winter. It really looks nice in the spring. They said they would have snapped it up at the price we got it for.

I guess what I'm saying is that if you really like the house then don't let these smaller issues get in the way. And start being nice to the guy and his family that are having to deal with all these strangers picking their house apart!

Good luck! I hope things work out.


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RE: Dealing with a seller who has a better backup offer

@dreamgarden- we have been nothing but extra nice to the sellers and love the house. We are giving them 98% of their asking price. They got a cash offer behind ours and they dont want to put a dime more into this house. Their perogative, but dont sign a contract knowing we are financing. That isn't even the issue. We have done nothing to these people but want to buy their house and only asked for safety repairs done and for them to make good on the fact that it was listed as having a working gas fireplace as well as listed on the disclosure as such, but there's not even a gas line connected to it. They wrote a huge "REJECTED" across the request for repairs. We have offered to reimburse them at closing for any repairs required for financing. We're waiting to hear back. There might not be any, but we want to know where they stand with that so we don't waste our time.
@ NCrealestateguy- we won't know until the appraisal (which was scheduled today) what issues the lender would require fixing to give us the loan. We're thinking they would be minor. Just spoke with my broker and he put in the conditional commitment letter today a few days early, and knows we'd have to close on time. So I think we'd be ok there. I guess we'll see how the addendum would be received about reimbursing them at closing for any repairs. They had sent us a "warning addendum" that states they absolutely are not fixing a thing for our financing last week so they will probably reject it. We've found a back up house just in case. More money, but it's a pretty French country home on 9 acres out of town that is an awesome house too. I cannot believe how low housing prices are here in NW PA. I'm tempted to let the sellers out of the contract and move on.


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RE: Dealing with a seller who has a better backup offer

Double check your contract to be sure that it is a condition that the appraisal comes out okay. It's not in the form in my state (not PA) -- thankfully my RE lawyer added it to the contract. :)

Sounds like you may not be able to meet the financing condition anyway, just wanted to make sure that you were aware that there isn't necessarily an appraisal condition even if you have a right to get an appraisal in the contract.


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RE: Dealing with a seller who has a better backup offer

@Stellamarie-yes, we have the appraisal contingency left on the contract thank goodness.


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RE: Dealing with a seller who has a better backup offer

LRFULLER, if the sellers agreed to the FHA loan, Im pretty sure they cannot refuse to make the safety repairs that FHA may require. This is part of the offer they accepted and they would be in breach of the contract. Stick with it, the longer you hang in there, the better chance you have that the other buyer will find something else. This same thing happened to my sister, although I think it was a lot more than $3000 since her seller asked, "how much is it going to take for you to walk away".

NCREALESTATE, I think the ugly deal you are talking about may be my sister! LOL


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RE: Dealing with a seller who has a better backup offer

It is Linda. I believe the seller had a back up worth over $30,000 more than our contract was.
Not too much one can do if the seller has a much better deal than the current one. In our case, they refused all repairs, threatened us, and did everything to get your sister out of the deal. Even telling up to make an offer as to what it would take for us to terminate.
Now, to your post Linda... I need to break out the 'ol handbook and see what you are saying is correct or not. I will report back what I find.


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RE: Dealing with a seller who has a better backup offer

"We have done nothing to these people but want to buy their house and only asked for safety repairs done and for them to make good on the fact that it was listed as having a working gas fireplace as well as listed on the disclosure as such, but there's not even a gas line connected to it. They wrote a huge "REJECTED" across the request for repairs."

From what your saying, it seems as if the sellers are hoping you go away so they can take the higher cash offer WITHOUT having to fix anything.

It would anger me if people tried to game a sale so that I lost all the money I put into the inspections, appraisals, etc just so they could get a higher offer AFTER I signed the contract.

If this were me, I might tell them I will take it exactly the way it is, and see what they say.

Have you checked the building dept to see if there are any permits on file? If the gas fireplace has had problems (and the sellers knew about it) in the past, it might not be up to code. Is this mentioned in the disclosure? This could be why the house hasn't sold. Perhaps a building inspector might need to come out and see if it is safe? If it isn't up to code then the sellers might be required to repair it themselves. ;)

Have you met any of the neighbors yet? They may be able to give you some information. At least you would know what they are like before making a committment to the neighborhood.

You mentioned a pretty French country home on 9 acres as a back up house.

Gas franking is an issue in PA. If either house has a well, do you plan to test the water or look into any future franking developments in the area?

A link that might be useful:

http://meadvilletribune.com/x2094920399/Local-group-protest-
against-oil-and-natural-gas-well-fracking


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RE: Dealing with a seller who has a better backup offer

Thank you, dreamgarden, for the info. The country house wasn't so great when we went to look at it. Second floor was like a dollhouse the ceilings were so pitched. @ Linda and @ NC - sounds exactly like my situation except on a smaller scale. So what ended up happening is this: my broker submits a conditional commitment before the deadline pending the appraisal, their listing agent says that's not good enough. My broker denies the financing based on the fact that they cannot meet sellers demands and we get out of contract with a return of our earnest money. Which is actually a huge relief. Found a restored 1930 American foursquare that is beautiful! We signed the contract today so here goes round two- totally different scenario though. And our broker caught and cancelled the appraisal in time so that we don't have to pay for two. Today was a good day! And they actually could have refused all repairs and refused to pay for repairs even with an FHA loan. Can't make anyone do it even if its a safety issue because its for our loan, their house.


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RE: Dealing with a seller who has a better backup offer

LRFuller, so glad to hear that things worked out for you! I was in a very similar situation a few months ago. I didn't respond earlier because we ended up walking and letting them accept their better offer when they refused any repairs. We didn't have an FHA loan so our only option was taking it as is (my saga was well documented here if you care to search). We lost our inspection money (which was a lot because we had done a general, structural, termite, and sewer inspection). If you wanted the house I didn't want to be a voice of discouragement. In the end we also found a fully restored 1920 house that we liked much better. My fatalistic side is just telling me that things worked out how they were supposed to. I'm all moved in now and LOVE LOVE LOVE my new house, totally worth the lost funds to be honest. Hopefully the same for you. Congrats and keep us posted!


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RE: Dealing with a seller who has a better backup offer

Wow, Kellienoelle- it makes me feel so much better to hear your experience. I'm definitely going to look up your posts. Thank you so much for giving me real hope! And I agree with you about everything turning out the way it's supposed to. Congrats! Today I feel like a huge weight has been lifted since we got out of that contract. Which tells me it was the right thing to do. We felt like we were trying to wrestle the house from them, and the stress of that finally wasn't worth it. I just hope that there's nothing major wrong with the Foursquare. I'll keep you guys posted! This forum has been a blessing- you guys know your stuff.


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RE: Dealing with a seller who has a better backup offer

Yes, please do keep us updated. Thinking back, I think that everybody probably ended up happier in my case. The homeowners (who I am sure were lovely people and wanted to make the most off their sale as possible) got an additional 15K, the homebuyers obviously got the house they wanted since they were willing to submit a backup offer for listing price (and probably didn't have to pay for an inspection), and we got a house that ultimately I feel is better for us. The only losers were probably my first REA, but I feel like that was their own doing. Hopefully this is how things work out for you. And I agree, this forum is just a wealth of information and a priceless resource!


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RE: Dealing with a seller who has a better backup offer

It is likely to late now, but " two wire nuts present in a breaker box" is not acode violation.

Breaker boxes are also listed as junction boxes, and you can extend wires (or join two wires that then connect to a single breaker) inside the box as required as long as you do not exceed the fill rules for the wring gutters. Most boxes have huge wring gutters and you would have to work very hard to approach their ifll limit in a residential setting.

When you bring an essentially incorrect 'finding' to the negotiating table you are likely to taint everything else you ask for.

Unless the possibility of FHA financing was called out in the offer you submitted (thus effectively making the FHA rules part of the contingency) the seller has every right to reject your request for any repairs.

An experienced RE agent would have likely told them not to accept an offer contingent on FHA financing.

For the most part their is no rule that ANY repairs must be made by the seller, safety or otherwise.

I have purchased houses with all sorts of gross defects, right down to sections of floors marked off as unsafe to walk on.

As long as it is readily apparent and no steps have been taken to conceal a defect you can sell 'as is'.

Some places like to revoke COs at sale, giving them a shot at a warrantless (as in no search warrant needed) inspection of the house for code enforcement and tax valuation.
By blocking a CO they can force repairs, but often cannot control who must make or pay for the repairs.

The revoked CO and refusal to issue a new one can stop the whole selling process cold sometimes since it represents a serious reduction in the value of the property.
It is no longer suitable as a home.

Since repairs are almost always cheaper than suing the government, the sellers capitulate.


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RE: Dealing with a seller who has a better backup offer

An experienced RE agent would have likely told them not to accept an offer contingent on FHA financing.

FHA financing is about as common now as conventional. Its not just for first time homebuyers and if the house is in good repair, there is nothing to worry about. I have almost 30 years in the business and the only time I would ever discourage a seller from accepting an offer because of financing is if the house wouldnt pass by a long shot. "An experienced agent would discuss this with their seller, not recommend they dont accept the offer because of the financing". If the house is in a first time home buyer price range, its very difficult to find a buyer that has more than 3.5% to put down. Most of the offers will come in with FHA financing because of the downpayment. In my area, $250k is a first time home buyer price range. Most first time buyers don't have 10% or 25, 000 to put down plus another $10,000 to close. FHA would be the only option.

If a seller has concerns about the repairs, I have had plenty of buyers that make the repairs at their own cost to get the house to close. Its usually something silly like peeling paint on the garage door or window sills, a handrail on stairs etc.

Our MLS system allows for agents to add to the listing the type of financing the owner would consider. If "FHA" is checked, its usually because the agent knows the house would have no problem passing an FHA inspection.


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RE: Dealing with a seller who has a better backup offer

Yes. It really wasn't about the repairs. The sellers got a full price back up offer right after they signed with us and were blatenly making the process as ugly as possible to get us to back out. Which was effective, but we are glad we let it go. Any repairs that would have been required for the loan we were more than willing to pay to have fixed- but we told them they would have to pay up front and we would be reimbursing them at closing. They weren't even open to that and we weren't willing to pay upfront and then say the lender needed a few extra days to close. They would have used that to get out of the contract and we would have paid for the next buyer's house to be fixed for free. Wasn't happening! They sent us a preemptive addendum stating under no circumstances would they work with us on anything.


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RE: Dealing with a seller who has a better backup offer

I'm asking this for those who run across this thread later:

Wouldn't it be possible for the buyer to put the money for repairs into escrow to be done after the sale? That's sometimes done here and there would be no loss of funds if the sale didn't go through. It seems like there has to be a way to buy a house you have a contract on even if the sellers are uncooperative.

LRFuller, I'm glad you found another house you like and it worked out well for you!


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RE: Dealing with a seller who has a better backup offer

"Wouldn't it be possible for the buyer to put the money for repairs into escrow to be done after the sale? "

All you have to do is convince FHA.

Not likely to happen.


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RE: Dealing with a seller who has a better backup offer

Thank you, mpagmom! And you're exactly right, brickeyee. They would want the repairs re- inspected and signed off before clearing to close on the loan.


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RE: Dealing with a seller who has a better backup offer

We have almost no experience with FHA loans around here - starter homes are very inexpensive so almost anyone can afford to go with conventional.


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RE: Dealing with a seller who has a better backup offer

"Wouldn't it be possible for the buyer to put the money for repairs into escrow to be done after the sale? "

Actually, you can do that with a FHA 203(k) loan. FHA will loan you the value of the renovated home if it appraises and you have a contractor's estimate - amongst other things. This loan takes a lot more time and effort by both the lender and yourself to close.

The seller is paid the purchase price at closing, and the funds are held in escrow. FHA will not, however, release any funds (not even for labor) until each repair is completed and inspected by their inspector. You need an understanding contractor or the cash on hand.

We did a 203k loan, and it was a huge headache! :D


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RE: Dealing with a seller who has a better backup offer

"We did a 203k loan, and it was a huge headache!"

One of the reason few folks who are looking for FHA financing get it this way.

If they had that much money they would have gone conventional.


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