Opening Escrow Before the Bank Approves the Sale
All of the short sale listings that I take are accompanied by specific contract terms and conditions that are disclosed to buyers before they submit an offer. It makes it easier to conduct the short sale, and results in greater success.
When a buyer comes to the table on a listing that I have taken, we require that they put some skin in the game. After all, the listing agent does most of the work to obtain lender approval. Of the buyer’s earnest deposit, which could be $1000.00, $5000.00, $10,000.00, you name it, we require that a portion of that deposit become non-refundable from the date of contract acceptance.
Remember, contract acceptance and bank agreement are two different events. A purchase contract is accepted when the owner says, “yes, we believe that this price will be acceptable to the bank.” A bank agreement to sell occurs when the bank says, “yes, we are willing to let the house go for that price.”
In Arizona, the buyer’s due diligence time line, which by default is 10 days in the standard purchase contract, does not begin until the bank delivers approval to sell. That doesn’t mean that the offer hasn’t been accepted. Remember, acceptance is in the seller’s hands, not the bank’s hands.
Why Open Escrow Before Bank Agreement?
We do this because we require a non-refundable portion of the earnest deposit to be held in escrow during bank negotiations, and that amount must be held in escrow. Requiring the deposit ensures that the buyer is serious about buying the property and protects us from accepting offers from buyers who are throwing out multiple offers on multiple properties in hopes of catching just one property. A buyer needs to be prepared to wait it out, and willingness to put $500.00 on the line is typically good enough for us to begin the work of seeking lender approval for the sale. If the buyer walks, they have something to lose, and our time spent working is not spent in vain.
Some Title Companies Won’t Do This
That is true. I have been turned down by title companies who say they will not open escrow prior to the bank letter of agreement. Fortunately, there are smarter title companies out there who know that the industry is in a healing cycle, and if they turn away business, they’ll go out of business. It’s in their best interest to work with us, and most of them do because they understand how much work we do.
One of the reasons title companies DO participate is because listing agents develop relationships with reputable, skilled officers who can get the job done quickly and efficiently. While the buyer is the one who typically chooses the Title company to use, the good listing agents have developed systems designed for success that would be complicated by using just any old title company. I can continually send business to a smaller group of escrow officers to ensure the short sale process is as smooth and successful as possible. As a buyer’s agent, knowing that the listing agent on a short sale has a history of successful closings with a particular Title company assures me that it’s okay to direct my buyer to that escrow company.