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Condition Issues; What’s “Lendable”; Don’t Disclose in MLS if “As Is”

A home for sale

We recently had an “as is” purchase almost blow up again b/c condition issues were disclosed in the MLS.

This is another reminder to make sure the MLS references no significant condition issues if a transaction is “as is.”

Both appraisers and underwriters review MLS and neither can turn a blind eye to condition issues b/c both risk their licenses and careers by doing so.

Here are some examples of “condition issues” that often require repairs prior to close when visible to an appraiser or disclosed: (1) leaky roof; (2) rotting deck; (3) missing floor coverings; (4) missing heat source; (5) missing railings along stairways or decks; (6) sloping floors/foundation issues; (7) missing built-in appliances; (8) stagnant swimming pools; (9) standing water in crawl space; (10) broken windows; (11) security bars with no quick-release; (12) excessive amounts of debris in crawl spaces or stacked against a home; (13) badly chipped paint and dry rot (more likely for FHA); and (14) all or partially demoed baths and kitchens.

I am repeating a short blog I wrote in January that addresses options when there are condition issues.

I. DON’T TELL US 😊 (NON-DISCLOSURE)

If lenders/underwriters are made aware of significant condition issues (like foundation problems), they will require full inspection reports and that necessary repairs be completed and verified prior to close.

This not only delays closings but can also kill transactions altogether, as many sellers simply refuse to do repairs in hot markets (as most seasoned agents know).

So, we often recommend NOT disclosing any issues for “as is” transactions IF the following criteria are met:

  1. Health & Safety: The issues are not threats to health and safety.
  2. Visibility: The issues are not visible to an appraiser, e.g. a clearly leaking roof or sloping floors will (and should be) called out by an appraiser.
  3. No references to the issues are made in the purchase contract, MLS or any other online sources linked to the property (and yes both appraisers and underwriters check all the sources).
  4. Enough Cash/Smaller Down Payment: The buyers will have enough cash after close to do the repairs. We often recommend that buyers in these situations put less money down in order to save cash for post-close repairs.

The advantages of this tactic include: (1) offers without repair requests are much more enticing; and (2) buyers can take their time after close to get their repairs done more carefully and cost-effectively.

II. DISCLOSE THE REPAIR ISSUES

If: (1) the condition issues are significant; (2) the buyer will not have the cash to do the repairs after close; and/or (3) the condition issues threaten “health and safety,” they should of course be disclosed.

But, as mentioned above, this will require all repairs to be completed prior to close; it will force buyers and sellers to “rush” the work; and it makes offers less enticing.

III. RENOVATION LOANS

Both agents and buyers often automatically default to “renovation” or 203k loans whenever they see condition issues. But renovation loans are often too inefficient, as I mentioned in this blog last year.

Renovation loans require formal bids by approved contractors, substantially more paperwork, higher rates, and slower closings.

In addition, the more popular “streamlined renovation loans” don’t even allow for many structural repairs.

Sometimes, renovation loans are the only way to go when condition issues are significant and buyers are tight on cash.

But, if buyers can avoid them, we always recommend it. They will save time, money and stress.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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