Why a Short Sale Addendum Is Important to Home Buyers

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Whether you use a short sale addendum to accompany your offer will depend, in part, whether that form is available and commonly used in your state. Many state REALTOR® associations endorse the short sale addendum, but not all of them do. In fact, some of the verbiage in a short sale addendum may vary from state to state.

Example of a Short Sale Addendum

Here, we look at the California Association of REALTOR'S® short sale addendum, and highlight the pros and cons of that particular document, including the one clause a buyer might want to question.

Section 1

Because a short sale is contingent upon the seller's lender agreeing to accept less than the amount owed, the short sale addendum clarifies the contingency. It also sets forth the time period that the buyer is willing to wait for short sale approval by inserting a blank line for a date, with 45 days as the default.

Short sale approval typically takes from 30 days to three-four months or longer. Although the seller must reasonably cooperate with the lenders, the seller is not obligated to close the short sale if the lender requires a contribution from the seller.

Section 2

This part gives the buyer two options regarding inspections and contingencies. This period can begin either:

  • Immediately upon acceptance, or
  • Upon short sale approval by the bank(s)

Section 3

This section pertains to the buyer's earnest money deposit and lets the buyer choose from two options:

  • Release the earnest money deposit to the payee upon seller's acceptance as stated in the contract
  • Withhold the earnest money deposit until short sale approval

Section 4

Section 4 says there is no guarantee that the seller's bank will approve the short sale. Furthermore, the seller's bank may demand to see all the offers and may choose a different offer. However, the buyer and seller are free to reject a short sale bank's terms.

Section 5

This section explains that the buyer and seller may incur certain costs pursuant to the contract. Some of those costs may be the responsibility of the parties if the short sale lender refuses to pay them and, if either party cancels, other fees may be due as a result of the cancellation.

Section 6

Section 6 lets the seller continue to show the home and send other offers to the bank. This means if the seller receives a higher offer, the seller can ask the bank to accept the higher offer in lieu of the offer the seller has signed. What? Oh, yes, true.

Section 7

Section 7 states that the sellers are advised to seek professional advice about how short sales affect credit, including legal or tax consequences.

How a Short Sale Addendum Affects Home Buyers

In conclusion, if the seller requests a short sale addendum, as a buyer, you may run the risk that your offer will not be considered if you do not sign the short sale addendum. For more information, you may want to discuss this with a real estate lawyer.

Please be aware new versions are released every year or so, which means the sections might vary slightly from year to year.

At the time of writing, Elizabeth Weintraub, CalBRE #00697006, was a Broker-Associate at Lyon Real Estate in Sacramento, California.