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These days, it’s hard enough to get a transaction at all. If you are looking for a way to blow it up, then failure to do any of these critical elements could be your ticket to disaster.
Although it is impossible to guarantee that a transaction will close, let’s face it — stuff happens.
However, there are some critical things you can do to alleviate the possibility of your deal going sideways. Here are my top five potential fails:
1. Failure to confirm title status first
If you have the listing, before you do anything, confirm who is on the title, preferably before you get the listing docs filled out, to ensure that the name(s) on the title match the names on your docs.
Over the years, we have encountered situations where the person living in the property did not have the authority to sell. To prevent any missteps, we run a copy of the title prior to a listing appointment so we know who has the authority to sign. Best case, the seller’s legal name(s) will be all you need.
Increasingly, sellers are setting up trusts which include their properties. If so, the listing docs should reflect the name of the trust and then be signed by the trustee(s) granted legal authority to sell. If the trustees are still alive, this is usually very straightforward but may require a few additional listing documents.
If the sellers listed on the title are deceased, this adds another layer of complexity to the sale. If there is no trust, then the property may need to go through probate, even if there is a will. Because Realtors are not allowed to give legal advice, we gather all the necessary documents (trust, will, death certificates, etc.) and send them over to our title company (in some states these would go to an attorney).
Once the docs have been reviewed by the appropriate legal entities, they then give us instructions as to how to proceed. They also let us know how the seller’s names need to appear on all documents.
Failure to perform due diligence upfront can result in catastrophic situations once in contract. I know of more than one situation where a listing agent put a home on the market, obtained a buyer and entered escrow, only to discover that the home needed to go through probate first.
In these types of cases, buyers, unwilling to go through an extensive and lengthy probate process, bail, leaving the listing agent looking unprofessional and the seller(s) frustrated and angry.
The same can happen even if there is a trust: We had one situation where a trust had been duly executed, but for some reason, the attorney producing the documents failed to put the decedent’s home in the trust, thus requiring the property to go through probate.
2. Failure to fully disclose per local laws
In California, disclosure laws are extensive and the mantra is “Disclose, Disclose, Disclose.” Other states, however, have little or no required disclosures.
In California, it’s also critical that everything be disclosed within the time periods stated in the contract. Failure to do so can fundamentally change the conditions of the contract and could give the buyer the right to cancel even if all contingencies have been removed.
Bottom line, disclose to the maximum as required in your area. Failure to do so could result in a canceled transaction or even legal action for both you and your client if additional facts are discovered after the close.
3. Failure to properly educate the seller
Once a home goes under contract, specific contractual activities need to take place for the escrow to proceed to a satisfactory conclusion. We have learned that time spent at the beginning of the listing explaining the necessary steps goes a long way to ‘greasing the rails’ during the sale.
While the majority of sellers we have dealt with over the years have been gracious and willing to cooperate, there have been a few that I would describe as “cooperation-challenged.”
These typically had their own idea of how things were going to happen regardless of any semblance to reality. Time spent with these folks reinforcing the required benchmarks and related activities can be critical.
Sellers need to be aware of the following:
- They will need to provide access during the transaction. Some sellers assume that the only times they need to allow entry is during the showing period. In most cases, however, the buyers have the right to order inspections (and accompany the inspectors), appraisers have the right of entry, buyers may wish to bring service providers and contractors through to measure for quotes and so on. If a seller does not understand or approve the right for access, things can get difficult in a hurry. Entry can be even more difficult if the property is occupied by tenants who, in some cases, may make access difficult even if provided the mandatory notices.
- Buyers have a right to inspect the property. In most cases, this is true even if the sale is deemed “AS-IS” or the inspection contingency has been removed. Not only can they order inspections, they may also, depending on the contract, have the right to request repairs. Sellers need to be informed of this at the beginning of the transaction so that any inspections and subsequent repair requests do not come as a surprise.
- There may be appraisal issues. In an overheated market with multiple offers and prices spiraling upward, appraisers frequently have difficulty bringing an appraisal in at the contract price. If the appraisal comes in low, depending on the contract, the buyer may have the right to renegotiate the price and terms or even cancel. It is critical the seller be aware of this possibility and subsequent options up front so as to avoid any nasty surprises.
4. Failure to thoroughly investigate the buyer’s financial ability
Some agents, so glad to finally have an offer, get their sellers to sign the contract and fire it into escrow. While understandable on one level, it is important to verify the buyer’s financial capabilities BEFORE the deal is signed and delivered. Make sure you thoroughly investigate the following:
- Call their lender about their pre-approval. We will not begin showing property to a buyer until they are actually preapproved and we have a copy of their preapproval in our files. If we have the listing, all offers must be accompanied by a copy of the preapproval. We always call the lender to verify the information and to ask if the buyer is capable of going higher than the preapproval states. This lets us know that there is some headroom in the event of a low appraisal or multiple offer situation.
- Verify the funds required for the downpayment and closing costs. If we have the listing, we insist that any offer be accompanied by proof of funds on deposit to cover the projected costs of their stated down payment and estimated closing costs. This usually involves copies of bank or investment statements with their account numbers redacted. If the funds are in investments such as a 401K, we ask that they contact their portfolio manager to find out how long it will take to get the funds out of the investment. Failure to do so can result in lengthy delays.
If we have the buyer, we have this discussion in our preliminary meeting. On more than one occasion we have had a buyer ask, “What do you mean, ‘closing costs?’ You mean we have to pay extra?”
We also discuss the possibility of low appraisals with our buyers so we have an effective strategy in place should the appraiser fail to hit the desired price. We developed an appraisal calculator that shows us various scenarios should the appraisal come in low and lets us know how much extra money the buyer needs to have on hand to meet the shortfall should they not be able to negotiate a lower price.
- Make sure the buyer has been coached about common mistakes. Most lenders have a list of Top 10 Mistakes to Avoid when buying a home. We once had a buyer get into escrow and then show up for the inspections in a new BMW. When questioned, they said, “Now that we have a house with a garage, we figured we’d buy a new car to go in it!” Our response was, “You may have a new car, but you no longer have a home. That purchase just cost you the transaction.”
- Have a backup lender just in case. Occasionally, a buyer’s lender will run into issues that will stall the transaction. It is a good idea to have a backup lender in the wings just in case. Although we have not had to go down this road very often, when needed, it has saved the day. It will mean the escrow will be longer, but, in most cases, we can get it closed.
5. Failure to check in frequently
Communication is key and critical to any successful close. Make sure you stay on top of the following communications:
- Check in regularly with your client to provide a status report and to see if they have any unanswered questions.
- Call the lender to make sure everything is on track.
- Call the other agent to ensure things are going well.
- Do not assume contingencies will be removed when they should: Call a few days prior to their release to make sure everything is going well.
While there are certainly more items to be aware of, these are the top five transaction killers. Failure in any of these categories could spell doom to your escrow and even, if they believe you are less than fully competent, the loss of your client as well.