Posted on August 1, 2015 - 12:45 PM
by Natasha Hunter
There's more to a buyer's offer than just price -
the offer's quality should also be considered.
Back in December, one of our newsletters was on how accurate contract entries guide and control your deal all the way to closing, which was very well received. A number of you wrote with followup questions about the lender's perspective on purchase contracts and how that affects your buyers.
Which got me thinking...let's step over to the other side and look at a few things from the seller's perspective, so that's what we're doing today.
Sellers need to think about buyers' ability and intent to end up at the closing table in a timely manner.
Before sellers accept purchase offers on their properties, they want to have some assurance that the buyer is serious, can afford to buy, and that the deal will close within a certain timeframe.
They don't want to accept an offer, show the property listing status as "pending", then have the deal fall through because a buyer isn't as well qualified or as serious as she/he initially represented.
When the listing status is "pending", other buyers are often discouraged from looking or submitting a backup offer.
No one wants to waste time or lose money.
Sellers depend on you to establish a realistic listing price that
accurately represents a home's value in the current market. They want the best price they can get in a reasonable period of time.
Buyers' Realtors® submitting an offer should consider how that offer will be viewed by the seller. The reason for all the effort is to have a contract accepted and end up at the closing table.
Often, cash buyers want to negotiate a lower price merely because they're paying cash. If the property is priced right at listing, does paying cash earn a discount?
Is a cash offer for $10,000 under listing price better than an offer using financing at full price? If the financed offer is accompanied by a real PreApproval, the cash offer isn't as good. The seller left money on the table that could be in his or her pocket.
Whether buyers pay cash or use financing, at closing sellers still receive all money due them according to the purchase contract and HUD-1 settlement sheet.
Buyers with supported PreApprovals can close just about as quickly as cash buyers can. It's all about good preparation and working with a Loan Originator who knows how to think ahead.
When you have an offer that includes a pre-qualification or Pre-Approval, CALL the Loan Originator who prepared it and ask if he or she evaluated the buyer's income, assets, and credit from actual documents provided, or just numbers the buyer entered on an online form.
Of course, he or she cannot disclose the buyer's confidential financial information, yet can explain the method and basis of preparing the PreApproval letter.
Sellers deserve to know that buyers have a good chance of qualifying for financing, and that money is available to make
the agreed down payment and pay closing costs.
Learn what to look for and what to ask when your buyer comes to the party with a pre-qualification or PreApproval.
Financing Contingencies are an important part of what we're discussing today, so let's go into them further:
They are primarily for buyer benefit, and sellers agree to them because financing is an integral part of most real estate deals.
Sometimes sellers are hesitant to accept them, thinking that the application and approval process may be drawn out or delayed, affecting closing.
By properly structuring the details of a Financing Contingency, you can help buyers express their good intent to go through with the purchase, while helping sellers feel more comfortable about accepting the contingency.
A Financing Contingency allows buyers to apply for financing within a certain period of time after their purchase offer is accepted, and if their application is denied within a specific time frame, they can get back the deposits made with the offer and contract.
When signing a contract that includes a FC, sellers should
require that nothing is left blank in the financing section. After all, a vague and poorly defined Financing Contingency can lead todelays and misunderstandings when it comes to the financing commitment or waiver.
Sellers are suspicious of Financing Contingencies that contain blanks and inferred default entries ("if blank, then ---").
They want to know that buyers are continuing the "good faith and diligent effort" to secure financing they agreed to in the purchase contract.
Remember that rates change daily. The rate mentioned in a Financing Contingency should be one that allows for rate fluctuations between your contract's effective date and your Loan Commitment date, usually around 30 days out.
When submitting an offer/contract, instead of just writing in a teaser rate seen in some email blast that morning, call your buyer's lender for a realistic maximum rate to put in the Financing Contingency.
Another way to handle the rate entry is to write in "prevailing rate based on buyer qualification" which leaves the rate number undefined yet still keeps the deal moving forward.
Speak with your buyer's Loan Originator about achievable
time frames, rates, and dates for Loan Commitment and closing.
To give your seller some peace of mind when the buyer has not yet applied for financing, from a lender's perspective I feel the following time line is reasonable and realistic to use for FC entries:
Day counts are referenced from the Effective Date -
Within 5 days - Apply for financing (buyer to provide written
verification from lender)
Within 30 days - Provide loan commitment, contingency waiver,
or denial letter
Within 37 days - Closing
There we are, a few things to think about from the seller's perspective. As we've said before in the newsletter, the absolute best way to deal with any of this is for buyers to have a solid, supported PreApproval in hand when you submit an offer/contract for them.
Have your buyers call me early in the looking process so we can get them PreApproved. Well-informed buyers not only make our jobs easier, they help sellers feel more comfortable with the deal.
Let me reinforce the trust
your buyer has placed in you! sm
Information provided by Chris Carter. Please see contact information below.
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