Any seasoned real estate agent can tell you many stories of frustrating situations that either delayed a closing or destroyed a deal. A huge part of being your client’s real estate resource is to proactively prepare your clients and identify any potential obstacles. Here are 6 areas to look into that can make or break a real estate transaction on the buyer and/or seller side:
1. Area Issues – Agents should encourage their clients to do their own due diligence when researching a particular area or home before deciding to buy. Clients should research the schools on various reliable sites, the Sex Offender Registry and simply search the address/subdivision/city on Google for any crime or stigmatizing issues. That can save a lot of time and buyers remorse.
2. Qualification and Budget – Clients must determine whether they can truly afford to sell/purchase a home, the costs associated month-to-month and the closing expenses. The first step for buyers is the mortgage pre-approval, and determining a buyer’s income-to-debt ratio. Buyers must have sufficient supporting documentation to provide to the lender at the beginning and throughout the loan process, with no major changes to employment or credit. Those who are self-employed and/or have rental income typically need at least two years of tax returns that include that income in order for it to count toward their income ratio.
Also, agents should provide their clients a thorough “net sheet” to estimate their expenses before closing, at closing and a conservative mortgage calculation (with PITI, etc.). The same goes for sellers who need to estimate their out-of-pocket expenses prior to selling, and whether they should have sufficient proceeds to sell their home and move into another home. Most importantly, clients need to provide full disclosure of any pending bankruptcies, court actions, divorce, etc., which can certainly impede that sale/purchase process. Lack of affordability, insufficient funds for closing and legal surprises can be avoided if this is discussed and verified at the very beginning.
3. Government-Insured Mortgages – Many buyers apply for FHA and VA loans, which can add more complications or delays to a real estate transaction. If a seller agrees to allow buyers with such mortgage contingencies, they must be prepared to resolve any repair issues that may come up prior to closing (health and safety, peeling paint, stair rails, roof life and much more). Agents should immediately confirm with the lender’s underwriting if there are any issues that came up during the appraisal. Too many closings have been delayed because of that, such as underwriting noticing a repair issue just before closing that must be repaired prior to the loan commitment.
Another deal-breaker that many agents are not aware of is the CAIVRS Authorization. The CAIVRS is a government database that tracks federal loan delinquencies. Any buyer applying for an FHA or VA mortgage is checked in this system, and if they have a prior delinquency with school loans, previous FHA or VA mortgages/foreclosures, etc., they will not get the authorization to qualify for a new loan until years after the debt is discharged or satisfied. Prior delinquencies that were reported incorrectly have been known to occur, but can take years to resolve. Have the lender check the CAIVRS during the Preapproval process in the very beginning. Lenders have different policies on when they check the CAIVRS, but if your client cannot get CAIVRS authorization, there is no deal. (Click here for more info.)
4. Lender Approval– Agents must never assume that the lender (or an attorney for that matter) with “take it from here” in any transaction involving a mortgage contingency or a short sale. With a traditional sale, important dates such as the appraisal and loan commitment must be paid close attention to. Listing agents should always accompany an appraiser and provide a plat of survey copy, recent improvement information, good comparable sales details and adjustments that support the purchase price. Appraisers are not always familiar with the specific area they are appraising, and they genuinely appreciate the assistance, so providing relevant data will increase the chances of getting the home to appraise at or above value.
With short sales, always confirm who the lienholders are (and how many) and where the home is in the foreclosure process, lis pendens filing, how long in default, etc. With a short sale, important dates such as the buyer’s right to terminate the offer contract prior to bank approval, BPO/appraisals and loan commitment must be paid close attention to. Lenders (love you guys!) deal with documentation and numbers, but agents need to advocate for their clients and stay on top of the events necessary to get to closing.
5. Property Issues – Major anxiety can come up that agents must manage by way of informing and educating their clients. Agents need to be present along with their client during all home inspections and contractor appointments. Agents and clients should accompany the inspector throughout the property to understand any issues first hand.
Not even new construction is without issues, so agents must communicate severity, potential expense and prioritization to the client. Also encourage clients to get a homeowner insurance quote on the specific address to identify if there have been any prior claims. Make sure to confirm that there have been no changes in property disclosures since they were initially completed by the seller.
Follow-up and final walk-through inspections with the client should also be done after the seller or tenant have moved out, after repairs have been made and just before closing. The client must have a constant knowledge of the status of a property’s condition, and agents must allow time to resolve any issues that may come up.
6. Releases – Much is done by the title company to search for pending liens, etc. on a property, but much should also be done by clients ahead of time to ensure a smooth closing. Applicable municipal transfer taxes and fees, required inspections and final bills must be satisfied by the applicable party. Utilities need to be paid and transferred. Property taxes that have already been billed must be paid. Homeowner association certifications, releases, etc. must be provided. Homeowner hazard insurance, and applicable flood insurance, must be done to confirm insurability. No one wants to be at the closing table with unresolved issues.
Our time and our clients’ interests are precious. There are many potential headaches and deal-breakers that can be avoided or dealt with before creating further problems. Clients truly see the value in their real estate professional when issues are identified and resolved. I have avoided many delays and deal-killers from the due diligence that I have learned as a result of experience. Be proactive!
She can be reached at 630.346.3272 or Christine.Groves@CBexchange.com.