NAR_grey_logo-01

Saving the Deal: 5 Common Deal Killers

By Melissa Dittmann Tracey

QUICK SKIM

Your buyer found the perfect home. Your seller found the perfect buyer. Yet, as you near closing, all types of title, mortgage, appraisal, and home inspection problems can keep you from closing. Mortgage expert Tracey Rumsey has seen it happen all too often. In her new book, Saving the Deal (AMACOM, 2008), she offers tips on how to avoid these potential deal-killers that jeopardize or delay transactions. Home listing and homebuying checklists in the book offer you questions to ask your clients to make sure these problems don’t surface later on and cost you a sale.

Buy the Book

FROM THE BOOK: 5 COMMON DEAL KILLERS

Any number of pitfalls can arise during a transaction that prevent the buyer or seller from signing on the dotted line. In her book, Rumsey offers common scenarios she’s seen and how to overcome them. Here are five:

1. Title complications. The title is legal evidence of the ownership of the property and is crucial when trying to help your client buy or sell. But problems can arise when such issues as death, divorce, guardianship, and bankruptcy enter the picture. Review the title carefully — this goes for buyer’s agents too. Troubleshoot any potential title issues early on. Direct sellers to a real estate attorney to resolve any problems. And don’t just take the seller’s word when it comes to the title — look it up yourself. Most title companies offer access to a limited amount of title information through their Web sites.

2. Unrealistic equity expectations. Have a talk upfront about all of the costs of selling a home so that sellers don’t end up backing out at the last minute. Rumsey’s book offers a worksheet that you can walk through with your sellers to paint a realistic look at estimated final numbers on closing day. It takes into account such items as mortgage payoff, any mortgage prepayment penalties, sales commission, title insurance for buyers, closing and recording fees, and property tax pro-ration. But what if you crunch the numbers and then the seller realizes she can’t afford to sell? Better to know now than after the cost of your time and money later.

3. Financing snags. Your buyers find the perfect property, you write up the offer, and then their financing doesn’t go through. It’s not just about having good credit when it comes to getting a loan. Educate yourself about the loan process so that you can help buyers foresee any potential problems. For example, a recent job change, a probationary period when starting a new job, and jobs that rely on commission income can pose problems in getting loans. Also, help prepare first-time homebuyers by learning the guidelines of your state’s housing loan programs, which may offer below-market interest rate loans and down payment assistance.

4. Appraisals. When appraisals come in at a value lower than the contract price, you have a major potential deal killer. So listing agents need to make sure they list the home at the right price from the beginning. To counter a low appraisal, you can provide the lender with the process you used to determine the price of the home and appropriate comps. But don’t call the appraiser, unless you were the one who ordered it. Do not expect a request for a second appraisal to be granted; they rarely are. One solution is to drop the sales price to match the appraised value, if it’s a small difference. Otherwise, you may need to take more drastic action, such as offering a commission reduction to get the seller to move forward. “None of us like dropping our profit margin to save a deal, but sometimes it’s what we have to do to get to the settlement table,” Rumsey writes.

5. Pre-approval letters. These letters issued by a loan officer tell you that after a full review of the buyer’s credit, income, and asset status, she is very likely to meet the requirements of closing on a loan. Not so fast. Before your seller accepts the offer, make sure the buyer really can close. There are varying degrees of competency when it comes to loan officers, just like any other industry. That said, some of these letters issued are after a thorough investigation into the buyer’s finances, while others came from a five-minute conversation. Read each letter carefully. Does the letter state the actual sales price that the home the buyer is approved to purchase? Does it state that the buyer’s credit status, income, and assets have been verified? If these questions aren’t answered, call the loan officer for clarification. If the answers are “yes,” you likely found a solid buyer, Rumsey says.

SNEAK PEEK

“Deals can be saved by proactive thinking at the beginning of the transaction. Blowups or delays just before settlement, no matter who is at fault, hurt your client and your reputation. Your clients may logically understand that the problem had nothing to do with you, but there may still be negative emotions tied to you that may prevent them from calling in the future when they need an agent.”

ABOUT THE AUTHOR

Tracey Rumsey has more than a decade of experience as a mortgage loan officer. She is the chair of the Utah Mortgage Lenders Association Education Committee and is also a mortgage and real estate continuing education instructor licensed with the Utah Division of Real Estate.

Check back on Monday, March 31, to read Rumsey’s responses to your questions.

Comments
  1. sybila

    Home repairs are my #1 “deal killer”. Sellers and Buyers refuse to compromise many times on whose idea of what needs to be repaired since many home inspections reveal lots of deferred maintenance by the Sellers.
    I would like inspectors list all the deferred maintenance so that 1st time home buyers don’t panic.

  2. Wandaa Case

    It should be against the Law for Mortgage Companies to send out pre-approval letters that are not worth a penny, and cost several anxious persons thousands of dollars.
    The buck should stop where the first business person made or implied the first mistake.

  3. I agree with Wandaa regarding the pre-qual letters. However, some of the responsiblitiy needs to fall on the listing agent. When I list a house, I don’t accept a PQ letter until I have spoken with the lender directly – or I have something stronger. PQ letters – as we all know – are not worth the paper they are written on. SO…since we all know this, DON’T accept them.

    Do everyone a favor and do your due diligence on the buyer. Don’t waste your time with a PQ letter.

    I’ve even heard example of buyer agents cutting-and-pasting letterhead from a lender and writing their own PQ letter.

  4. Phil LiMandri

    I agree with Wandaa unfortunatly this practice has gone on for years and has been accepted. I certainly hope the shake up in the mortgage industry addresses issues such as this.

  5. Where does property condition rank?

  6. Janet

    I am a Realtor trying to buy my own property. I have run into problems with me being my own buyer’s agent with FHA. Who cares? It’s my office getting the money first but I guess in this day and age of tightening up, this is a problem. I am also getting the 203K streamlined. There can’t be any structural problems, no matter how small. This property has a 2′ are that needs brick re-work. That makes me have to get a full 203K with consultants and inspectors, etc.

  7. One of my last “deal killers” involved the listing agent & sellers not realizing they had a $6k prepayment penalty from the lender. The night before closing, the listing agent calls me with this info. He had to give up ALL his commission and I gave up $1500 to sell this home. My buyers had cash and their lender was unwilling to waive the prepayment penalty.

  8. I’ll back up on that Wandaa

  9. In our area, most appraisers ask for a copy of the contract so they can match an appraisal amount close to the contract sale. I don’t think an appraiser should have any access to active listings or get a copy of the contract. They should act on closed sales and actual real comps.

  10. mike boteler

    Please know that an appraisal report is required to note the intended use and intended user.If the intended use is for a mortgage loan transaction only the lender (who is the appraiser’s client) can order the appraisal. The appraiser is bound by USPAP to reveal his assignment results only to his client as well as protecting any confidential information provided to him by his client.

  11. I’m both a loan officer and real estate broker, I understand the financing part is the test and pre-approval subject to appraisal is still no guarantee that the buyers situation or underwriting guidelines in this market won’t change over night and affect your timing or blow up the deal. At the root of the problem – lenders won’t approve until they have a full file in front of them. They don’t want to waste their time reviewing and documenting a file 2 x’s either. There are ways to get a better sense of the deal- if the loan officer will talk to you but be aware you’re not the buyer- some won’t even consent to talk to you about private information. As a real estate broker, you are right though, about pre-qual’s – the buyers don’t want to give up information just yet or they’re impatient and didn’t call the loan officer first, now they need an approval to get what they want. A Pre-Qual only gets a basic review over the phone. They aren’t worth anything until you get a review of a full loan package with actual numbers that are verified and at least fit current loan guidelines. There’s no easy answer here!

  12. As far as title issues; as a listing agent I order a preliminary title report (not a profile) when I list a home. As soon as the property enters escrow, I request that the report be updated; most title reps will offer this service to you.

  13. I find one of the best pieces of advice I can offer a seller is to have an inspection done at the time of the listing. It allows the seller to address by repairing or disclose needed repairs. The seller can get quotes in advance for repairs so buyers have a reasonable guideline of what to expect. It also helps the listing agent deal with unreasonable price expectations when listing. Quite often this simple step can eliminate a vast majority of problems.

ADD YOUR COMMENT