Mortgage Purgatory

All too often closings are delayed due to the failure of the mortgage company to process the loan documents in a timely fashion. Fortunately, most edlays are only one or two days and while a huge inconvenience to both the Seller and the Buyer they can be dealt with. In some situations the delays can drag out for extended periods of time causing major disruption to the lives of the Seller and the Buyer.

The first sign of a delay is usually not encountered until the last minute, meaning a day or two ahead of closing. The problem is that the Seller must make arrangements to vacate the property and that usually inivolves scheduling movers and arranging for a place to move to. The concern is that the Buyer will default and the Seller then has the cost of the move and two house payments to make.

Often, the Buyer's Agent will submit an Amendment requesting that the Seller extend the closing date. The Buyer's Agent will usually try to make this seem like it is no big deal and is a small technicality that the Seller must comply with. WRONG!

The Seller is under no obligation to extend the closing date for the convenience and protection of the Buyer. The issue is that the closing date is a critical, key, target date of the contract and if the Buyer fails to close the Earnest Money that the Buyer put up to guarantee their performance become subject to a claim of default by the Seller.

Since delays commonly occur it is not a statement of fact that missing the closing date will automatically entitle the Seller to claim and receive the Earnest Money from the Buyer. The courts have routinely rulled that the Seller must give the Buyer a little lattitude on the closing date. The length of time that the Seller must wait is a question of fact that a judge and a jury may have to decide, howver, reasonably short delays of a few days do not automatically cause the Buyer to be in default and lose their Earnest Money. If the delays continue a point in time is reached where the Seller is obviously entitled to claim the Earnest Money. That time is debatable and subject to litigation but is probably less than 2 weeks after the originally secheduled closing date.

The problem with signing an Amendment to extend the closing date for the Buyer is that the extension is one sided and benefits the Buyer at the expense of the Seller. By moving the closing date further out into the future a few days the Seller is moving the point when they can claim the Earnest Money forward by the exact same amount of time. Any time that a Buyer requests that the Closing Date be Amended and moved further out into the future the Buyer should give the Seller something of value to compensate for the accomodation. I generally suggest that the Buyer increase the Earnest Money and add a clause that if the new closing date is not met by the Buyer the entire Earnest Money (old plus new) will be immediately subject to forfeiture by the Buyer, otherwsie, the Buyer will have to operate with the clock ticking on their technical default on the contract to purchase the home.

I refer to the Buyer being in 'technical default' as the period of time between the original Closing Date and the time when the Mortgage Lender finishes getting the document prepared for the loan and getting them to the Title Company to complete the closing. If that period of time is only a day or two the Buyer has very little to worry about. As that period of time lengthens to become a week or longer the Buyer enters a period of time where they become very vulnerable to the Seller making a successful claim of default and obtaining the Earnest Money from the Escrow Account at the Title Company.

If you find yourself as the Seller of a home in the unfortunate positioin of having a delay in your originally planned Closing Date be careful about extending the Closing Date through Amendment without considering the possiblity that you are simply protecting the Buyer without any benefit. Make sure that you benefit from the extension.

Buyer's Agent Bonus vs Discount Price

I am often asked the question as to whether or not offering a bonus to a Buyer's Agent is a good idea. Along with that questions is the subordinate question of how much bonus to offer to get results.

Generally, this quesion is asked because the Seller wants to do something to help sell their home faster, or at a higher price, or both. Since Sellers save money by listing for a Flat Fee they often consider that some of that savings can be translated into quicker sale and higher price if they motivate the Buyer's Agents to show their home more frequently and to sell their home more agressively to earn the bonus.

I always recommend that instead of offering the bonus to the Buyer's Agent you reduce the price of your home to make it more attractive to more Buyers. By putting your home on a more affordable level you open it up to more prospective Buyers.

Agents have little actual control over a Buyer's response to a home. There is very little that an Agent can do to persuade a Buyer that any particular home is right for them. Most Agents will not attempt to do this since they are afraid that they will either be perceived as pushy, or they may be sued later for saying something that is positive about a home that comes back to haunt them when a problem arises.

Additionally, Buyer's Agents should, by virtue of their Code Of Ethics committment to keep the Seller informed, advise the Buyer that the Agent will earn a bonus or larger than normal commission on your home. Virtually any Buyer will, with that knowledge, try to negotiate with their Agent to have all or a portion of that Bonus rebated to the Buyer if they choose to purchase that home.

I have sold over 1,000 homes in the last couple of years and out of that number only one or two homes have sold with a bonus where the Seller felt that the Bonus was instrumental in helping to sell their home. I have had 40-50 Sellers offer bonuses and not receive any noticeable benefit from those offers. No additional traffic. No discernably higher sales price.

Simply put, offering more than the norm for the Buyer's Agent has little impact on either your rate of showings or your sales price. It is a far more powerful tool to apply the bonus to a lowered price, or greater negotiation flexibility, rather than to offer it to a Buyer's Agent.

Exclusions: Listing Agreement vs Contract of Sale

When you list a property on the MLS there is a paragraph in the Listing Agreement where you can specify any items of personal property that you want to insure you are able to keep when you close on the Sale. When your home is listed on the MLS these items should be shown under the 'Exclusions' section of your listing, thereby notifying any prospective Buyer's Agents that you intend to keep the mentioned items.

It is very important to note that if you want to keep these items you MUST detail them in the Contract of Sale at the time you negotiate the contract. Simply listing them in the Listing Agreement and on the MLS does NOT insure that you will retain ownership of the items and be able to take them with you. The Listing Agreement does not control the Contract of Sale. The Listing Agreement provides instructions to the Listing Broker about how to display your property informaiton on the MLS system.

It is your responsiblity when you review an Offer to Purchase to make sure that any items that you have previously listed as Excluded in the Listing Agreement are also listed in the Exclusions paragraph on the Offer to Purchase (Contract of Sale) otherwise you will NOT have the right to retain those Items.

Steps from Contract to Closing

OK - now that you have a Contract on your home what next?

First, make sure that your Contract is completely signed and initialed. Check to make sure that all pages have both the Buyer(s) and Seller(s) initials at the bottom, that any changes to the printed terms are initialed by both Buyer(s) and Seller(s), and that the Signatures are in place, and that the Contract has an Effective Date inserted in the propery place. Unless all of the above is true you may not actually have a valid contract.

Also, be sure to make sure that the above applies to any Amendments that are attached to the Contract of Sale/Purchase.

Now that the Contract is completed lets look at the duties of the Buyer and the Seller separately.

* * * * * * * * * * * * * * * * * BUYER DUTIES * * * * * * * * * * * * * * * * * * *

1) BUYER DUTY (if Agent represented): It is normally the responsibility of the Buyer's Agent to take a copy of the contract and the Earnest Money check to the Title company to start the Title process and to open an Escrow account. If the Buyer is not working with a Broker/Agent then I highly recommend that the Seller take responsibility for taking the contract and the earnest money to the Title company, rather than depending on the Buyer to do this important task.

2) BUYER DUTY: The Buyer will be responsible for contacting a Home Inspector and having the home inspection performed. This will be during the Option Period which is typically between 7 and 10 days from the Effective Date. The home inspection will typically be performed within 1 - 3 days from the date ordered by the Buyer and the Home Inspector will usually provide a written report not later than 24 hours after the inspection is completed.

The Home Inspection Report is paid for by the Buyer and is the property of the Buyer and the Seller has no 'right' to see the report. In most cases the Buyer will provide a partial or complete copy to the Seller at the time that the Buyer requests the Seller to perform repairs per the Inspection Report. Regardless of how new the home is some minor, or major, items of repair will be found by the Inspector. Remember, it is the job of the Inspector to find problems with the home and even brand new homes (especially new homes?) have faults that need to be corrected. Do not be surprised when the Buyer submits a Repair Amendment requesting that some or all of the found faults be fixed.

Remember that as the Seller you are not under any obligation to repair items and the Buyer is in the Option period and can back out of the contract without penalty at any time. Therefore, you are still negotiating for the sale of the property with the focus of the negotiations now centered on the repair items requested. There is not specific guideline to provide for this process other than to use common sense and to visit with your Agent for guidance.

3) BUYER DUTY: The Buyer will contact the Lender and apply for a loan on the purchase of the property. Usually the Buyer has already started the process and has some level of pre-approval in place and is now simply completing the process. In any event, the Buyer must immediately contact the Lender to keep from delaying the closing due to loan problems. The Buyer will typically have between 14 and 21 days to obtain a loan committment from a lender. The Third Party Financing Condition Addendum has a provision that the Buyer may abort the purchase and receive a return of Earnest Money if the Buyer is unable to obtain financing under terms not less favorable than the terms indicated in the Amendment, however, the Buyer must exercise this right within the time period indicated in the Amendment.

4) BUYER / LENDER DUTY: The Buyer's Lender will order an Appraisal of the property since the Lender is the entity with the risk of loss in the event of foreclosure in the future. The Lender will typically order the appraisal about one week from the contract effective date, or about the time of the end of the Option period.

* * * * * * * * * * * * * * * * * SELLER DUTIES * * * * * * * * * * * * * * * * * * *

1) SELLER DUTY: Send a copy of the existing Survey to the Buyer, the Buyer's Agent and the Title Company. If a new Survey is needed it is normal for the Buyer to pay for the new Survey, however, the cost of any new Survey can be negotiated within the contract to be the responsibility of the Seller or the Buyer. If the old Survey is not acceptable to the Title Company or the Lender then a new Survey must be ordered. If the Seller is responsible for this cost then the Seller must make sure that the new Survey is provided in a timely fashion.

2) SELLER DUTY: The Seller must provide access to the property to the Home Inspector, the Appraiser, and any other parties that are appropriately in need of access to the property. Normaly, the other parties who may need access are specialists for engineering and systems that the Home Inspector found some fault or potential fault with during the Inspection process. A list of such parties could include Foundation Engineers/Inspectors, Roof Inspectors, Electrical Contractors, HVAC Contrctors, and others who may be called upon by the Buyer to repair items found in need of repair during the Inspection of the property.

3) SELLER DUTY: The Seller must provide the Title Company with contact information for the current lien holder so that the Title Company can determine an accurate payoff amount for the loan as of the date of closing. The Title Company may need a variety of specific information and the Seller must provide all required information in a timely fashion to prevent problems that could delay the closing date.

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Unless unexpectedc problems arise the above list of duties for the Buyer and Seller will be all that is required up until closing. Then both parties will schedule appointments to close with the Title Company and show up with valid legal identification of identity and any funds required in the form of money orders or cashiers checks.

If you have any questions or comments please contact Lee Thurburn at 972-470-5888.