Classic risk aversion for the liability-phobic mandates that an agent make no actual referral to an auxiliary service provider in the course of a Real Estate transaction. Need a lender? Here are the names of three professionals. Need a home inspector? Sift through this stack of business cards and let me know who you choose to hire. The very thought of shimmying out on a limb to recommend a capable practitioner sends shivers up the clenched backside of some in our ranks. Cold anticipation of the potential commissionectomy that attends a referral gone bad trumps the tug of responsibility.
No businessman walks around looking for a financial colonic, but the very real potential for having his inner sanctum legally hollowed out exists in each and every transaction he undertakes. As such, it has become customary for many to simply ward off as much exposure as possible by abstaining from any form of guidance that can later be labeled malfeasance or conflict of interest. Heaven knows, if the contractor you recommend for repairs screws the electrical pooch, any rabid attorney worth his salt will gleefully encourage the client to pursue the deep pocketed brokerage (and agent by proxy) as well as the contractor for damages. Why put yourself on the line by recommending a home inspector when the potential for blow-back on a balky A/C unit can put you directly in the cross hairs? For that matter, why even bother to attend the inspection if the due diligence can be misconstrued for interference? Why attend closings if your review of the documents places increased responsibility upon your shoulders for their accuracy?
Because risk deflection is not my job.
My job is to fulfill my fiduciary obligations to my clients to the very best of my ability. That means recommending pros who have proven their worth to me countless times in the past, rather than crossing my fingers and hoping my clients receive competent service. That means attending inspections to physically see any defects, so as to better advise my clients and argue their cases. That means attending the closing to ensure that the settlement statement jives with the negotiated terms of the contract.
Doing the eeny-meeny-miney-mo thing with a referral does not serve the client, and neither does calling in “neutral” to the appointments that demand an ally. Such laissez faire Real Estating is designed only to mitigate the agent‘s risk. While it is understandable, given the litigious nature of our culture, it’s just not how I roll. You need a lender, I give you the name of the best lender I know. You need a home inspector, I give you the name of the most thorough one in the rolodex.
I would argue that recusing oneself from the crucial junctures and decisions of a transaction is not only negligent, but self-defeating. As the surest invitation for catastrophe is to stand aside and watch the transaction happen, the best defense is, and always will be, a good offense. Fixing potential problems, rather than hiding from them, has kept my clients happy, and me out of legal hot water to date. Active involvement serves the interests of all parties.
I wear my big boy pants to work every day. I put them on with the knowledge that certain forces will always be beyond my control. Secure in that understanding, I’d much rather stand behind the repercussions of my actions than my inactions. Standing on the sideline, not attending inspections & closings, carefully avoiding opinions … seems to me that ascribing to the Caspar Milquetoast model of risk avoidance is, ironically, the surest route to the ruin that one would desparately scramble to avoid. Decreasing the standard of care for the client is akin to an RSVP for trouble.
And trouble never sends its regrets.
Need a Referral to a Local Professional? Give me a ring. I’m not afraid of my own recommendations.
Tired of getting your teeth kicked in by competing buyers on the homes you try to buy? Wonder what sellers are thinking when they reject your offer time after time?
You’ve landed on the right blog. Let’s take a quick look at a few critical components of an offer through a seller’s eyes to find out exactly what is keeping that elusive new home out of your reach.
Pre-Qualification
This is a big one, particularly in a competitive situation in which the seller is entertaining multiple offers at the same time. Back in the day, virtually anyone with a pulse was a good bet to secure the necessary financing to complete a transaction due to lax qualifying standards. These days, the banks want a faxed copy of your baby as a pre-funding condition. As such, you are banging your head against the wall if you don’t have an iron-clad pre-qualification letter from your lender to present with your offer. And I’m not talking about a bare bones letter in which the qualification is based solely upon a conversation, you’re going to want to have the boxes checked that indicate your pre-qual (pre-approval is even better) is at minimum based upon a tri-merged credit report and review of recent bank statements. Got two years of tax returns and recent pay stubs to your lender already? Even better.
Don’t save the pre-qualification step for the last minute when you’re frantically trying to submit an offer on a hot, new listing. Taking the time to prepare a rock solid pre-qual in advance can be the difference between being a buyer and being a shopper.
Financing Type
Most buyers are somewhat hamstrung on their financing options these days as down payment options tend to dictate the ultimate vehicle chosen. That said, it is important for you to know what the seller sees as a limitation of each loan type so as to find a way to overcome the likely objection(s) within the framework of your program.
FHA Loans – Dormant, by and large, during the boom when low (and even no) down payment options were plentiful in conventional financing, FHA loans have made a comeback in a big way in the Scottsdale market. Sellers will have two major concerns with your FHA offer.
First will be closing costs. As most people opt for FHA because it opens up the door to a 3.5% down payment, it is not uncommon for these buyers to have a little less saved up for the closing costs that piggyback a home purchase. If you are loading 1-3% of your costs onto the seller, be mindful that you are not actually offering the price you put on the first page of the contract. All that matters to the seller is the net. If you are trying to get your closing costs covered, you might have to boost your offer price commensurately.
For example, your 150k offer on a 150k listing is not truly full price if you are asking the seller to pay 5k in closing costs. To make your offer reflect an effective net full price, you’ll need to offer 155k.
And hope the appraisal can justify that amount.
Which leads us to the second major financing concern, the appraisal itself. Not only do FHA loans require FHA-certified appraisers who scrutinize the condition of the property for inhabitability (no exposed wires, utilities must be on and functional, etc), but sellers and their agents will expect the appraiser to be far more conservative with the ultimate evaluation due to the high loan to value ratio. The lower the down payment, the higher the risk to the bank. That tends to bring a little more heat down on the appraiser to bring in a value that will survive heightened scrutiny from a constipated underwriter.
VA Loans – VA loans are like their FHA cousins on steroids, at least from a seller’s perspective. We all love our troops … until they try to buy our homes. A seller sees your 100% financed loan and does not see an army of one, he sees an even more anal retentive appraiser and underwriter who would like nothing better than to blow up the sale of his home.
Peeling paint in a home built before 1978 (subject to lead)? He’s gonna have to scrape it and repaint.
Last good round of sales comps older than six months old? That’s bad enough on a conventional loan in which the bank is only investing 80% of the home’s value, but at 100%?
Shoot …
Sellers also expect to get stuck with buyer closing costs (sellers MUST pay certain costs with a VA loan), so it’s not the favored financing type for many.
Let us not forget about the time factor. Most lenders will want about 40-45 days to process both FHA and VA loans, due in large part to the red tape created by the government backed programs. For the seller who wants a more standard 30 day close, this is not as appealing. You might have to build in some additional incentive for the seller to select your offer with the longer close, such as additional earnest money at the midway point, slightly higher purchase price, etc.
Conventional Financing – Conforming to Fannie Mae guidelines, conventional loan programs typically require higher down payments (5-20%) than their kin. Sellers like this because it means you have more ‘skin in the game’. The appraisal is less of a white-knuckle experience given the lower LTV (loan to value ratio), and the seller expects you will be much more likely to ultimately secure the loan and close escrow. While certainly not outside the realm of possibility, a 20% down conventional buyer is less likely to ask a seller for closing cost assistance.
Outside of the cash offer, the granddaddy of them all, conventional financing is looked upon most favorably by most sellers.
Down Payment
Touched on this above, but bears isolating for repeat. The more money you are showing as a down payment in your offer, the stronger I, as a seller, think you are and more likely to close. Your lender will not be as hypercritical in approving a loan with 60% LTV versus 95%. The appraisal will be less of a hurdle, and failing to hit the sales price won’t be insurmountable (you have the resources to pony up cash to bridge the shortfall). Further, I expect you have some leeway on potential inspection issues if you have deeper pockets. The guy putting everything he has in the world together to complete the purchase won’t have much room to make improvements/repairs after closing.
That scares me as I expect you are going to try to kick my ass for every loose screw and squeaky hinge in the inspection report.
Cha-ching.
Earnest Money
One of the easiest places to score points with the seller is the bolstering of the ‘good faith’ money you place in escrow upon contract ratification. In our market, 1-3% would be considered a typical earnest deposit. The more you can put down, the more appealing to the seller. With several ‘outs’ along the way to reclaim this money in the event of a poor home inspection, loan denial, low appraisal, etc, the shrewd buyer will offer to place an eye-catching deposit in escrow. If the deal goes south, provided that it is not due to your own breach of contract, this money is recoverable. If the deal goes through to closing, it is applied to the total due at closing. It IS NOT an additional fee.
If you can afford to do so, go outside the box a little with your earnest deposit when you know you are competing against other buyers. It doesn’t end up costing you anything more unless you breach the terms of the deal.
Don’t do that.
If you reflected, say, $500-1000 in earnest money on your last stab at a $200,000 house, you limped in with your offer, regardless of the accompanying terms. Show weakness in the good faith money you show me, and I think you are either a) not committed to the deal, b) broke or c) both.
Terms
Believe it or not, sellers pay attention to those little throwaway items in the contract outside of price and ability to close.
That home warranty policy you want the seller to pay? That’s $350-550 off the bottom line. While a typical buyer request, you need to be cognizant of circumstance before automatically checking the ‘seller’ box in the contract. Is it a bank property? Are there other offers on the table (or likely to be due to the great value, time on market, etc)? Might want to rethink its inclusion in some cases.
Likewise, don’t check the boxes in the HOA addendum (if applicable) loading all transfer cost onto the seller without some thought. If it comes down to you and another comparable offer, don’t be the guy that sabotages himself over a couple hundred bucks.
The inclusion of personal property in your offer can be a mistake in a competitive market. Sure, those Maytag Neptunes are great, but do you really want to scuttle your chances of getting the house over the washer and dryer? You can ask for the fridge if there are no other offers at play. Deal?
Writing your offer subject to the sale of a current residence? That’s a huge no-no in a competitive situation. As a listing agent, I tell my seller that there is still a property that needs to sell for the deal to work, so you are no closer to the closing table. Worse, you now have no control over the property being sold. Banks and short sale sellers feel the same way. Get your home sold before approaching sellers if you want to stand a chance in a competitive arena.
Give the seller his/her preferred title company. This one is easy. As long as the company is reputable, it’s easy to score points with the other party by acquiescing on items that don’t cost you anything. A pre-requisite of purchasing a bank property to accept the seller’s choice of title company, it’s not a bad idea to include the question of “Does the seller have a title preference?” in the conversation with the listing agent that precedes your offer on a mom & pop resale, too. You know, the same conversation in which you ask about preferred closing dates and such?
Purchasing ‘As Is’ is fairly common in the current market as few sellers have the equitable wherewithal to actually make repairs. If you are looking at short sales and foreclosures, it is a given. You can sweeten the deal for a resale seller and differentiate your offer from competing ones by making your offer ‘As Is’ for his property as well. If framed properly, you will still maintain your full rights to a property inspection, with the ability to cancel the transaction if the home’s deficiencies are too numerous/costly. You alleviate the seller’s obligation to repair broken items, but you are not obligated to complete the transaction if you are dissatisfied. Offering to purchase ‘As Is’ can be a good tie-breaker in a multiple offer scenario, but employ with caution.
And for Pete’s sake, don’t let your agent write a short story’s worth of verbiage into the constructive language section of the contract. Not only do agent’s get themselves and their clients into trouble by unwittingly practicing law through the amateur construction of legal terms, but filling this page up is the antithesis of a ‘clean’ offer. Keep it simple, and don’t scare the seller off with Perry Masonesque flair. Half the stuff that shows up here with regularity is already covered (more adequately at that) in the boilerplate.
Remember: The AAR contract is nine pages (plus addenda) of carefully crafted legal verbiage that was composed by attorneys smarter than you and your agent.
Price
I saved this one for way down the page because it should be the most self-evident truth this side of pain hurts. You lose the privilege of complaining about non-accepted offers if you keep trying to negotiate more off the asking price than the market permits.
The Listng Agent Never Received Your Offer
Your offer was good. Your offer was clean. The home will be yours by Halloween.
Or it would have been had the listing agent ever received it.
Sad but true fact, I have received numerous offers over the years without so much as a headsup call that one was on the way, let alone a followup call from the buyer’s agent to confirm that it actually arrived. For all you know, the offer you spent a day or two considering and several hours drafting might have ended up in a spam folder or faxed to Sri Lanka if that simple precautionary step is not taken.
Inconceivable? It happens all the time.
Further, if you don’t let the listing agent know an offer is en route, you risk the possibility of the seller accepting another offer in the interim.
Don’t let your agent be lax. Make sure your offer gets where it’s going.
Sidenote: When I receive an emailed/faxed offer that is not preceded by so much as a phone call from the buyer’s agent, I know it’s going to suck. Food for thought.
You Are Competing for the Wrong Properties
Allow me to move from the seller’s side of the table back to yours, doffing my cap as your friendly buyer’s agent. If you keep losing properties despite gussying your offers up in accordance with the advice herein to make them as attractive as possible to unimpressed sellers, it is quite likely that you have simply set your self up for failure by targeting the wrong homes. This phenomenon is most prevalent in the lower price ranges where investors and second home buyers make it difficult for cash-strapped, first-time buyer to compete. Competing against cash or high down payment conventional financing, the poor SOB writing clean, full-price FHA offers doesn’t stand much of a chance.
Stop throwing your hat in the ring on properties you won’t get unless you really don’t care for your hat. Cause it’s gonna get trampled.
You will have much better chances for success by targeting homes priced a little higher and negotiating down rather than starting at the basement where the Daddy Warbucks of the world are busy chasing the prices up.
Go find the lonely seller who is priced just above the scrum.
Getting drubbed in the bidding wars at 150k? Look at the inventory for comparable properties at 175k. Odds are, despite the discrepancy in list prices, the ultimate selling prices won’t end up that far apart.
Bolster the weak points in your offers, isolate the right properties and you, too, can have success in this market.
Now get back out there and make someone an offer they can’t refuse.
Rochelle Laraway waited the three seconds it took for her husband to look up from his notes.
“Toots,” the software engineer questioned, pulling his keen eyes from the meticulously organized data on the yellow legal pad.
“Mr. Bartowski,” Rochelle replied. “Don’t pretend you didn’t notice.”
She pinched her nose and waved a hand in front of her face; her flawless skin scrunched up against an imagined stench.
“That’s just mean, Ro,” Shane scolded, unable to suppress a smile. “It could be a medical condition.”
“Yeah, gluteous halitosis,” Rochelle countered with a laugh. “I’m sorry, but he smells like rotten eggplant.”
Shane threw his hands in the air; exasperated, as always, by his wife’s unparalleled aversion to pragmatism. Who knew choosing a Real Estate agent would be the first real test of their young marriage?
“We’re not getting anywhere here,” he declared, focusing on her thick eyelashes as they batted once, twice, thrice.
“Really? I think we are making some progress,” Rochelle argued.
“Progress,” Shane wondered. “Thus far, we have determined that Mrs. Dahl has a voice like shrapnel and reminds you of my mother …”
“Grr,” Rochelle growled.
“… Mr. Shroeder, or should I say, Jerry Maguire,” Shane continued, “is too slick.”
“Show me the money,” Rochelle squealed.
“And now poor Mr. Bartowski is a touch malodorous,” Shane finished.
“A touch malodorous,” Rochelle gasped. “The man is a walking septic tank!”
Shane bent back over his notes, tugging on the sleeve cuff of his lightly-starched cotton button-up exactly three times before picking up the pad.
“I knew it would come to this,” he confided. “So I went ahead and compiled a list of pros and cons for each candidate.”
Rochelle slouched back in her chair with arms crossed. Her dark eyes brimmed with skepticism. She was stunning.
“To take emotion and irrelevant personality quirks out of the equation, I assigned each one a number at random,” Shane said. “Remember, Ro, we’re selecting a Real Estate agent, not a travel companion.”
Rochelle remained silent.
“Agent number one is a twenty year veteran of the business. Strong interpersonal skills, strong sales record,” Shane began. “Numerous productivity awards and industry designations. Works for a boutique brokerage that specializes in both our area and the luxury market.”
“Likes pina coladas and getting caught in the rain,” Rochelle deadpanned.
“Negatives,” Shane continued, ignoring her. “Unimpressive web presence, including a non-user friendly website. More emphasis on print marketing than internet advertising. High commission rate.”
Shane waited a beat, expecting another retort from the resident smart alec. When he didn’t get one, he continued.
“Agent number two is a sixteen year vet. Decent web presence. Equal emphasis on online marketing and traditional methods. Not as many sales in our neighborhood as Agent One, but more total sales in the last twelve months. Works for a large brokerage with a national buyer referral base. Slightly better commission rate.”
“Go on,” Rochelle prodded, warming to the analytical approach despite herself.
“Chief negatives include a high volume of listings, and being slightly out of area. Will our home receive the attention it requires? Will we get passed on to an assistant?”
“Agent number three is the most tech savvy,” Shane continued. “Amazing website, near the top of virtually every Google search term for our area. Very user-friendly. More reliance on tech than traditional marketing means less intrusion from tour groups and open houses. Best commission rate of the bunch. Very aggressive.”
“Negatives,” Rochelle prompted, now leaning forward with elbows on knees; the palms of her hands supporting her delicate chin.
“Only four years in the business,” Shane obliged. “Fewest total sales, none in the immediate neighborhood. Never heard of the brokerage.”
“Number two,” Rochelle announced.
“Just like that?”
“Yes, just like that,” she confirmed. “And that’s your choice, too.”
All Shane could do was smile. Married less than a year, and she already knew him inside and out.
“See, babe,” he crowed. “Logic and reason. It’s all about choosing the right tool for the job, not a best friend.”
“Shall we meet our agent,” he asked with a wry grin, tapping the notepad three times before flipping the page.
“Drumroll, please,” he requested.
Rochelle obliged by rolling her tongue and patting her designer blue jean-clad knees.
“And the winner is … Hans Bartowski!”
Rochelle groaned and buried her head in her hands.
“Reshuffle the deck,” she instructed through her fingers. “We are not listing with Captain Flatulence.”
“You mean Toots,” Shane corrected as he tore the sheet of paper from the pad, folded it three times and set it aside.
“So now what?”
“We tried it your way,” Rochelle advised. “Now we try mine.”
Now it was Shane’s turn to groan as he emptied his mind of reason and held on for the ride.
One of the more confounding logistical quandaries that can arise in Real Estate is the classic chicken or the egg paradigm: Does one sell a house before knowing where he is moving, or does one buy a new house without having his current one sold?
No doubt, the dilemma of which cap to doff first has vexed many a consumer. Selecting the correct course of action is dependent, like most things, on a variety of factors. For the sake of clarity, we will keep things simple.
If you have a boatload of equity in your current home, have flexibility with the ultimate selling price and have the financial wherewithal (cash in hand or the ability to obtain a new loan that is not conditional upon the sale of your home) to purchase a new home prior to selling your existing one, then you are the rare individual in the enviable position to call your shot. To eliminate the prospects of a double move and the fear of obligating yourself to the sale of your home without clear knowledge of where you are heading, you will likely opt to buy first. Especially if you are not convinced that the home of your dreams is lurking in the market at present, it makes sense to locate the next property before committing yourself to the rest of the process.
As most buyers are reliant upon the proceeds from their current house to purchase a new home, however, the above scenario is a pipe dream for the less well-heeled. Most will face the stark reality that they are simply hamstrung on a purchase until they sell their existing house.
So how does one combat the fear of committing to destinations unknown when putting a home on the market?
The ideal method is to negotiate a purchase that is conditioned upon the ultimate sale of your home, but few and far between are the sellers who will entertain straight contingent offers of that ilk. The preponderance of bank owned properties and short sales in the present market makes the task even more arduous as contingent offers are simply not entertained by the banks. Only the most patient seller will take a flyer on an offer from someone who has to sell a property to make the deal work. And if you happen to find such a rare bird, you’ll likely have to overpay for the home due to the weakness of your position.
When purchasing first or conditionally is not an option, the best compromise is to make your offers after you have accepted a contract on the home you are selling, but before it has closed escrow. With a buyer in hand, it is considerably easier to approach another seller with an offer. More attractive than a straight contingency in which you still have to line up a willing buyer, you can structure your offer to be subject to the successful close of escrow of the contract currently in place. This is not only more appealing to the seller, but if you have negotiated a longer close of escrow on the home you are selling, you can build in a little time to locate a property and negotiate a contract, thus avoiding a dreaded double move. Timing the closings can be tricky, but if done correctly, you can move directly from one home to the other without having to put your gear in storage while you, the kids, your dog Sadie, and the goldfish check into the Holiday Inn for a few weeks.
Naturally, to make this scenario work perfectly, you have to do your homework in advance. Even prior to listing your home for sale, start looking online at the available inventory. Get in the car with your agent to look at homes that fit your parameters. Get preapproved with your lender so that you are ready to pounce at a moment’s notice, as the right home for you is often right for someone else, too. Wasting time getting your preapproval in place after you find the property opens the door to not only unrealistic window shopping, but losing an ideal candidate to a buyer who is one step ahead. Do your due diligence up front and you’ll be ready to enter the scrum as soon as your home attracts a buyer.
To be sure, coordinating the near simultaneous buying and selling of homes is a stressful undertaking. You will experience Exorcist moments in which your head spins around a full 360 degrees. Understanding the process and the steps you can take to increase your chances of success will limit the projectile vomiting, however.
So which comes first, the chicken or the egg?
It varies from coup to coup, but in the end, it’s all protein.
I must confess, most solicitations to follow a local business on Twitter, Facebook or any other recently-sprouted head of the social media hydra are met with the same level of enthusiasm I once harbored for an extra trip to the orthodontist.
Sure, I’ll “like” your fanpage! And maybe later we can head over to Dr. Evil’s office for a superfluous tightening!
While following another’s social exploits is comparatively painless, it is often every bit as pointless. Today’s consumer is besieged with invitations to like, follow, connect, kneel and kiss the rings of businesses across the myriad social platforms. It’s not enough that you subscribe to the blog or sign up for the newsletter, they must own you everywhere their online profile intersects with the public.
But to what end?
Why must you “follow” someone here if you already “like” them there? What additional benefit do you gain from this demand for universal allegiance?
Social media efforts tend to be a cross-pollinated mess. Good little worker bee that I am, my own marketing “campaigns” in this forum are no exception, having devolved into a black hole of pithy renduncy. A blurb on twitter, a joke on Facebook, links to new listings and blog posts on each … I have really provided no compelling reason to follow me or my business across multiple venues.
Until now.
Henceforth, I will be using the Scottsdale Property Shop page on Facebook to exclusively promote the “Scottsdale Foreclosure Value of the Day” and other daily property bargains that catch my eye. Not really blog fodder, it’s more at home on our fan page than within the confines of this site. While you, the consumer, can continue to perform your own home searches and sign up for listing alerts here, you’ll want to fan up our page to follow along with these pre-screened daily property selections.
You can continue to comb through the MLS for the best values yourself, or you can let us do it for you. Your choice.
Sure, there will still be a little of the humor and observation that tinges everything we do, but the page itself will be purposeful, not just another outlet for promoting this site.
So what are you waiting for? Now that there is an actual reason to do so, go ahead and “like” us on Facebook. You won’t feel a thing.
Oh, but the Twitter handle? @PaulSlaybaugh is still reserved for nonsensical shenanigans. Follow at your own intellectual peril.
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Why: Because you need a house, and I’ve got the best one in South Scottsdale listed for sale! When: Sunday, July 24th, 11am – 3pm Where: 4001 N. 86th St, Scottsdale, AZ 85251 (Right there ↓)
$229,000 – Vintage South Scottsdale Tri-Level Home For Sale
Location: Park Scottsdale
Tired of short sales and foreclosures? This vintage Scottsdale basement home will cure you of market malaise. Situated within minutes of Old Town Scottsdale (downtown), the Loop 101 freeway, Sky Harbor Airport, ASU, SCC and, well, everything else you like about Scottsdale, the home has been meticulously maintained by the original owner. Boasting 4 bedrooms, 3.5 baths, bonus room and nearly 2400 square feet, this tri-level includes a new roof (2011), newer A/C (2004) and 2006 kitchen remodel. Priced to compete with the banks, but with the ease and confidence of a traditional resale home, why consider bombed out foreclosure wrecks and interminable short sales when you can get a timely response for a superior property? It’s the best of all worlds! Contact us today for your private showing before someone else takes advantage of this incredible value.
