Real Estate Closing Issues: How Sellers & Buyers can help residential real estate transactions close more smoothly.
Are you or a relative or friend in the process of buying or selling a home? You/they might want to keep these factors in mind, to help facilitate that transaction:
There are several recurring residential real estate transaction issues that appear most of the time:
2. INSPECTION REPORT FINDINGS
3. LOAN FINANCING
4. MULTIPLE BACK-UP OFFERS
5. MY STUFF’S WORTH A LOT
Yeah, we know: you paid $4,000 for that overstuffed leather sofa 10 years ago. And you think that you need to get that much out of it, or at the very least, half of that.
Guess what? Nobody cares what you paid for it. It’s USED furniture. You would be lucky to get $500 for it at a consignment shop. So, if you are the Seller, and you demand high value amounts for your furniture, can you guess what’s going to happen when your Real Estate Broker presents your high-value pricetag for your precious used furniture?
The Buyers are going to very likely say: “Keep it. We don’t want your used furniture anyway. We’ll buy new stuff.”
Then, do you know what happens? The Buyers will demand that the Seller REMOVE all that wonderful used furniture and clean the floors. So where will the Seller move all that furniture? To a storage unit, where the used furniture then gets moldy and becomes totally worthless. And actually less than worthless, because now the Seller has to pay thousands of dollars to move all that furniture out of the house being sold, and transported to a storage facility, which will be a monthly tax on the Seller, every month for the rest of the time the Seller hangs on to that. Or, the Seller might eventually have to pay thousands of dollars again to either donate their old furniture to Goodwill (for a modest tax write-off), or ship it to a consignment shop, where it will sell for pennies on the dollar. Neither of these options is good for the Seller.
For a better result, the Seller should instead ASK THEIR REAL ESTATE BROKER for a realistic value to assign the existing furniture in the house, then offer it to the Buyer for that lower reasonable price. That way, the furniture conveys as a modest premium to the sales price, and the Buyer obtains the value of having furniture in the house, so they don’t have to buy furniture, and the Seller obtains a bit of a bonus to the home sales price, and never has to deal with that furniture ever again. Everybody wins. That’s what Sellers and Buyers want. Sellers need to not be greedy with their sacred treasured furniture. It’s only worth what someone will pay for it, not anywhere near what the Seller originally paid for it.
Lesson learned: don’t be greedy with used furniture: sell it for what you can get and be happy.
2. INSPECTION REPORT FINDINGS
Inspection report issues, particularly those in the Summary of the report often must be dealt with or the Buyers may walk away. Once a contract for sale is signed, guess what? The Seller in committed until and only if the Buyer walks away from the deal. And the Buyer can and often will walk away if the Seller does not do one of two things in response to inspection report deficiencies:
a. Pay their own Contractor to fix the most significant problems discussed in the report.
b. Agree to a negotiated lower dollar value credit to the Buyer as consideration of not fixing the most demanding problems.
It is during this phase that Sellers often say things like: “Well, I’ve lived here for 10 years and we’ve never had a problem with these things. We’re not going to do anything to fix anything. Take it or leave it. Humph.”
And the Buyers respond: “If you don’t fix items 1, 14, and 25, we’re going to walk. Take that or leave it.”
Obviously that sounds like a stalemate. However, there is one golden rule about real estate transactions that Merry Soellner, CLHMS, RSPS, Real Estate Broker says: “BUYERS WANT TO BUY AND SELLERS WANT TO SELL.” Merry is correct. That golden rule of Real Estate helps brokers who persevere to weather these troubled waters.
Here’s what often happens: the Sellers Real Estate Broker discusses the Inspection Report’s most prominent major deficiencies, reasoning: “Now that you know that you have Radon Gas in your house above the CDC’s recommended maximum level and that radon gas is the leading cause of lung cancer (after smoking) in the USA, don’t you want to correct that asap, even if you continued living here, for your own health?”
Or: “Now that you know your roof is leaking and starting to rot your roof deck, don’t you want to fix that, even if you weren’t selling your house?”
Any reasonable Seller would usually agree: that they don’t want to catch lung cancer or have their roof rot, and they would either have their own Contractor fix those things, or ask how much such repairs would cost, then credit those amounts (or some amount) to the Buyer in the sales transaction. And oftentimes, crediting SOMETHING, is all it takes for the Buyers to feel like there has been a reasonable give and take of value for value, which usually resolves the otherwise hotly contested Inspection Report.
Lesson learned: Cooler heads prevail. Be reasonable: both Buyers and Sellers.
Note to Buyers: buying a used house is Not like buying a shrink-wrapped Tonka toy brand new from Toys ‘R Us. You are buying a very large, used house that has been subjected to years of rain, wind, Ultra-Violet sun, snow and ice and wear and tear. It ain’t new. Get over that.
3. LOAN FINANCING
With the lower real estate loan % these days, many Buyers want to finance their real estate home purchase. Unfortunately, due to the large amount of real estate loans, the appraisers and underwriters are backed up weeks or months, in many cases. This does NOT help close a real estate purchase. It typically antagonizes the Sellers, because the Buyer is forced to request/demand additional time before they can close the sale, because they won’t get the loan money until after the appraiser and underwriter are done with their tasks of endorsing the purchase amount and acceptability of the Buyer’s financial ability to repay the loan.
Lesson learned: Seller needs to be generous with time extensions, allowing the Buyer’s financing sources to perform their due diligence. Also: Buyer should be forward-leaning well before they even make an offer on any house, and seek Pre-Approval on their ability to pay back a loan of a particular amount. This can facilitate the final loan approval for a specific house.
4. MULTIPLE BACK-UP OFFERS
While many Sellers want multiple back-up offers, this can become the bane of the Real Estate Broker.
Why: because Sellers then have the illusion that they can pick and choose the best offer and cast the lower offers to the side. NO. They cannot do that.
Why: because most state real estate forms of agreement cannot be changed, and typically those state contracts do NOT allow the Seller to dissolve the contract, once both the Seller and the Buyer have signed them.
Now then, the Buyers are typically allowed to cancel the purchase contract for no reason at all. They can simply walk away, at any time before the closing.
What does this mean for the Seller: the Seller is stuck with the deal they made. However, the Buyer can walk away.
Therefore, the Seller CANNOT dissolve the signed contract with the first signed primary contract Buyer.
This situation is not appreciated by the Seller. They object to not being able to accept any of the back-up offers they have. They want the most money they can get for their house/land. Of course. Who wouldn’t? But the only way they can dispose of a primary offer is to not agree to any changes the primary Buyer wants to make to the signed contract, such as: the Buyer demanding that certain repairs be made to the home, or be credited to them at closing. The Seller, if they want to abandon the primary contract buyer can simply refuse to make or credit any such repairs the Buyer wants. If this sufficiently antagonizes the Buyer, then perhaps the primary Buyer will walk away and terminate the contract. That’s one of the few ways a Seller can take advantage of back-up offers.
In general, back-up offers make life difficult for real estate brokers. They have to start all over again with new Buyers and new Buyer real estate brokers to negotiate a deal for the sale, which includes going through the entire process of another Inspection Report (unless the previous one is offered, which is not always the case), the furniture issues, financing issues and new multiple back-up offers.
And there’s a very good reason why back-up offers could not be in the best interests of the Seller: Imagine a circumstance in which the New Buyer has a new Home Inspection Report done, and in that new Inspection Report, ADDITIONAL, more expensive deficiencies are listed, because the new inspector is more experienced (no two inspectors are the same). Therefore, now, the New Buyer is demanding much more financial consideration in the form of credits at the closing than the previous primary Buyer. Meaning that the small additional negotiated purchase price is consumed by increased demanded credits toward that price, offsetting the increased purchase price and in fact may result in a LOWER amount at closing for the Seller.
Lesson learned: often, the first offers are the best. Before the Seller casts aside the primary offer, they should ASK THEIR REAL ESTATE BROKER whether they should hang in there with the primary offer, or consider a back-up offer.
5. MY STUFF’S WORTH A LOT
Every single Seller in the world KNOWS that their stuff is worth a mint. Because they bought it and they believe it is wonderful.
Guess what? No one else in the Universe likes your polka-dot wall paper. Or your new mulch. Or your paint, or your renovated rumpus room. YOUR REAL ESTATE BROKER PRODUCED A COMPARATIVE MARKET ANALYSIS (CMA) when they started as your Broker. Trust them. Trust that CMA. Your carping about how you paid $10,000 for a the wonderful refrigerator or stove, or washing machine or light fixture, does NOT increase the value of your home. Let’s hear that again: Does NOT. Just because you believe it does, or your friends believe it does, does NOT. The Real Estate Broker’s CMA is the comparative value of other listed and sold homes and properties in your area. The fact that you and only you, like something that has sentimental and personal value in no way materially increases the value of what a Buyer will pay for it.
Lesson learned: listen to your Real State Broker and their CMA, because that’s what the Buyers are looking at (their Broker’s very similar CMA).
Real Estate Closing Issues: Both Buyers and Sellers can learn much from the above article and greatly smooth their path to a successful closing.