SELLER FAQs
After a collective 37 years in real estate, there are many questions we are asked on a regular basis. Because our goal is to make the selling (and buying) process as easy as possible, we wanted to share a few of these questions. If you’re seeking to take the first step towards selling your home or would like a little more information on a specific part of the process, we hope you find this helpful. If you don’t see your question below, contact us today as we are happy to provide an answer.
Pre-Listing: Choosing a Good Time to Sell
If you are selling AND buying then there really is no best time to sell. If you sell low, you will buy low. If you sell high, you will have to buy high. All you are in effect doing is moving equity to suit your current housing needs. That being said, it follows that there is no need to procrastinate and when you should sell will be determined by your personal circumstances. If you are only selling and not buying then timing is crucial in determining whether you will maximize the money you will receive from selling this very important asset. The bests time to see is when we are in what is considered to be a “seller’s market.” A seller’s market arises when we have a great buyer demand and a shortage of inventory. Another determining factor as to whether it is a good time to sell are the sales prices being currently achieved and how these compare to prices which have been achieved in the last few years. Mortgage interest rates will greatly affect the buyer demand as buyers are more likely to shop for a home when interest rates are low. Finally, for anyone selling from abroad, money exchange rates can greatly affect whether this is a good time to sell. At a time when prices may not be at the top, but exchange rates to the homeowner’s homeland are favorable, it may be a good time to consider disposing this foreign asset. We are able to offer advice on all these determining factors.
Here in Florida, selling a home is not particularly affected by the seasons as with our excellent weather year-round, buyer interest stays constant throughout the year. We may find a slight increase in buyer activity for primary homes during the long school summer break with buyers wishing their home transition to have the smallest effect on their children’s schooling and to not move their children to a new school while the school year is already in progress. On the other hand, activity for vacation homes tends to be high during holiday periods as visitors come to enjoy Florida and while here on vacation, make the decision to shop for a vacation home.
Pre-Listing: The Role of a Realtor
Not all real estate agents are Realtors. A Realtor is a trademarked term which refers to a real estate agent who is an active member of the National Association of Realtors (NAR). Founded in 1908, NAR is the largest trade association in the U.S. Realtors pay annual Realtor dues to their local Board of Realtors. Their local Board will also provide them will access to the required continued education real estate classes to enable them to qualify for their bi-annual license renewal. At this time, according to NAR, approximately half of the real estate agents in the U.S. are Realtors. All Realtors are required to adhere to strict Code of Ethics and 17 additional articles which have been created by NAR so consumers know that they are working with agents who have been thoroughly vetted and have sworn to uphold certain professional standards. We are Realtors so you can be sure that we shall be placing your interests before ours and conducting our business in a professional and ethical manner.
As Realtors, we shall be there for you from our very first conversation, right through the preparation and selling process, to answer any post-closing questions you may have after the sale of your home. We shall be the main instigators and coordinators of your home sale, making sure that all other involved parties are carrying out their duties in an appropriate manner to bring about a smooth and timely closing. Our goal is to obtain top dollar for your home for you in the shortest amount of time, while also protecting you from all the hassles and stresses of selling your home. We shall discuss with you if this is a good time for you to sell. We shall look at your home’s value and compute for you your expected net after covering the costs in connection with your sale. Lastly, we shall market your home until we find a buyer whose offer you wish to take and will negotiate the offer for you and see your transaction through the inspection and appraisal stages to the closing table.
You definitely want a Realtor with experience, but specifically you need a Realtor that is highly experienced in the intricacies of assisting you with the sale of your particular property. That Realtor will also need to have access to a highly trained group of efficient affiliates, such as: a title company; loan consultant; inspector; accountant; appraiser; and in the case of a foreign national seller, a foreign money exchange advisor, to assist you will all aspects of your home sale. You also need a Realtor with high-quality marketing that casts the widest net possible to attract as many buyers to your home as possible, in order for you to obtain the highest price for your property.
When you choose the Aistrop Team to help you sell your home, you are getting the expertise of a mother-daughter team that combines the best of old- and new-school approaches to real estate sales, so you benefit from the skill sets of two generations. If you want great negotiation skill, robust showing follow-up, detailed market updates, or a friendly voice at the end of the phone to answer any questions you may have, you will chat with Irena. If you are interesting in receiving professional photography, drone footage, 3D interactive tour and videography, best-in-class marketing, Suzanne will be taking care of that What is great is that you will get two agents from two generations for the price of one! We are able to assist you with the sale of a residential property whether it be a condo, townhome, single family home, villa, or mobile home on its own land. We are not able to help you with the sale of a mobile home that is situated on rented land as that is not considered to be real estate. We are also able to help you with the sale of land, a multi-family home or a commercial property.
Should your home already be in the hands of a management company because you run it as an investment rental and that management agent happens to have a real estate license, please consider there three important facts before you run to list your home for sale with them. (1) Your management agent helping you sell your home is a conflict of interests as obviously your management agent does not wish your home to sell due to losing a valuable part of their rental inventory. (2) If they are already working a management business, they are unlikely to have the time to deal efficiently and effectively when representing you with the sale of your home. Additionally, the amount of actual real estate business they conduct may be very small, making them lesser experts than someone who is working solely, and on a full-time basis, in real estate sales. (3) They may also not be available in the evenings and weekends. We pride ourselves on our around-the-clock availability, including evenings and during weekends.
So why not avoid paying real estate commissions and sell on your own, you may ask? There are statistics to show that sellers using the services of a real estate professional net more money in their pocket than sellers choosing to sell themselves. The reasons for this are many. Sellers going solo are unlikely to have the marketing prowess of a real estate team, they lack the negotiating skills necessary to achieve a good price for their home, and buyers are also inclined to offer them less for their home using the argument that the sellers are not paying any real estate commissions and can therefore accept a lower price. This results in the seller having all the stresses and strains of handling the transaction single-handedly and the person benefitting from all their efforts is the buyer.
We relocated from the United Kingdom in June, 2000. Irena started in real estate that year, and Suzanne joined her in 2004 after graduating from high school. Irena has a Bachelor’s degree from St. Andrews, Scotland, and Suzanne has a Bachelor’s degree from the University of Central Florida. We don’t just hold a real estate license, but we continued with further education by obtaining our Broker’s licenses. Therefore, we are also currently working as Broker Associates. We have helped over 600 homeowners sell their home so there really are no stumbling blocks or hurdles that we have not already encountered and surmounted. We have a multitude of reviews from past customers which have been vetted for authenticity and can be read on many of the favored real estate sites.
How Can I Find Out the Value of My Home?
As realtors we are very fortunate to have access to the MLS or Multiple Listing System. We shall be covering the MLS in greater detail in a later video in this Seller series but, for the purpose of this video, let us just say that from the MLS we are able to pull up the homes that are currently for sale on MLS in a specific community, or area if the home is not in a community. We are also able to obtain details of the homes which are under contract and those which have sold. Normally we go back 6 months when looking at sold homes but in a market when homes are increasing or decreasing in value at a fast pace, we may fare better just looking at the homes which have sold in the last couple of months as being a better indicator of value.
We call the process by which we obtain an approximate value for a home a comparative market analysis or CMA. Basically we try to find comparable homes to the subject property whose value we are trying to gauge and we then make monetary adjustments for the differences between the two properties. Appraisers who perform an appraisal or valuation of a home for a buyer’s lender have studied at length to know how to select the most appropriate comparable homes and how to then adjust for differences. We do our best to mimic their valuation techniques knowing that when the home is under contract, unless the buyer is buying cash, the buyer’s lender will be ordering an appraisal to double check on value to make sure the price on the sale and purchase contract is brought in by the appraisal.
It is usual to use multiple homes as comparables in a CMA. The more homes we can use, the more accurate is the assessment of value. Four to six homes is the most usual if that many can indeed be found close to the subject property. If not then we shall go outside the community or area and look at homes in a similar type of community not far from the subject property. An appraiser will also do this if there are no comparables to be found on the doorstep of the subject property.
CMAs are most easy to perform in a cookie cutter type of community where there are many homes which have the exact same size as and have the exact same floor plan as the subject home. If the size, condition of a home, lot size, outlook and pool or no pool status is exactly the same as the subject property then that would be deemed to be a very good comparable to use in the valuation, the expectation being that two alike properties would be sold at a fairly similar price.
Factors that can affect the value of a home and for which adjustments should be made are size, age, condition, upgrades and refurbishments, lot size, view and the presence and condition of large appliances, fencing, porch and pool. Additionally, it is not only the age of the actual home which can affect value. The age of what we term “large ticket items”, those that would cost a lot of money to replace such as the roof and air conditioner, are also determinants of value.
It is not usual to attribute any additional value to furniture, furnishings, electronic equipment such as TV sets, linens, cookware, crockery or any other items which are left for the buyer of a vacation type home. Since the buyer is intending to use the home as a vacation home, those are customarily left at no charge for both the convenience of the buyer and the seller who would be hard pressed to dispose of these items from afar. In a non vacation type home, a seller may sometimes be able to negotiate for the buyer to purchase certain items of furniture or electronic equipment separate from the sale of the home if these are items which the buyer wishes to purchase.
In a changing market, value can change throughout the duration of the listing period whilst a home is on the market. A good realtor will continue making valuations on a regular basis and advising a seller accordingly whether the list price should stay the same or go up or down.
Pricing to sell requires a lot of skill. Price too high and the home will have the same appeal as stale bread after spending a long time sitting on the market unsold. The skill is in finding that sweet price spot at which the home will sell for the maximum amount of money in a reasonable amount of time.
Pricing high or what we term “aspirational pricing” can mean that the best opportunity to sell is passed by as a home tends to receive the maximum amount of viewings when it is first placed on the market unless of course it is priced too high. In that case, buyers give it a miss and then when the home price is lowered to a more attractive price, it is passed by as buyers feel it must not be worth seeing if it has been on the market for a long time without selling or they may be more inclined to place a low offer feeling that by now the seller will be desperate to sell and will be ready to accept a lower offer.
Pricing just a little over the market value or what the CMA shows the home to be worth is a good strategy as it still encourages buyers to view but allows for a little wiggle or negotiation room which will ensure that the seller obtains market value in the sale.
Pricing low can also be a good strategy if the seller wishes to sell quickly as it can lead to a frenzy of activity and a multiple offer situation with buyers competing with one another and often raising their offer price over the list price so the home sells quickly but still at market value even though it was originally listed a little under market value.
In a sellers’ market, where there is a shortage of inventory and a good supply of buyers, a seller can sometimes obtain an over market or over appraisal value for the home. In a buyers’ market where we have a surplus of inventory and not enough buyers, a seller may have to settle for a little less than market value as in that kind of market prices sometimes are seen to fall.
Cost of a Sale
The largest cost on the settlement statement will be the real estate commissions. The statement will list both the commission to the listing agent and the commission to the co-broking agent who brings the buyer to the home and represents the buyer during the sale from the very first viewing of the home to the closing date. Real estate commissions vary and indeed it is an antitrust violation for agents to collaborate together and attribute a specific figure for commission amount. This is termed price fixing and occurs when competing brokers agree to set a standard price for sales commissions, fees or management rates. Rather the real estate agents must let competition in the open market establish these prices.
As well as being paid a commission, most real estate offices charge what is sometimes termed an administrative fee and this differs from office to office. At the time of preparing this information, this fee lies somewhere in the region of $300 – $500. This fee is also sometimes called a transaction fee or broker only commission. This fee is paid by both the buyer and seller to their respective real estate offices and normally is not charged unless the buyer or seller closes on the transaction.
Both the buyer and seller will also be paying a fee to the title company or attorney office for handling the transaction and taking it from contract to close. Again these fees vary and at time of preparing this information the fees charged by a title company lie again in the region of $300 – $500. Often foreign national sellers will be charged a higher fee because the closing office has additional steps to perform on account of FIRPTA (Foreign Investor in Real Property Tax Act) regulations.
It is usually the responsibility of the seller to pay for the title insurance to insure the title on the home for the duration of the buyer’s ownership. Should a title dispute arise after the sale, the title insurance company will be responsible for paying specific legal damages, depending on the policy. Title insurance costs are calculated by multiplying the purchase price of your home by the rate per thousand which your insurance company uses. The rate per thousand is a going rate that is used for every thousand dollars that is calculated for the value of your home. Title insurance for home owners generally protects purchasers and existing owners of a residential property against risks that could cause stress and financial loss in the future.
Another fee pertaining to title is the title search fee. The title search is usually performed by a title search company who is hired and initially paid by the closing company to perform the title search and the closing company is then reimbursed this fee by the seller at closing. At the time of preparing this information, this fee is only about $200. Put simply, a property title search is a search for documents on a specific property. The property title, which defines who has legal ownership of a home, might not contain all of the updated information about liens on the property. It also might not include a complete history of the property. A property title search is comprehensive so it looks for all local records and sources to uncover all available information about a property. Most importantly, a property title search will tell the closing company who besides the homeowner has a claim on the home. A property title search will also include any deed restrictions which means it will reveal if there are any limits on how the property may be used.
A municipal lien search fee is sometimes also called a city lien search fee. At the time of preparing this information it costs about $215. Like the title search, this search again is prepared by a third party and paid for by the closing company who are then reimbursed by the seller at closing. A municipal lien search looks for unrecorded liens in addition to code violations, special assessments, utility and open or expired permit issues that are associated with the home. The title company will work with the homeowner to have these issues rectified before closing.
If the home is in a community which has a Homeowners’ Association (HOA) then the closing company has to order an estoppel letter from the HOA. The cost for this is very varied. At time of preparing this information it can range from about $100 to $500. Once again it is a fee paid initially by the closing agent who is later reimbursed by the seller. An estoppel is a legal document provided by an HOA or a management company that operates on behalf of the HOA, describing the current financial status of the property. This includes past due balances, current fees, details of future assessments and any violations. In communities where the seller has been paying both an HOA fee and also a club fee for community clubhouse type facilities, two estoppel letters will be ordered thus incurring two fees.
People who transfer real estate by deed must pay a transfer fee, this fee being charged by the recording offices in most counties. In Florida, this fee is called the Florida documentary stamp tax. It is charged at 70 cents for every $100 of the sales price.
Once the seller has an executed contract on their home, Real estate taxes and HOA fees can be prorated by the closing agent using the closing date on the contract. Real estate taxes are paid in arrears and the tax bill comes out in November allowing the homeowner to pay the taxes for that year. Unless a homeowner is closing on their sale in November or December having paid the tax bill for the year in which the closing is taking place, the seller will be responsible for paying the real estate taxes from January 1st to the closing date. The HOA fees are prorated at the same time by the closing agent making sure that the homeowner will be refunded by the buyer for any HOA fees paid upfront for any period in which the buyer will be occupying the home and not the seller.
Should the contract have been negotiated with the seller contributing towards the buyer’s closing costs as is sometimes the case or should the seller and buyer agree to the seller giving the buyer a repair credit following an inspection of the property, these amounts will show on the settlement statement as a credit to the buyer and a debit to the seller.
On settlement statements for a foreign national seller, one line item will be the FIRPTA tax withholding which at time of providing this information is 15% of the purchase price.
Other deductions on the settlement statement may include the pay off of any existing mortgage/mortgages on the home which is being sold, settlement of any back real estate taxes owed by the seller for previous years on the home, any HOA arrears on the home and any charges to contractors or management agents which the seller has authorized to be paid at closing.
Commission & Marketing
The commission a seller pays on the sale of their home is customarily paid at closing out of the seller’s proceeds which means that there are customarily no upfront fees to pay when placing a home on the market. This works well in particular for sellers who may not have a lot of savings at the time that they decide that they wish to sell their home.
Commissions vary from real estate office to real estate office. We have already covered in an earlier video that it is illegal for real estate offices to get together and agree to charge one standard commission. This is termed price fixing and is not permitted.
Generally speaking, if the home does not sell then the seller does not pay any real estate commission.
The commission charged to a seller by the listing office includes the co-brokerage commission that the listing office will pay to the real estate office of the buyer’s agent, the agent who brings the buyer to the home, presents the buyer’s offer and then takes care of the buyer’s side of the transaction from contract to close. Unlike in other countries, in the US homes are listed on the Multiple Listing System (MLS) offering a co-broking commission to a buyer’s agent.
If the listing agent is also the agent who brings the buyer to the home, presents the buyer’s offer and then takes care of the buyer’s side of the transaction from contract to close then the listing agent’s office will also keep the buyer’s agent’s side of the commission. Here in the state of Florida, at the time of making this video, a real estate agent acts as a transaction agent during a transaction unless they are asked by the party they are representing to transition into being a single agent. Being a transaction agent enables the agent to represent both the seller and the buyer should the listing agent find a ready, willing and able buyer. The agent will then work in the best interests of both the buyer and the seller, representing both parties fairly and preserving all confidences.
Commissions are generally a percentage of the sales price achieved. Occasionally a commission may be a flat fee and this is more commonly seen when the real estate sale is expected to fetch a low price such as in the sale of a small lot of land or a condominium.
At the time of making this video, we are quite unique as a team in that we permit our sellers to select the commission that they wish to pay based on the marketing package that they select to be put into action on their home. Our marketing is very professional and diverse as we believe that the wider the net that is cast, the greater the number of buyers we shall have coming to view the home. More buyers viewing will mean more offers and in turn more likelihood of achieving top dollar for your home. We go over the marketing packages in great detail prior to listing a home for sale. We feel that handling the commission in this way, places the seller in the driving seat and in control of the marketing they receive on their home. All the marketing items are categorized so our sellers know at time of listing what marketing tools will be put to use to help their home sell.
Signing the Listing Documents
We are able to either meet with the homeowner in person to sign the listing documents or in the case of homeowners who are out of state or out of the country, we shall send the listing documents out by email to be signed by the homeowner electronically. If there are more than one homeowner on the deed then each homeowner will have to sign each document in the listing document package. Electronic signatures are now considered to be as legally binding as wet signatures.
The most important document in the listing document package is the Exclusive Right of Sale Listing Agreement. This is an agreement between the homeowner and our office naming us as the listing agents who will be taking care of the homeowner throughout the selling process to closing. The agreed upon list price will be written in this document but that can be changed at a later point in time by the seller signing a one page price amendment form. Also on this document will be the commission that is charged from the seller and the commission to be given by our office to the office of the co-broking buyer’s agent. The length of the listing period is customarily 6 months though it is always our expectation that the home will sell long before that time has expired.
A brokerage disclosure, amongst other relevant items, will disclose the administrative fee that the real estate office charges their seller or buyer at closing. At the time of preparing this Q & A our office administrative fee is $395. Most real estate offices charge an administrative fee from the buyer or seller depending on which party they are representing.
If the property is in a community that has a Homeowners Association (HOA) then the homeowner at time of listing the property for sale will complete and sign a homeowners’ association disclosure disclosing the fact that the property is in a community which has an HOA, that membership is mandatory and the fee that is payable by the homeowner to the HOA for living in the community. In a community where there is a clubhouse, a community pool and other community amenities, there often is a second fee charged as a club fee. The HOA disclosure will also list any capital contribution and/or transfer fee that the buyer will have to pay at time of closing. This document will be signed by a prospective buyer at time of offer.
A Seller’s Disclosure is a document completed by the owner of a property at time of listing the property for sale. The seller answers a list of questions posed about the property and its condition. This disclosure and the HOA disclosure, if one is pertinent, will be signed by a prospective buyer at time of offer.
A Wire Fraud Prevention document advises a prospective seller to be aware of the sad reality of fraudulent activity thereby making sure that the seller’s funds are not intercepted by some fraudulent person at time of sale.
The signing of the documents is required before we can go out to the home to perform the photo shoot prior to placing the home on the market.
Preparing a Home for Sale
The best way to try to make sure that problems will be few when a buyer has his inspection is for a homeowner to have a professional home inspection completed prior to listing the home for sale and then having appropriate contractors or perhaps just a handyman tackle the repair list that follows from the inspection. This will not mean that there will be no issues on the buyer’s inspection report as it could be that an item or two may be missed in the homeowner’s inspection but it definitely will reduce the number of repairs that come up in the second inspection. If the homeowner does not wish to perform some or any of the inspection repairs, having an inspection ahead of placing the home on the market will at least prepare the homeowner in advance for what is likely to come up in a buyer’s inspection and pinpoint the issues for which the buyer may wish to have a monetary credit after the buyer’s inspection. Knowing ahead of time can take some of the sting out of the situation.
Even if a buyer is prepared to accept the home in its As Is condition following the buyer’s inspection, the appraiser ordered by the buyer’s lender may have a different attitude towards some of the issues and highlight those as needing to be addressed by the homeowner prior to closing or the buyer will not be able to obtain his financing. Issues which may come up in an appraisal report as requiring attention prior to closing are often the roof and the air conditioner since the appraiser knows these will be large ticket items for the buyer to repair post closing.
FHA and VA loans are both government loans and have more stringent appraisal guidelines than conventional loans. For example, these loan programs will require a homeowner to repair any wood rot visible on the home, the premise being that wood rot attracts insect life especially termite activity and these loan programs wish to protect the home buyer from any such future infestations. If there is extensive wood rot on the property which the seller does not have either the funds or inclination to correct prior to placing the home on the market then the home has to be advertised as not being available to buyers using an FHA or VA loan.
A very important point of note is that a roof may prove problematic when the buyer is trying to obtain homeowners’ insurance coverage from the day of closing if the roof is not seen to have at least three years of useful life remaining. Therefore, even if a buyer is content to accept a roof as it is and it is a cash purchase with no appraiser involved commenting on the roof condition, if the buyer cannot obtain homeowners’ insurance at closing, the buyer may decide not to move forward with the purchase. All that said, a watertight roof with no visible damage and at least three years of useful life is truly the order of the day when selling a home.
If exterior paint leaves a chalky film on the hand when touched then the home exterior is ready for a repaint as rain will wash away paint when in that condition and expose the home to the elements. Paint needs to act as a waterproof protectant. On average, a home requires to be repainted on the exterior every 10 years though some community HOAs may have a 7 year stipulation. Checking the condition of the exterior paint in this fashion in advance of listing is commendable.
Home inspectors use the guidelines of safe, sound and secure when inspecting a home. A homeowner looking to place their home on the market would be well advised to also look at their home through the eyes of an inspector to make sure that the home is indeed safe, sound and secure with all working components working correctly before taking the step of placing the home on the market. It would be sad indeed if something so simple to remedy as a non working light bulb was to end up on the inspection report repair list.
Appliances such as the refrigerator, stove, microwave, dishwasher, garbage disposal and water heater are customarily sold with the home so a homeowner should make sure these are all in working order. A homeowner often elects to take the washer and dryer with them but if they are being included in the sale, they again need to be operational. Appliances will be inspected during the buyer’s inspection though some inspectors will not inspect washers and dryers saying that these are temperamental items that work one day and do not work the next.
Clutter has got to be the number one cosmetic problem we come across so we are going to elaborate greatly on this topic. The majority of homeowners hold onto possessions once they no longer have any use purely for sentimental reasons or just in case they should need the item at some future point in time. Decluttering is important as cluttered homes feel claustrophobic and make the home look a lot smaller than it is in actuality. Decluttering a home can make it feel far more inviting and roomy and more like the coveted and much loved Builder’s model. One or two large decorative accents are preferable to a host of smaller ornaments. The same applies to personal photographs and wall pictures. Refrigerator magnets or other items taped to the refrigerator need to be removed to give it a sleek look. Kitchen and bathroom countertops should only have a minimum of objects on them to provide a more spacious feel. Kitchen gadgets and bathroom toiletries need to be stored inside the cabinets. It goes without saying that beds need to be made up neatly with bedspreads and matching pillows. If a homeowner cannot be parted from their clutter and there is not enough room to hide it away in boxes in the closets or garage then the homeowner may be well advised to consider boxing up all these treasures and placing them in temporary storage during the selling process and removing them from storage once in a new home. Excess furniture and broken furniture pieces also do not enhance the appearance of a home and should join the superfluous possessions in either the garage or a storage unit.
Chipped, peeling or dirty paint work will not be highlighted in an inspection report but can be a big deterrent to a prospective buyer who does not wish to have to perform a complete paint job on moving into the home. The same can be said of very bright psychedelic color schemes. It would behoove a homeowner to repaint areas inside the home as appropriate using paint colors that are in fashion at that time.
Worn or dirty carpets will also not be highlighted in an inspection report unless they are so worn as to be deemed a trip hazard. However, carpets which cannot be cleaned to look acceptable can again be a major deterrent to a prospective buyer not wishing to have to spend out money and have the inconvenience of changing flooring after closing. A homeowner may be well advised to replace damaged or heavily soiled carpeting and this can usually be done at not too great an expense using one of the larger hardware stores for both the carpet purchase and the installation.
As well as dealing with soiled carpets, it is very important to make sure that the remainder of the home is in a clean and presentable condition. We recommend having a professional clean done to make sure the home shows at its best for the photography session and to then keep on top of the cleaning and tidying to make sure the home is in pristine condition for subsequent viewings. The closer the home looks to a new home the better.
Pet odors sometimes can be unnoticeable to the homeowner because they have become accustomed to smelling them and now no longer even notice. These, however, can be very off putting to a prospective buyer especially if it is a buyer who has no pets of their own and perhaps also has an allergy to cat and dog dander. It is a good idea to place dog beds, cat litter trays, cat stands and pet toys in the garage for the duration of a showing and to make sure that there are nice smelling air deodorizers scattered throughout the home. Leaving dogs loose in the home or a barking dog in a dog crate inside the home during showings can prove very disconcerting and sometimes frightening to a prospective buyer so it is a good idea to remove dogs from the home for showings. Please do not place pets in the garage during showings as in Florida’s usually very warm weather the heat in a garage can be overpowering to the animal as well as preventing a prospective buyer from being able to look at the garage.
Cigarette odor is also very off-putting to a prospective buyer especially as many buyers are not smokers themselves. If there is a cigarette odor present in the home, it would be wise to hire a professional deodorizing company to remove this and then to make sure to always smoke outdoors.
We do not recommend that a homeowner performs major refurbishments such as replacing kitchens and bathrooms. In general, unless the kitchen and bathrooms are in an appalling condition, we do not recommend a complete replacement as this can be very costly, a cost that usually is not then recouped in the sales price. Cabinets and countertops can generally be resurfaced at a much lesser cost and baths and sinks can often be reglazed.
Whilst working on indoor preparations, it is also important to consider the appearance of the home exterior and to make sure that the home has what we term in real estate jargon “curb appeal.” Hedges need to be trimmed, planters need to be weeded and lawns need to be cut regularly and treated with weed killer and fertilizer. If the landscaping lacks color, it is advisable to purchase a few colorful plants to add more color and interest. Potted flowering plants may be used to enhance the appearance of porches and pool decks. Paths and driveways need to be clean as do doors and windows. If the home has a pool, that needs to be sparkling clean and inviting with clean pool furniture arranged in an orderly manner.
Photography & Marketing
At the time of writing this answer, the photography and marketing that our sellers receive depends upon the marketing package they select which in turn depends upon the commission that the seller has chosen to pay us for our services at closing. It goes without saying that the larger the marketing package, the greater the exposure the home will receive. The greater the exposure, the greater the chance of attracting a potential buyer. The wider the net that is cast, the more chance of receiving an offer from an interested buyer. An ideal situation for a seller is to receive multiple offers on the home with multiple buyers competing with one another to be the one who’s offer will be accepted. This situation inevitably escalates the final sales price.
The time taken for a photoshoot will depend on the size of the home and also on the size of the marketing package selected. Photoshoots can take anything from two hours for a small home on which the minimum amount of marketing was selected to in excess of a day on a larger home with the “works” or the largest marketing package. It is preferable where possible to have no one but the photographer in the home during the photoshoot so that the photographer is not distracted and also so no one is getting into the photographs by mistake. We have covered preparing a home for sale in an earlier video and this information also applies to preparing a home for its photography session. We remind our sellers that the home is going to be available for the whole world to see so it is important to make sure it is photo-ready on the day of the photoshoot.
At the time of writing this answer, our basic and least expensive marketing package provides the seller with a professionally taken suite of high resolution photographs of their home and any community amenities. Each room will be taken from several angles so that a prospective buyer will see the home in great detail. Unless the garage and closets have built in storage or are special in some other way, the garage and closets are not usually photographed so can provide the seller with some useful space to put those unwanted items which just make the home look cluttered. We have covered decluttering a home in a previous video in this seller series.
At the time of writing this answer, our slightly more elaborate marketing package adds drone photography and a slide show video whilst our top marketing package adds a 3D interactive walk through tour and video of the home and community as well as twilight photography. The 3D interactive walk through tour and video, as well as proving of more interest to a prospective buyer, are at the time of writing this answer giving the home a higher ranking on the very popular Zillow website as Zillow rewards agents for placing this additional information on their listings by ranking the homes higher so they are going to be higher on the results list generated by Zillow for a searching buyer and are therefore more likely to be viewed. Twilight photography makes the home stand out online since most homes are not featured in this way and hence the home looks more unique and more noticeable to a prospective buyer. The drone photography is particularly effective if the home has a good positioning in the community and locality or a substantial lot size of which the sellers would like a prospective buyer to be aware.
At the time of writing this answer, our basic marketing package includes a yard sign to let passing prospective buyers know about the home being on the market and an attractive posting of the home on MLS (Multiple Listing System) from which 100s of other websites such as Zillow, Realtor.com, Trulia etc. will draw information. The MLS is covered in greater detail in another video in this seller series. Because of this worldwide online exposure, how the home presents is very important and we make sure that our homes are presented in their very best light both in the photographs we select to utilize and our lengthy description of the homes’ characteristics. Our basic marketing package also includes social media advertising on social media sites such as Instagram and Facebook.
At the time of writing this answer, our slightly more elaborate marketing package adds professionally designed and printed property flyers, an individual property webpage and domain name, customized pay-per-click social media marketing, just listed postcards sent out to the neighborhood and the surrounding area and publicized open houses whilst our top marketing package substitutes the flyer for a beautifully designed and printed multi page brochure, increases the number of just listed postcards sent out and adds door to door marketing during the open houses.
It is pertinent to mention that any homeowner listing their home with us for sale is going to receive not only two agents for the price of one but also the expertise and skill set of two different generations that can only be obtained from a two-generation team such as ours.
Going Live & the MLS
The first step of launching a home for sale is for us to input all its information, description of its main characteristics and an abundance of professionally taken photographs on MLS including drone and twilight photography. Additionally, the 3D interactive walk through tour can be placed on the MLS as can the video of still photographs but at the time of answering this question, the MLS does not as yet have the capacity for us to input video footage. What we specifically place on MLS will depend on the marketing package selected by the seller.
So what exactly is the MLS? The MLS is a platform to which the majority of agents belong by paying an annual subscription and this enables them to have access for both inputting their own listings and searching for other agent’s listings. It is a private offer of cooperation and compensation by listing brokers to other real estate brokers. The MLS is a tool to help listing brokers find cooperative brokers working with buyers to help sell their clients’ homes. The listing broker offers a cooperating broker a commission for bringing a buyer to their listed property and taking that buyer from contract to close.
Zillow, Trulia, Realtor.com and a vast number of other real estate websites pull this information on the home from MLS and then proceed to display the home on their site as a home that is for sale thereby greatly increasing the home’s exposure and visibility online. With so many websites pulling information from MLS, it is obviously crucial that the home is displayed on MLS in the best light possible. Zillow, which at the time of writing this answer, is the consumers’ most frequented real estate website, ranks higher in search order the homes which have a 3D interactive walk through tour and /or video. Having both a 3D interactive walk through tour and video on Zillow will give the seller a better chance of having the home noticed by a prospective buyer both because the home will stand out on account of having these features but also because the home will be ranked higher in the list of homes which a buyer pulls up from Zillow when searching using their home finding criteria.
Other than placing a home on the MLS from which many websites then pull the information, we set up the remainder of the home’s online presence depending on the marketing package which the seller has selected. We shall place the video of the home and community on YouTube and Zillow, set up the property website with its own individual domain name and we shall also advertise the home on social media sites such as Instagram and Facebook. We provide our sellers with the ability to choose to have customized pay-per-click marketing done on their home on social media.
In preparation for the first visit to the property by an agent and their buyer, we place flyers or brochures in the property if the seller selects a marketing package including these and this is an important take-away for the buyer. Once home from performing a long list of viewings and ruminating as to which home to make an offer on, it is a benefit to the seller if the buyer has a flyer or better still a multi page color brochure of the home on which to reflect whilst having no souvenir take-aways of the other homes visited. We are able to include a features page at the back of the brochure itemizing upgrades which the seller feels may be of interest to a prospective buyer. We are also able to include a floor plan of the home should the seller have one available.
We place a for sale sign in the front yard to let other homeowners in the community and visitors to the community know that the home is for sale. Neighbors may be thinking of downsizing or upsizing to another home in the community or may have family members or friends which they would love to have living in the community. We also place a special, realtor-only, electronic lockbox on the front door or on the side of the home if preferred by the seller. This will securely house the key when not being used by showing agents. In cases where the home has no actual door key and only a coded electronic door pad then agents will use this pad for access.
In order to cast as wide a marketing net as possible, in cases where the marketing package selected by the seller includes this, we supplement the online marketing with mail outs, specifically just listed postcards which are professionally designed and printed and sent out to the rest of the homeowners in the community in case they should be thinking of upsizing or downsizing to another home within the community or have family members of friends looking to live in the community. Residents living in the community may not actually pass by the For Sale sign on the way to their own home so the postcards ensure that all the homeowners in the community, even those living out of State or out of the country, know that the home is for sale.
Another great way to promote the home is by having a publicized Open House with additional directional signs displayed on the day leading passers by to the home. Open Houses on average last about 2 to 4 hours and we are on hand to answer any questions visitors may have about the home. In order to further promote the home, we supplement the online advertising of the Open House by handing out printed invitations to neighbors in the community ahead of the Open House taking place. Open Houses and door knocking, like the rest of our marketing, is performed only if selected by the seller.
Showing & Showing Feedback
On a vacant home, other agents will coordinate showing the home to their buyer with us but in the main are able to choose a time to suit their own schedule and that of their buyer so long as it does not coincide with a time already selected by another agent for their viewing. We try to ensure that all agents and their buyers have an uninterrupted time frame during which they can view and take in the home’s characteristics. The same will apply to vacation homes during their periods of vacancy though when guests are present showings are normally not permitted.
When we list a home for sale that is still being lived in by the seller, we coordinate the viewings with the seller making sure that they are at times which are convenient to the seller. We recognize that the home is still the seller’s place of refuge and somewhere the seller still needs to be able to enjoy some much needed rest and relaxation. If there are multiple showing requests, we try to arrange them whenever possible to happen consecutively to avoid the seller having disturbances scattered throughout the whole day. As mentioned in a previous Q & A in this series, it is preferable if the seller is able to leave the home for the duration of the viewing or viewing sequence, exiting with other family members and pets. Preparing a home for sale has also been covered in a previous Q & A in this series so a seller knows what to do to make sure the home shows at its best each and every time it is viewed. Remember that having curtains and blinds open and lights on will give the home a brighter feel.
Access to the home will be afforded to the showing agents by the use of a secure realtor-only lock box which will safely house the key or keys to the home should the door have two locks. Agents will be able to open this electronic lockbox with a special electronic key which agents carry. We shall need at time of listing to have a copy of the key or keys as appropriate. In cases where there is no actual key to the home and only an electronic door pad as is sometimes the case for a vacation home then that electronic code will be supplied to the showing agent.
Should the home have a security system, it is preferable not to have the security system switched on at the time of the viewing as agents may not disarm the system correctly and hence have the alarm blaring loudly for the duration of the viewing which will not make for a pleasurable experience for a prospective buyer. In the case of a gated community, it is preferable, where possible, to share the gate code with the showing agent or in the case of a guard gated community to give the agent’s name to the guard ahead of the visit to facilitate the agent’s entry into the community with the buyer.
When an agent clicks on the show desk on MLS to view one of our listed homes, it will automatically email the showing agent requesting feedback after they have submitted their viewing request online. This is not a good way to obtain feedback, however, as it is very rare indeed to have an agent complete the feedback form and submit the feedback into the system and thereby to the listing agent. We set up show desk to ask an agent to call us for viewing permission even in the case of vacant homes which are on a lock box and an easy show as we want to talk to the agent ahead of time to explain any positive selling features of the home to make sure these are not overlooked and are in turn shared with the buyer.
When we set up the showing for the buyer’s agent, we always ask that they call or text us once they have finished the viewing but that also is not a very effective way to obtain feedback as usually the agent is rushing of to show the next home on the list and forgets or doesn’t have time to provide feedback at that time. We make a point of following up by phone after the viewing has taken place and if the agent does not pick up then we send a text message and continue with this process until feedback has been obtained. We believe that having feedback from the viewings is extremely important in order to determine what buyers are finding to be positive attributes and what are the home features that may be having a negative effect on the buyers and discouraging the buyers from making an offer on the home.
Positive feedback is of course very comforting and reassuring for a seller but what if a lot of the feedback we receive is negative in nature? What then? There is some negative feedback that the seller cannot do anything about such as traffic or airplane noise, distance from stores and other amenities, traffic build up on route to the home, location in the community, outlook, age of a home, its floor plan and square footage. However, if we receive comments that the home is cluttered, has animal or other odors or is in need of refurbishment in some areas then these are things we can discuss with the homeowner and remedy these issues so that future viewings will be more pleasurable for buyers. If a homeowner does not want to deal with refurbishment prior to the sale of the home and we hear that this is a constant issue with buyers then we can suggest that we advertise that the seller is prepared to give the buyer a certain credit at closing to take care of issues such as carpet, paint or other replacements and enhancements.
Reducing Stress & Keeping Your Sanity
Knowing what to expect. Fear of the unknown can be one of the biggest stressors when a homeowner is selling a home especially when selling a home for the first time or from a different country. This is why understanding the selling process and other facets such as home value, costs and timing are so crucial. We believe that knowledge is power and something that will better equip the homeowner to deal with what can with the wrong guidance become a nightmare of a situation. We have put together this Q & A series to educate and empower homeowners to navigate through a home sale on a calm and untroubled ocean.
Being open and flexible. Having unrealistic expectations as to the value of their home can bring about a massive headache for homeowners. If, in addition, the homeowner is not open to being flexible and prepared to negotiate when offers arrive, this can make for a very stressful and lengthy selling experience. Whilst every homeowner has a desired price in mind, this price may prove to be aspirational and not in tune with market conditions. It is important for homeowners to accept that their expectations may not always match up with reality.
It is very easy to brush aside self care when busy with home sale preparations or actually having a home on the market. The extra time and effort devoted to dealing with the selling process is often taken away from the time that should be devoted to making sure exercise is taken, a healthy eating regime is followed and a good night’s sleep is obtained every night. Leading a healthy lifestyle is always important but all the more so when there may be stressful situations to deal with along the way. This is of even more importance when the home being sold is the homeowner’s primary home in which they are still residing. As the Romans used to say “Mens sana in corpore sano.” A healthy mind in a healthy body.
We have already covered this topic in other Q & As in this series but knowing that a home has been prepared for sale and is showing at its best to potential buyers can be very effective in reducing stress levels with the seller confident that he has done everything to encourage the best price possible for his home and that he has not left anything to chance. Preparation encompasses so many activities such as repairing, renovating, painting, decluttering, styling, staging and improving outdoor curb appeal.
Keeping one’s thoughts and attitude in check can go a long way in reducing the stress and anxiety usually connected to selling a home. Expecting that a home sale will be stressful will normally result in this outcome. Our minds have an uncanny way of fulfilling our expectations. With adequate knowledge and good support, approaching the sale of a home, even if it also involves the added effort of finding a home to purchase, can be approached with confidence and a positive mindset. So here again, education and expert guidance is the key.
Probably the biggest determinant as to whether a home sale will be stressful for a homeowner is going to be the professionals that the homeowner selects to help with the home sale. Partnering with the right people is so important to make sure it is not a case of “The blind leading the blind” as the saying goes. Selecting a real estate professional with a wealth of knowledge and experience plus connections with other necessary affiliates will ensure that not only the best price is obtained for the home but that the sale goes smoothly without a lot of bumps along the way. At the time of answering this question, Suzanne and I have respectively 17 and 21 years of experience working full time in real estate with not just a real estate license but having also attained our Broker’s licenses enabling us to run our own Real Estate Brokerages should we so choose to do.
Contract Negotiation
In the state of Florida, at the time of us writing this, the most commonly encountered contract is the As Is Contract for Sale and Purchase. This contract does not obligate the seller to perform any repairs but it does give the buyer the right to cancel within the inspection period and I quote “at his own sole discretion”. The inspection period is usually no more than 15 calendar days. The Standard Contract for Sale and Purchase at this time is infrequently used. It stipulates a maximum repair amount that the seller is committed to spending. This amount will go towards rectifying any issues raised in the general home inspection and in the wood destroying organisms (or WDO) inspection. It also goes towards rectifying any permitting issues if any should exist. Offers are normally accompanied by either proof of funds to close for an all cash offer or a lender approval letter in the case of a financed buyer.
Both an as-is and a repair type contract are very comprehensive and if signed off by the buyer and seller will be used as reference throughout the transaction. As well as writing in the name of the buyer and the seller and the property address, the buyer’s agent will outline the offer price and whether the buyer is purchasing using cash or financing. If the buyer is using financing, the amount of down payment and the loan type will be added to the contract. The buyer’s agent will also write a response date by which the seller must answer or the offer is considered withdrawn. The contract will also include a closing date, the amount of the escrow deposit and where it is to be held, the appliances conveying and whether any personal items are included or excluded. Additional items will include the length of the inspection period, how assessments are to be handled, who will select the closing agent, whether any additional addenda are included, and there is also a section for any additional remarks should any be pertinent to the offer.
The seller does not need to only either accept or reject the offer. The seller may choose instead to counter certain terms of the offer. As well as countering the price, the seller may counter any other aspects of the offer which the seller would like to see altered. Normally, the buyer will then be given a deadline by which to respond to the counter offer or it will be considered withdrawn. Negotiating will continue between buyer and seller through their respective agents until either there is an impasse or a meeting of the minds is reached. If a meeting of the minds is reached then the contract is signed off on by all parties. The transaction then begins its journey towards the closing table.
The time of the negotiation is used by the listing agent to not only secure the highest price possible for the seller, by perhaps playing one offer against another, but also to try to firm up the contract for the seller to make sure that the contract will stand the best possible chance of making it to the closing day. If the buyer is financing the purchase then the listing agent will reach out to the buyer’s lender to discuss the solidity of the buyer’s financing and his ability to close on the transaction at the proposed price and within the proposed time frame. If the listing agent has concerns about any other aspects of the offer, for example whether the appraisal will bring in the purchase price on a financed offer, then they may make a recommendation that the seller asks that the buyer remove the appraisal contingency if not entirely then at least to a certain degree. Shortening buyer inspection time frames is also another way to strengthen an offer. Should a buyer not be satisfied with the home inspection outcome, it’s better that that information be learned sooner rather than later.
In a buyers’ market, where there is a surplus of available inventory, a buyer may be able to request that the seller contribute towards the buyer’s closing costs. The maximum amount that the buyer can request as a contribution will depend on the buyer’s loan type as lenders have stipulations as to the contribution amounts. At the time of writing this, the maximum amount permissible varies from 3 % to 9%, again, depending upon the loan type. In a sellers’ market, it is unusual for a seller to agree to a contribution as, with many offers on the table, the seller can readily find an offer that is not requesting a contribution of this type.
A contract may sometimes contain stipulations in the additional remarks section. For example, if the roof of the home is past its useful life, the buyer may stipulate that the seller replaces the roof before the closing date or perhaps that the seller credits the buyer a certain amount towards a roof replacement. The same may apply for a flooring replacement or a credit towards new flooring. On a short term rental vacation home there may be a stipulation that future bookings will be honored by the buyer.
It is quite usual for an offer contract to have several addenda. For example, if the home is in a community which has a Homeowners Association then the contract will have an HOA addendum. If the buyer is buying using one of the government loans, VA or FHA, then the contract will have a corresponding addendum disclosing this fact. Other addenda frequently encountered are an appraisal contingency addendum and a sale of buyer’s own home contingency addendum. All addenda that are marked as being added to the main contract must be signed and/or initiated by both the buyer and seller for there to be a contract in effect.
The most common and most practical way of dealing with multiple offers is for the seller to instruct his or her agent to go back to all the agents for the offering buyers and have them ask their buyers if this is the buyer’s highest and best offer. The highest obviously relates to price but what is the meaning of best and how can a buyer better his or her offer? An offer can be made better by, for example, making the closing date more appealing to the seller if the seller wants a quicker close, shortening the inspection period or removing an appraisal contingency if the buyer is purchasing using financing. Once these improved offers have been received, the seller can proceed to accept an offer so long as one is to his or her satisfaction.
Pre- and Post-Occupancy & Honoring Rental Arrangemenets
In a situation where the home is vacant or a seller is able to move out prior to closing, a seller and buyer may contractually agree for the buyer to preoccupy the home for a period of time prior to closing. Usually this happens because the buyer has either already sold his or her home or has come to the end of a rental lease and hence is in a homeless situation. The exact duration of that time period will depend on what is optimal for the buyer and possible for the seller. The seller and buyer may agree that this is to be at no cost to the buyer if the seller feels that the buyer has already presented a very appealing offer or the seller may ask for the buyer to pay for this privilege.
So the buyer and seller have agreed for the buyer to preoccupy the home. This may sound like a nice amicable situation but what happens if the buyer for financing or some other reason should then fail to close on the home? What are the possible risks to the seller? The buyer may prove to be a difficult person to now remove from the home since the buyer was homeless and still has nowhere to go. The seller could find him or herself having to deal expensively with an eviction paying out for attorney costs. Additionally, once the buyer has exited the home, the
home may not be in the nice pristine condition that it was when the buyer moved in and the seller may need to spend some money to restore the home to its former glory. If the buyer is being charged money for preoccupancy, the seller could run into problems collecting the agreed upon funds.
Sometimes it may benefit a seller to remain in the home after the closing has taken place. The seller may still need to find a replacement home or perhaps the seller has already contracted on a home purchase but has not closed on the new home yet. This is frequently the case when a seller is having to wait several months for the completion of a newly built home. If the buyer is purchasing the home with either cash or using an investment type loan then the buyer is able to charge the seller a certain amount of rent for the post occupancy. Primary and secondary home loan programs generally will allow for a seller to remain in the home for a short period of time but will not allow the buyer to charge the seller any rent. Most primary home loans will also require that the buyer takes up residence in the home no later than 60 days after closing.
The risks associated with seller post occupancy are somewhat similar to a buyer preoccupancy except now it is a case of the seller not being willing to leave the home on the agreed upon date due to perhaps the seller’s home purchase running late or falling through and the buyer is now having to take legal action to remedy the situation. It could be that, similar to a buyer’s preoccupancy, the condition of the home is also compromised and the buyer may find him or herself moving into a home that is not in the same pristine condition that it was when the buyer performed the final walk through of the home on the day of closing. Again, as in the case of preoccupancy, if a rental amount was agreed upon by the buyer and seller, it could be that the seller is not forthcoming with the agreed upon amount.
If the buyer and seller agree to the buyer honoring an existing long term lease and hence inheriting a tenant on the day of closing, one of the contract stipulations will be that the seller provides the buyer with a copy of the long term lease so the buyer may clearly see the terms and conditions of the tenancy and hence can be sure that he or she is happy to have a tenant stay in their home under the terms of the existing lease. A point of note is that a tenant, who is in good standing with rental payments, in most cases must have his or her lease honored by the buyer and cannot be made to move out of the home before the end of the lease and the lease cannot be altered in any way without the tenant’s permission. Any deposit held by the seller and any rent prorations for the month in which the closing is taking place will be handled by the closing company on the settlement statement.
As with preoccupancy and post occupancy which we have already mentioned, the same three risks are potentially present in the case of honoring a long term rental lease. The tenant may not be agreeable to moving out at the end of the lease leading to the buyer having to carry out an eviction, the home may be left in a less than desirable condition or the tenant may default on the monthly rental payments. These risks, however, are no different than those to be faced by an investor buyer finding a tenant of their own to move in post closing.
When we are dealing with the sale of a vacation home, there are often rental bookings that must be honored by the buyer. This is both helpful to the seller who does not wish to disappoint vacationing guests and also of benefit to the buyer in providing the buyer with some immediate rental income. If this is going to be the case then a list of all the bookings together with dates and amount of money to be levied will be agreed upon by both the buyer and seller at the time of contract. Again any deposits or prorated rental amounts will be handled by the closing company on the settlement statement.
The risks associated with honoring short term rental bookings are fairly minimal especially if the buyer intends in any case to use the home in this fashion as a money generating investment. It is usual for a buyer, especially one not living locally, to employ the services of a management agent and that agent will supervise the day to day operation of the home and thereby also will make sure that the inherited rental bookings are taken care of and do not present any issues for the buyer.
Cash vs. Financing Buyers
We often hear the term “cash is king” but what is it about a cash buyer that makes contracting to a cash buyer seem so appealing even if the cash buyer comes in low on account of being cash? The greatest appeal of the cash buyer is their high certainty of being able to close on the home purchase with just an inspection contingency in place once the home goes under contract. Once the home inspection has taken place and the cash buyer has indicated that he is content to move forward to closing, we can consider the transaction at that point to be pretty much a guaranteed close. If the buyer should fail to close after the inspection contingency has expired then the cash buyer normally would lose his or her escrow deposit if he or she fails to close on the purchase.
Financed buyers, like cash buyers, also have an inspection contingency in place at the outset but they also have an added contingency and that is one of them being able to obtain financing and the financing contingency generally remains in force till just a few days prior to the closing date. The period during which the financing contingency remains in place is called the loan commitment period and the length of this period is stated on the sale and purchase contract. At the end of this period, if the buyer has still not been able to obtain a loan commitment from his or her lender, the buyer just needs to convey this fact to the seller and is entitled to have his or her escrow deposit refunded in full making it very difficult for a seller to be certain of a closing until close to the end of the transaction. If the lender for the buyer feels that the buyer is able to obtain financing but the lender just needs some additional time to make this happen then the buyer and seller may agree to extend both the loan commitment period and the closing date.
The reasons for loan denial are many. It goes without saying that if a buyer loses his or her source of income then the lender will be unable to approve the buyer for a loan. Additionally, the buyer may inadvertently do something to alter his or her debt to income or DTI ratio by taking on an additional debt commitment or by taking a cut in income. The latter could well be out of the buyer’s control. In the case of a buyer who is barely able to qualify with regards to his or her DTI ratio, something as unavoidable as an increase in interest rates could throw off that very sensitive ratio balance and cause the buyer to no longer be able to qualify for a loan. Sometimes a past bad debt situation such as a past home foreclosure or short sale or a bankruptcy could raise its ugly head and prevent loan approval or the buyer may again inadvertently do something to alter his or her credit score and if the score was already borderline, that small shift could lead to a loan denial. With loan approval being dependent on both credit score and DTI ratio, the buyer has to tread carefully during the loan commitment period.
Another reason why the loan may be denied is because the appraisal or valuation ordered by the buyer’s lender may come in lower than the purchase price on the contract. If the seller will not agree to reducing the purchase price on the contract to the appraisal value and the buyer does not have additional funds to bring to closing to bridge the gap between the purchase price and the appraisal value then the contract may have to be terminated and the escrow deposit refunded to the buyer. The lender will not lend money on more than the appraised value. In a seller’s market when inventory is in short supply and many buyers are competing against one another then the financed buyer may agree at time of going under contract to pay a certain amount over the appraisal value should the appraisal value come in lower than the purchase price on the contract or the buyer may waive the appraisal contingency entirely and agree to pay the full purchase price on the contract no matter what value is brought in by the appraisal.
A conventional loan is frequently used by buyers who are buying the home as an investment or as a second home to use for vacations. The minimum down payment for an investment loan at the time of making this video is 20% and for a second home loan is 10%. Primary home buyers may also use a conventional loan if their credit score and DTI ratio is sufficient to qualify for this type of loan and then the down payment may be as low as 3%. A conventional loan, as well as being less ‘picky’ about the condition of the home, has the added bonus of having no Private Mortgage Insurance (PMI) for the buyer to pay monthly so long as the down payment is at least 20%. Even in cases where the initial down payment is less than 20%, the PMI may be removed during the lifetime of the loan if the buyer during his or her ownership can demonstrate that the equity in the home has now reached at least 20%. This can be due to either repayment of a portion of the loan or rising property prices or a combination of the two.
FHA and VA (Veteran) loans are government loans. In general, it is easier for a buyer to qualify for this type of loan rather than a conventional loan as the credit score requirement is lower and the allowable debt to income ratio is higher. These loans are only available to buyers purchasing the home as their primary residence and in the case of a VA loan, the buyers need to be active or past military personnel. Buyers with these loan types are usually not as desirable to a seller as the special FHA and VA appraisers have more stringent criteria for passing the home for a loan and can insist that, for example, any wood rot in the home is repaired by the seller before the buyer’s loan will be approved. We have already mentioned in a previous video that homes in poor condition are best advertised as not being available for FHA or VA buyers. The minimum down payment for an FHA loan at the time of answering this question is 3.5% and a buyer buying with a VA loan may obtain 100% financing and so have no down payment to make whatsoever. One of the biggest drawbacks of an FHA loan is that the MIP remains for the life of the loan and cannot be removed.
USDA loans are home loan guaranteed by the United States Department of Agriculture. In order to qualify for this type of loan, a buyer needs to make sure the home lies in a USDA approved location which is typically of a more rural nature. Homes in a more urban setting will not qualify. Like the Government FHA and VA loans , this loan may only be used to purchase a primary residence. Three of the benefits to a buyer of using this type of loan is that there is a no down payment option (100% financing), the mortgage insurance is factored into the loan amount and the program has more flexible credit and qualifying guidelines like the two government loans above.
A non conforming loan is a loan that fails to meet bank criteria for funding. The reasons for this include the loan amount being higher than the conforming loan limit, lack of sufficient credit or a debt to income ratio that would not allow for one of the loans already mentioned. Non conforming loans generally require a higher down payment and carry a higher interest rate. In the main, this type of loan is only used as a last resort by a buyer who is not able to qualify for one of the loans mentioned above.
Occasionally, a buyer may prefer to take out an equity line of credit, pulling out money from an existing home that the buyer already owns which has built up equity over the years. This is usually done because the interest rates on an equity line may be lower than on a direct home purchase loan. If that is the case then the transaction will in effect be a cash closing as the buyer will not be taking out any financing on the home they are purchasing unless of course the amount of the equity line is not sufficient and the buyer still needs to take out a small loan on the purchased home.
Foreign National loans as the name suggests are loans specifically designed for buyers who are not permanent resident card (Green Card) holders. The down payment amounts required for these loans are generally much higher being around 35% of the purchase price and the interest rates are also higher.
Reverse mortgages allow home buyers of 62 years of age or older to eliminate paying a mortgage on their home so they only need to pay the taxes and insurance. Generally the down payment on this type of loan is over 50% of the property value and the equity in the home is used by the homeowner to pay the monthly financing obligation.
On rare occasions when the buyer is unable to obtain financing by any other means, a seller may agree to hold a mortgage on the home. For the seller’s protection, the seller usually will ask for a considerable down payment knowing that, if the buyer is unable to obtain alternative financing, the buyer may not be very trustworthy when it comes to repayment of the loan. In a case like this, the closing company will generally draft a mortgage note to be signed by the buyer at closing spelling out the terms of the seller’s financing.
Escrow Deposit
An escrow deposit is a good faith gesture made by the buyer of a property to the seller. You can look at it as the buyer indicating his or her level of seriousness about, or commitment to, purchasing the property.
On most transactions, the escrow deposit is held in the bank account of the closing agent. That is the title company or attorney office which is going to be responsible for preparing the title work and making sure that the closing documents are correctly signed by both the buyer and the seller.
Escrow deposits vary from transaction to transaction and depend on the motivation of the buyer and also the wishes of the seller. In general an escrow deposit is not less than $1,000, frequently is 1% of the contract price and has no upper limit.
The sale and purchase contract will state not only the amount of the escrow deposit but who shall hold it and when it is due. The most usual time frame is within three days of the execution of a contract though a longer or shorter time may be written into the contract with the agreement of both the buyer and the seller. If the deadline happens to fall on a weekend or on a Federal holiday then the deadline is extended to the next business day.
Perhaps the simplest and fastest method of making an escrow deposit payment is by wiring the funds to the closing agent’s bank account after the buyer has been given wiring instructions by the closing agent. If the buyer prefers, the buyer may drop off a check or money order at the closing agent’s office if the buyer lives locally or may send a check or money order in the mail using a fast overnight service that provides the ability for the delivery to be tracked in case of a delay. The closing agent will not accept cash as not accepting cash lessens the need for high levels of security in their office.
If the transaction moves without any interruptions from time of contract to the closing table then the escrow deposit will form part of the buyer’s funds to close. The closing agent, when calculating how much money the buyer needs to bring to closing, will take into account the amount of the escrow deposit which the buyer has already paid.
A sale and purchase contract may contain several contingencies depending upon the circumstances of the buyer. The contract may have an inspection, financing, appraisal or house sale contingency. In communities where the buyer needs to be approved by the Homeowners Association prior to closing then this may also be on the contract as a contingency. It is usual for all contingencies to have a deadline by which time the contingency will be considered as having expired and therefore to no longer be in place. If a specific contingency is not met by the deadline date then the buyer may request a return of the escrow deposit which the buyer has paid by submitting a cancellation of contract and release of deposit form for the seller to sign. Once the escrow funds are deposited, the money cannot be moved by the closing agent holding the funds without both the written consent of the buyer and the seller.
Should a buyer fail to close on the transaction for a reason other than one already provided for in the contingencies or once a particular contingency has expired then the buyer is at risk of forfeiting the escrow deposit. Should the buyer and seller not agree on the forfeiture and a cancellation of contract and release of deposit form not be signed by both parties authorizing the closing agent to release the deposit to the seller then an escrow dispute ensues. At this point, an independent party will perform an arbitration and the decision made by the arbitrator as to the recipient of the escrow deposit has to be upheld by both the buyer and the seller. Sometimes in the case of a forfeiture, only part of the escrow may be given to the seller and part returned to the buyer.
Listing documents completed at the time of listing a property for sale, have a provision in them whereby, should the seller be awarded the escrow deposit, that deposit is shared to some degree with the listing agent’s office. The sale and purchase contract in turn has a provision whereby any forfeited deposit given to the listing agent’s office must be shared with the buyer’s agent’s office.
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