REAL ESTATE "TRANSACTION KILLERS LIST"
It's important to proactively discuss the parts of the process that can KILL a real estate transaction…
1. EARNEST MONEY DEPOSIT
2. THE HOME INSPECTION
3. THE APPRAISAL
4. NEGOTIATING REPAIRS
6. REMOVE CONTINGENCIES
7. LOAN APPROVAL/CONDITIONS/FUNDING (IF APPLICABLE)
8. TITLE ISSUES
EARNEST MONEY DEPOSIT
Per the standard California Association of Realtors approved contract the standard time frame to deposit earnest money into escrow is 3 days from when the contract was accepted. These funds can typically be wired or a check can be dropped off at the escrow office.
In a short sale, this can be different. A short sale should include a SHORT SALE ADDENDUM. This addendum confirms time frames. The possible time frames are:
1. Per the agreement (At the time the Contract Is Executed by buyer and seller)
2. At the time short sale approval (all loans) is obtained
So, regarding the Earnest Money Deposit, if it’s “per the agreement” then you will deposit 3 days from acceptance of the offer by the seller. If it is when short sale approval is obtained the earnest money deposit would need to be deposited to escrow 3 days after the written short sale approvals were provided to buyer.
THE HOME INSPECTION
The Home Inspection is not a Transaction Killer in the sense that it is out of your control. Quite the opposite. The Home Inspection is your opportunity to do your due diligence and determine what may need to be repaired or addressed. If there are issues with the property we may want to make a "Request For Repairs”. (See “Negotiating Repairs” in this form for more information.) A Home Inspector should inspect the normal systems and components of the house such as Heater, AC, Appliances, Water Heater, Sinks, Showers, Outlets, Attic, etc. The Inspector may note if he thinks there may be problems with a roof, organic growth, or other potential problems that need to be inspected by specialists. If necessary, we can obtain more specific reports. Usually the seller will order a termite inspection, depending upon what was negotiating in the contract. This report will be provided to the buyer. The termite report may have section 1 and/or section 2 issues. In most cases, if termite clearance is part of the contract, the seller will pay for section 1 issues. Often your mortgage bank will require section 1 termite clearance if such is agreed as part of the contract. It will always be my suggestion that you cannot do too much due diligence.
The appraisal is ordered by the loan officer, and is performed by an independent third party Appraiser, through an appraisal management company.
- · Keep in mind the appraiser will be fairly conservative. If you are getting a “Great Deal”. Don’t expect the appraisal to come in above purchase price. Appraisers seem to be very conservative to avoid appraisal reviews, etc which make their jobs more difficult (as well as your loan process).
- · Appraisers follow the USPAP guidelines www.uspap.org/. This is not an easy read and I only mention this because the guidelines are very black and white. They require a specific process to analyzing values and often do not reflect Fair Market Value, which by definition is what someone is willing to pay. If you ordered two appraisals it would be VERY unlikely they come in at the exact same value.
- · By law, your loan officer is required to provide you a copy of the appraisal.
If the property doesn’t appraise we have three options:
1. ASK THE SELLER TO REDUCE THE PRICE TO MATCH THE APPRAISAL
2. PAY THE CONTRACTED PURCHASE PRICE IF THEY WILL NOT REDUCE
3. CANCEL THE TRANSACTION
I do not often experience properties not being appraised at the purchase price. But, with today's mandated appraisal process and some competitive listings it’s important to be educated.
Once we have the home inspection and the appraisal we can assess if there were any unseen or unknown issues with the property we feel the seller should address. This is done with a “Request For Repairs”. The request typically outlines repairs to be done during the escrow period or often with a comparable seller credit to the buyer. The seller credit would pay for recurring or non-recurring closing costs, thus freeing up that money for you to do the repairs once you own the home. Many people prefer to oversee repairs themselves, thus choosing the seller credit. Although, this is something that would need to be considered by the loan officer as it can have a direct impact on the ability to get the loan approved.
There are quite a few disclosures that will need to be completed by both the Seller and the Buyer. The Seller will typically complete transfer disclosures letting you know of any positive or negative information regarding the property. The buyer will need to sign off on these, as well as other disclosures. In the litigious society we now live in, expect to complete a fair amount of paperwork throughout the process.
17 days from Sellers acceptance of the offer, Buyer must remove contingencies.
*Per standard California Association of Realtors contract. But, everything is negotiable. Base the contingency removal on your contracts specified timeline and ask me if you have any questions.
Typically, the contingencies are Inspection, Loan Approval, Appraisal, Title Report, Condo/HOA Documents, etc. Once the contingencies are removed, failure of buyer to perform (close the transaction) will likely result in the buyers earnest money deposit being given to the sellers as liquidated damages. It’s important to move quickly on all aspects, especially the loan, so that you can feel confident removing contingencies.
LOAN APPROVAL/CONDITIONS/FUNDING (IF APPLICABLE)
Once the inspection and appraisal are complete, the last of the common Transaction Killers are any unfulfilled loan conditions.
Your lender may need to see updated bank statements, pay stubs, tax returns etc to verify income and assets etc. Don’t be surprised or shocked when your loan officer asks you for something that sounds ridiculous. The reason prices are where they are is due to lax lending practices. The pendulum swings both ways and most lenders have become ultra-conservative and want to pay attention to every detail. Please do not buy anything big, have your credit pulled, miss any payments, etc before consulting with your loan officer.
If for any reason you cannot provide them or cannot meet the final requirements set by the underwriter, the Transaction will likely fall apart. If you use our preferred lender there is a far less chance of this happening, because he will not false promise results. For your reference, my preferred lender is:
Elvin J. Wesley
president/mortgage loan consultant
Ranch & Coast Mortgage Group, Inc. A Real Estate finance company CA DRE: 01786879 nmls: 237410
101 N. Acacia Avenue, Suite 102, Solana Beach, CA 92075
c 760.580.1733 t 760.230.2042 f 760.487.1295 e firstname.lastname@example.org website www.rcmloan.com
Once you have met all of the required loan conditions the escrow company will be in touch to establish your meeting time to sign and close.
TIME TO CLOSE!
Once you have signed all of the required closing documents and loan documents if applicable, it is up to the escrow and title companies to finalize the transaction.
Timeline to close:
Once documents are signed, the title company will send loan documents to the loan company. The funding department will review your documents for completion and upon acceptance will “fund” or send funds to escrow.
Once the loan has funded the escrow company will notify the title company who in turn records the deed with the county. You will officially become the owner shortly thereafter when we receive “Confirmation” of recording. The title company will send a notification of CONGRATULATIONS and I will be in touch shortly thereafter to let you know the transaction is complete and the house has become a home.
I look forward to working with you! Please keep this for as a reference throughout the transaction. If you should have any questions please feel free to contact myself or my team for assistance.