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C H A P T E R 4
Dates, Deadlines, and Details
Logistics is the planning and implementation of the details of an operation. In the real estate world, this means who does what when. From response times at the beginning of the offer process to loan application, inspection, appraisal, and loan denial deadlines during the transaction, you have a lot to keep track of when a contract gets written, considered a and accepted. When it comes down to the wire, you’ve got settlement, funding, recording, and, most important, possession to worry about. The smoothest transaction in the world can end in anger and confusion when logistics are not considered.
Sometimes a transaction never gets off the ground because of poor logistical planning.
The three primary reasons you, as the buyer’s agent, may be the target of this anger and confusion are:
1. The buyer’s offer has been rejected.
2. The buyer loses his or her earnest money.
3. The buyer is not able to move in when expected.
While contracts vary and special provisions can be written in for ‘‘nonrefundable’’ earnest money, some of the deadlines we’ll be discussing provide an ‘‘out’’ for buyers. This out allows them to cancel the contract and leave the transaction with their earnest money in hand. Violate a deadline a however, and the seller may get to keep your earnest money.
Every state’s purchase contract is different, so I won’t even attempt to dissect a certain state’s form. I will instead go through some common deadlines and take a look at how you can avoid problems as you go. When questions or discrepancies arise, always consult with your broker and/or legal counsel.
Also, keep in mind that this book is written from the perspective of a loan officer, so my major concerns are to provide you with a look from my side of the fence. This is based on my own experiences and those of people I’ve interviewed a usually with mortgage, title, and client service lessons in mind. While I think you’ll find this information very helpful a there most likely will be a whole other set of details you have to consider on every contract that have to do with the internal processes of your own office: updating MLS listings, getting contracts to transaction coordinators, sending escrow instructions, etc. Make sure you understand this internal system as well to keep all parties in the loop and on course.
RESPONSE TIMES a had an agent tell a client once that the response times on the contract were really more of a guideline, not a true hardand-fast rule. Those of you out there who’ve experienced a hot, fast-moving market are shaking your heads right now.
You can tell stories of listings you’ve had with multiple offers where it was all about response deadlines. Many of you have probably had a least one listing where the buyer to whom you made a counteroffer missed out because of an agent who didn’t move quickly enough.
The other side of the coin is a sharp buyer’s agent who is fully aware of the impending deadline, but has a buyer who either can’t be reached or just doesn’t get the urgency of the situation. Sometimes buyers can be reached by phone and want to accept the counter, but aren’t available for signature within the deadline. That’s where your reputation with your colleagues and knowledge of the standard practices in your area will determine the outcome. Verbal acceptances with promises of ‘‘signatures coming’’ can be tricky business.
LOAN APPLICATION DEADLINE
Hopefully, you are representing a buyer who is fully preapproved and this is not a worry. The offer you are writing will always be stronger with a pre-approval letter attached.
If pre-approval hasn’t happened yet, be sure to discuss the importance of moving quickly. I’ve had many agents request the name of the client’s preferred lender while they were writing the contract so that they could call and make the application appointment right then. If the preferred loan officer is out of town and won’t be available for ten days, it’s nice to know. A decision needs to be made on whether to try pushing out the deadline (not a great idea) or looking for an alternative lender.
Coordinating home, termite, and septic inspections can be quite the juggling act. Throw in a water test, if necessary, and things become even more complicated. The property, local requirements, buyer’s preferences, and lender requirements will dictate what the word ‘‘inspection’’ means. This is just another example of how knowing your area and coordinating with a lender early can be central to a smooth transaction.
You’ve got to figure out what inspections your client wants or needs and how long they will take to complete.
While a professional home inspection is always advisable, a client may choose not to have one, or may want to do their own inspection. If they want a professional report, hopefully you are familiar with the availability of inspectors in your area and a general turnaround time.
Do we need/want one or not? In some areas termite inspections are an unwritten rule on any property because termites are a common problem. If a professional home inspection is done, the termite inspection is usually already part of the service. Many times your loan type dictates what is required.
Utah is a great example of the term ‘‘it depends’’ when it comes to termite inspections in conjunction with loan requirements.
While we have termites in Utah, they are not a common problem and termite inspections are not automatically requested by a buyer. Typically, if a buyer is doing a conventional loan on a property, a termite inspection is not needed. The exception may come when an appraiser notes in the appraisal that there were signs of infestation. (This would be a rare fluke because appraisers are not going into a home looking for termites; it’s not their job. But if they see something obvious, they are supposed to note it in the appraisal. Then the reviewing underwriter will want the home inspected and treated if necessary.)
One other exception would be when an underwriter reviews an appraisal and notices in the pictures of the home that there is direct wood-to-ground contact. Many seasoned underwriters will ask for a termite inspection in this instance.
Veterans Affairs (VA) loans and Federal Housing Administration (FHA) loans have completely opposite requirements.
This is a new twist for lenders in Utah because VA
and FHA have always been very similar in their property standards. FHA recently dropped its termite inspection requirement for Utah. Last year we had to have them; this year we don’t. Again, unless an appraiser notes a problem or an underwriter requires one, termite inspections are no longer part of the FHA loan process. VA loans, on the other hand a still require a termite inspection.
So, my advice on termite inspections is to know your area and/or call your buyer’s lender to be sure.
For some of you who always deal with properties on public sewer systems, this will be a great bit of info for the property that’s somewhere in your professional future and has a septic tank.
Some counties require septic inspections anytime a home is sold. These are usually conducted by a local municipal authority.
They will be looking at: (1) flow (are the toilets flushing and the drains draining); (2) any signs of improper leach field function (standing water/sewage in the yard); and (3) whether the tank has been pumped in the last five years.
If not, that will have to be done.
FHA loans require a septic inspection only if there are signs of system failure or if an underwriter or local authority requires it. VA wants a septic inspection if there are known soil percolation problems, or the local authority or underwriter requires it. Conventional loans are dependent upon the individual underwriter, but they are usually required.
If the septic tank needs to be pumped, a whole different set of considerations enters the picture. This is great dinner conversation and warrants taking some extra time for a few fun-filled facts. First of all, it is rare that a homeowner remembers or even knows that it is advisable to have a septic tank pumped every five years, especially if the septic system is older. Newer tanks are much more efficient but won’t be exempt from pumping if it is a loan or municipality require-ment. The party really starts when the homeowner realizes that in order to get the tank pumped, they have to locate the tank, and, more specifically, the opening to the tank. Nine out of ten owners don’t even know where their tank is on their property. Sometimes you can go to the county and the system will be on record with a plot plan of the tank so you can locate it. Many times I’ve had sellers out digging up half their backyard trying to find the septic tank. This gets especially interesting in some regions in January when the ground is frozen.
Now for the really good news: Technology has left no corner of the professional world untouched. It has even found its way into the septic system business. I discovered this last year when I had a buyer for whom I was doing a loan, and who was also selling a property without the assistance of a Realtor. My client was notified by his buyer that their loan required a septic inspection and since they had lived there ten years and never pumped the tank, a tank pump as well. My client called me to (a) confirm that this was a normal lending requirement, and (b) lament loudly about the fact that they had no idea who to call for service a what it was going to cost them, or where the tank was located.
It just so happened that I was familiar with a septic service company in his area but couldn’t remember what they charged. For whatever reason, my client felt too overwhelmed to make a phone call and asked me to please call them and find out the cost and call him back. Hey, customer service, right? So I make the call and during the conversation was informed that they offered a tank locating service as well. For a mere $60 they would drop a ball in the toilet that gives off a radio signal. They would then flush the toilet and follow the signal out to the backyard until it stopped. Tank located. But here’s the best part. They offer a $20 rebate if you’ll retrieve the ball and return it to them. Is that a deal or what!?
A water test could be required on a private water system (a
well) for many reasons. Some jurisdictions require it. Your buyer may want it or it may be customary to the area.
An FHA loan requires it only under certain conditions,
i.e., mining or heavy agriculture within a quarter of a mile a underwriter discretion, etc. VA will want it no matter what.
Conventional loans may want it at the underwriter’s discretion and most underwriters will want one. Lack of potable water means major problems with marketability and value.
Okay, so now you have all your inspections figured out and have come up with a reasonable deadline date. Now it’s time to worry about the appraisal deadline. Time frames can really vary from area to area. Many areas are saturated with appraisers and turnaround times are within a week. Other areas, either because of lack of appraisers or an especially busy market, are dealing with a three-week minimum wait for an appraisal. In rural areas, long waits are especially common.
Wait times can also be lender specific. You would think that since the lender orders the appraisal, they would just use whatever appraiser is fastest. Most lenders will only work with certain appraisers that are on their approved list or ones with whom they have ongoing relationships. If those appraisers are swamped, everybody waits. Knowing general timetables for your area will help, but it’s always better to check with the lender if you can. One other note is that with
VA loans, the lender doesn’t get to choose the appraiser. The
VA automated appraisal system assigns the appraiser to the property. While VA has recommended turnaround times for their VA-approved appraisers, there are no guarantees.
LOAN DENIAL DEADLINE
To be practical, this date should be far enough after the appraisal deadline to allow for what we call final underwriting.
A loan can’t have a final approval without the appraisal, so the lender can’t go forward with this step until the appraisal is available. How long for final underwriting? That, too, can depend from lender to lender. For some it’s three days; for others it will be two weeks. If you haven’t researched this with the buyer’s specific lender, you may be creating a deadline that can’t be met. This would, therefore, put your buyer at a higher risk for losing their earnest money if something goes wrong. a can argue for two different approaches to loan denial deadlines. From the seller’s perspective, dragging out a loan denial date means that a buyer can tie up the property for a longer period of time, have their financing denied, and still get their earnest money back. While a seller’s property isn’t taken off of the market, the status of ‘‘under contract’’ tends to scare off any other interested parties. Not getting to keep the earnest money is sort of like adding insult to injury if everything falls apart at the end. While no amount of earnest money is going to make up for a lost sale, at least it’s something.
As a seller’s agent you may want to lobby for as short a deadline as possible when reviewing an offer with your client.
Buyers, on the other hand, always have the possibility of last-minute loan denial due to completely unforeseen circumstances.
I’ve had buyers scheduled for settlement on a Monday who got laid off from their jobs on the previous Friday afternoon. It doesn’t seem fair to take their earnest money when they’ve just suffered such a financial blow. To protect them from losing their earnest money, a loan denial date as close to the settlement date as possible is the way to go. Then the question becomes, will the seller accept it?
This is the day when buyer and seller sign documents. Most of us call this ‘‘closing,’’ but we are usually wrong. Closing isn’t until the loan has actually been funded by the lender (and the title/escrow company has the funds) and then recorded at the county recorder’s office. At that point, the transaction is actually closed.
Figuring out the best settlement date for your buyer means you have to work backward. You first have to ask the question, ‘‘Exactly when do you want to take possession?’’
You have to start with the day (and time of day) your client wants to take possession and work backward from there.
This is absolutely critical for the buyer who is selling a home simultaneously and trying to orchestrate a smooth move from one house to the other. Get this one wrong and you can have a buyer sitting curbside in front of their new home in a
U-haul they can’t unload and is supposed to be returned to the rental place in four hours. Not to mention the fact they have nowhere to sleep that night.
First you consider any number of days or hours that the seller has requested to retain possession after closing. Example:
In a counteroffer, the seller wants to relinquish possession
48 hours after recording. Now calculate the time it takes to record. Some escrow companies have the ability to record electronically, so recording can happen within minutes of receiving funds. Most escrow companies still have to physically take the documents to the recorder’s office. Depending on how they schedule their personnel, this can mean the difference between a 4:58 p.m. recording on Thursday afternoon and a 10:00 a.m. recording on Friday morning. That means instead of moving into the home on Saturday evening at 5:00 p.m., they have to wait until 10:00 a.m. on Sunday morning, if the seller is not flexible.
Funding can really foul up a closing—thanks, again, to your local flaky lender. Every lender handles their funding differently. You have to hope that whoever is in charge of doing this funding has shown up to work today, and if she hasn’t, you have to hope that someone is supposed to be a backup. I had a funding once that took three days to materialize. a was a loan officer in a brokerage so I was dependent upon the funding department of the lender to whom the loan was brokered. (This was many years ago, and I have since moved on to be with a mortgage banker that controls our fundings in-house.) The point here is you need to talk to the lender, get a time frame, and then pray that it happens.
Funding, recording, and possession practices vary from state to state. Some states expect ‘‘table fundings.’’ In other words, the loan money beats the client to the settlement table. When loans are table funded, buyers can get the keys to their home that same day. In Utah, loans are typically funded and recorded the next business day after settlement.
Buyers get their keys then or at the agreed-upon possession date after recording.
Take special care with out-of-state buyers. If they’ve bought and sold a home before they often assume that everything works the same in every state. This is how you and your clients can arrive at the ‘‘anger and confusion’’ point a mentioned at the beginning of this chapter. Again, when writing an offer, don’t ask, ‘‘What day do you want to settle/
close?’’ Instead ask, ‘‘What day do you want to take possession?’’
and work from there.
Once a contract is accepted, be sure that you or your staff log all of your contract deadlines and follow up on each one.
A good loan officer will be doing the same. By calendaring these items at the beginning, you can relax and work through the transaction, confident that you are representing your buyer brilliantly!