Purchasing a property, either for the first time or for the fifth time, requires care. It is a big decision and one that can be highly rewarding if executed well. Yet it can also become a source of stress for years if not done right. For agents, that can make a massive difference in reviews, referrals, and their ongoing competitiveness and profitability. How well your next deal goes may rely firmly on how much of the following is done in advance of making an offer…
1. Be Sure
Once clients make a written offer to buy a home they are bound to that offer. Experienced agents will put a deadline on the offer by which the seller will have to accept or counter. Once it is accepted the buyer is legally obligated to the contract. Be sure it is a good match, and clients are really 100% in to buy this property.
2. Preliminary Due Diligence
While the chaos of the global credit and housing crises created many good deals in the real estate market, it has also increased the need for early due diligence. There has been an increase in fraud, as well as the number of properties which have been left abandoned for extended periods, including those not fully or properly constructed.
The more investigation and homework agents do in advance, the less time and money they’ll waste on these properties. This may include verifying the listing agent and seller’s identification, viewing building permit history, requesting copies of recent inspections, and even preliminary title search reports. Great agents will educate their clients on these items, encourage them to invest in due diligence early, and ensure vendors are lined up who can deliver inspection reports within the given time periods.
3. Confidence in who is holding the Deposit
An earnest money deposit normally accompanies any real estate purchase offer. These funds should never be given directly to the seller. They should be held in the regulated escrow account of a third party such as a U.S. based real estate agent’s broker, title insurance company, or attorney. Look for an escrow provider that has a good track record, and is financially stable, so that you are confident in them being around for the closing, and distributing funds on time. At this time, agents also need to ensure clients have proof of funds letters, mortgage pre-approval letters, or both if applicable.
For international transactions agents need to ensure documents are translated professionally if need be, and that funds will actually be available in U.S. dollars, and to the closing agent on time for the stated closing date. Building relationships with qualified translation services and Forex companies can help streamline this process for future clients.
4. Accurate Estimates of Expenses
One of the main reasons home buyers either back out of contracts, or become unhappy with their purchases is the additional closing costs or holding costs they didn’t anticipate in advance. The more accurate your estimates of these costs, the better the experience for everyone. Mortgage lenders and title companies will both provide estimates of closing costs. If the property is in a condominium or homeowners association (HOA) the monthly or quarterly fees, and any special assessments, as well as application fees should be investigated in advance. Encourage clients to get quotes on all the types of insurances early.
When purchasing internationally, clients need to account for foreign currency exchange costs, and to shop for the best services. Real estate transactions notoriously almost always end up costing a little more than expected, as do monthly payments. Help clients craft an offer on a home that leaves some extra room in this regard so that buyers won’t feel they have to pay more than they can afford later. As an agent making sure you only refer clients to trusted merchants who can provide accurate estimates and quotes, and who won’t bait and switch them is critical.
5. Set a Safe Timeline
Failing to complete a real estate closing on the set date can become very expensive. At a minimum the seller may charge a daily penalty for granting an extension of the contract. They may even demand renegotiating a higher purchase price, or request an additional non-refundable deposit. In a hot property market with many active buyers, and potential backup, offers the seller may simply walk, and be entitled to retain the deposit.
Always err on the side of caution. Buying from abroad can mean time zone differences will cause delays in exchanging messages, information, and paperwork. This can affect every step of the process. For example; if the selling agent and mortgage lender say it is possible to close in 45 days, allow at least 60 days before your closing date to be on the safe side. Building relationships with local vendors, and realtors can help overcome issues when an extension is needed, and provides some power to expedite the process, and get files rushed when needed.
6. Read the Paperwork Thoroughly
Be diligent about reading and understanding all of the paperwork you can get in advance. This includes condo docs, association rules, seller disclosures, mortgage approval stipulations, and the offer contract itself. New electronic signature services can make signing from a distance fast and easy, but they can also tempt buyers into breezing through the fine print. Buyer agents in particular should preview all documents and seller disclosures to preempt any issues later, ensure electronic documents are accurate, and review them with clients prior to being signed. You don’t want them to rush because they are hopping on a plane, then blow up the deal a week later when they actually read the documents.
7. Know Your Exit
Decide in advance what will or won’t break this deal for your client. Help them set accurate expectations. In hot markets sellers often won’t allow many, if any contingencies for appraisals, repairs, and financing. Still, things do happen. A divorce, work layoff, major life change, or bankruptcy in the midst of a deal can be a nightmare. If there are issues buyers’ agents need to bring them to the seller’s agent immediately. This can aid in an amicable resolution, and is just about treating others as you would like to be treated if the shoe was on the other foot. A great listing agent will assist you and your client in gracefully, safely, and legally exiting a contract if you must, to the best of their ability.
As with any major financial investment the information in this report is simply for general knowledge. Make sure to seek counsel from licensed professionals that can assist and advise you in regards to your client’s individual situation, and refer them to quality advisors too. In today’s strong property market, it is vital to be able to move fast when the right opportunity becomes available. Yet, that should never mean exposing yourself or clients to risk needlessly, or skipping the basics. The better you know the above and apply it in advance the more successful you’ll be in bidding on properties for your clients, and the happier they’ll be every year they own them. That positive spiral will help concrete your position in the market, and aid in generating more profitable business, and more referrals.