I made the follow comment to a post made by Jason Mook: Switching Boats Mid Stream.

This issue concerns the typical financing contingency found in most real estate contracts. In essence, the financing contingency says the purchase and sale of a property is subject to the buyer obtaining financing. If the buyer can’t obtain financing, they can’t buy the property (they won’t have the money). The purchase and sale agreement is terminated and the buyer’s earnest money is returned. But, just because a buyer is unable to obtain financing under the strict terms of the contingency, doesn’t always mean they can terminate the agreement and get their earnest money back. They have to have made a good faith effort.

Jason – A stimulating post. I agree with your position as far as it goes.

To my mind, and from a seller’s perspective, as long as the buyer is making a good faith effort to obtain financing, you’d want to give the buyer the benefit of the doubt and let them pursue (within a reasonable time frame with the seller’s agent continuously monitoring, etc.) financing.

In your scenario, the buyer switches lenders after; 1) the seller receives a loan commitment letter per NWMLS 22a and 2) the underwriter subsequently fails the file.

However, consider the scenario where a buyer’s offer is accepted by the seller in part based upon a “tight” preapproval letter (where the loan commitment is subject only to satisfactory appraisal, clear title and title insurance, etc.)

After mutual acceptance and prior to receiving a loan commitment letter per NWMLS 22a, the buyer switches lenders.

Subsequently, the buyer is unable to obtain financing from the second lender and claims the financing contingency specified by NWMLS 22a has failed.

The original preapproval letter was material to the seller accepting the buyer’s offer.

And the winner is… the lawyers?

I was just reading a comment(#43) to a post on deceptive radio advertising for mortgage lending on Seattle’s Rain City Guide regarding selecting an agent when I received a call from the selling agent on one of my recently closed transactions.

He said he was missing a copy of an Agency Disclosure Form signed by his buyers. I thought he had misplaced his copy of the form. I had one and offered to send him a copy. That wasn’t it. He simply didn’t understand the form. There’s more, but no reason to repeat it herein.

I thought to myself… “Wow. Here someone has placed responsibility for a purchase involving hundreds of thousands of dollars into the hands of someone with limited knowledge of the forms being used. What else doesn’t he know and what if something had gone south with this transaction (it didn’t)? Did the buyer have a clue when they chose their agent?”

It got me thinking (again) about the risks to which buyers and sellers are exposed… and the fact that they have no idea of the extent of their exposure. They simply don’t know what they don’t know.

The vast majority of the time nothing significantly untoward happens and the extent of their risk exposure is never uncovered. Oh, maybe they spent or received several thousand off of what they could have otherwise realized (enough to cover the cost of more knowledgeable professional?). But unless particularly egregious, there’s generally never any way it will come to light.

But then again why would anyone expect anything different? Isn’t this the same problem you confront when selecting a doctor, attorney, or auto mechanic?

The first axiom of selecting a real estate agent (or any other professional for that matter) ought to be an understanding that they (and the service they provide) are not fungible (interchangeable). In other words, not all are alike.

However, the foregoing notwithstanding, the following transfers are exempt and do not require a property disclosure form:

1. A foreclosure, deed-in-lieu of foreclosure, or a sale by a lienholder who acquired the residential real property through foreclosure or deed-in-lieu of foreclosure**;
2. A gift or other transfer to a parent, spouse, or child of a transferor or child of any parent or spouse of a transferor;
3. A transfer between spouses in connection with a marital dissolution;
4. A transfer where a buyer had an ownership interest in the property within two years of the date of the transfer including, but not limited to, an ownership interest as a partner in a partnership, a limited partner in a limited partnership, a shareholder in a corporation, a leasehold interest, or transfers to and from a facilitator pursuant to a tax deferred exchange;
5. A transfer of an interest that is less than fee simple, except that the transfer of a vendee’s interest under a real estate contract is subject to the requirements of this chapter; and
6. A transfer made by the personal representative of the estate of the decedent or by a trustee in bankruptcy.\

Update:Â If you’re a FSBO looking for a property disclosure form (form 17 equivalent), you can find it here.

**Update 2:  See comments

Closing (at least here in Washington State using NWMLS forms) is defined to have occurred when the transfer documents are recorded (the deed) with the county, and, sale proceeds are available for pickup (from the closing agent) by the seller. The seller doesn’t need to pick up the sale proceeds, they may have chosen to have them mailed or wired somewhere. But they could pick them up if they had so chosen.

Both are requisite for closing to have occured.

Closing agents will normally not record transfer documents unless they also possess all the monies needed to conclude the transaction (not just from the buyer – it’s possible a seller may need to bring funds to the closing table). They need what’s called “good funds”. That means the money is actually deposited into their trust account.

Sometimes buyers get caught because they don’t know good funds are required. Just having a check, even if it is a certified or registered check, isn’t the same thing as actually having the required funds in their trust account.

Imagine the situation where a transaction is to be closed on a Friday. Escrow is running behind so signing ends up scheduled for the same day as closing (fairly typical late in the week, especially towards the end of the month which is when most buyers want to close because they’ll pay less interim interest. Don’t even think about closing the last days of the year.)

The buyers intend to use the weekend to move in. They bring in their certified check. Unfortunately they won’t be closing until the following Monday at the earliest because the closing agent needs good funds and the transfer documents must also be recorded. Since the county isn’t open for recording over the weekend or legal holidays, the earliest recording day is Monday.

The buyer could have wired funds to the closing agent trust account the same day and then escrow (the closing agent) would have had good funds. This is the procedure to use when the buyer is using the sale proceeds from the sale of their existing home to purchase a new home (and you’re not doing a simultaneous closing using the same closing agent).

The snag you can run into here is that the closing agent usually doesn’t send the transfer documents to the county for recording until mid-day or later. So recording numbers (confirming the docs have been recorded) aren’t available until later in the afternoon. There’s usually a cut-off time for wiring funds (typically 2:30pm). If the closing agent doesn’t have recording numbers prior to the cut-off time, funds will not be wired (and deposited) until the next day.

Same thing happens with lenders. Many/most lenders want to review the final documents before they’ll transfer funds to the closing agent. They typically need up to a couple of days for review, especially if the lender is located on the other side of the country (in another time zone).

Both the buyers and the sellers could have signed closing documents anytime before closing… days or even weeks before the closing date.

So why don’t buyers and sellers just always sign early to prevent closing delays? …Lenders.

If the closing agent doesn’t have docs from the lender they can’t prepare their documents (including the closing statement – HUD-1).

Your mortgage originator typically isn’t privy to the lenders back room. They won’t have the power to speed things up late in the game. To the back room/underwriter your loan is just another file, and they’ll get to it when they finish those before it.

That said, carefully choosing your mortgage originator will lessen the chances of closing delays because they’ll do what needs to be done to get loan docs to escrow before they become critical.

So the key points to a smooth, on-time closing are:

1. Let your closing agent know you’ll need a day or two to review the closing statement (HUD-1).
2. Choose your mortgage originator carefully (if you’re the buyer). Let them know up front a closing delay due to the lender being late with loan docs will not be tolerated. If you’re really on top of things, you as the buyer will want a day or two to review loan docs before you’re asked to sign anything.
3. Start early checking with the buyer’s lender if you’re the seller’s agent. Let them know the closing date specified in the contract is inviolate. You’ll need loan docs at escrow early because you’ll not only need to review the HUD-1 prior to closing, but you’ll need to sign early (did you mention you may be leaving town 3 days before closing?).
4. If you need to deliver funds to escrow (both buyer and sellers may need to deliver funds), don’t wait until the last minute.

Sometimes as an agent there’s nothing you can do to prevent a closing delay. It’s out of your control. Especially if you’re the listing agent with nothing but the lenders reputation to use as leverage. But starting early goes a long way.

David Paul-

Good post and timely advice.

It’s been my experience (yeah, I too have to admit to being around in the 80’s) the situation where the buyer took a conventional first mortgage and the seller provided a second blindsided many a seller.

Sellers sometimes forget they have to be prepared to take out the first if the buyer defaults (on both mortgages) to protect their position. If/when a buyer defaults, most don’t just default “a little”.

Nevertheless, I’ve dusted off my copy of “Conventional Financing with Seller to Carry Second” addendum.

In yesterday’s market a lot of agents picked a number that would satisfy the seller and wait for the market to catch up. That technique appeared to have some success when prices were escalating 15% a year or more. I say appeared because although a home might have sold, it may not have been sold at the highest price possible.

Another technique that seems to have had a lot of agent and seller following, particularly for higher priced properties located in south Puget Sound, is to intentionally overprice a property and then gradually lower it over time. This isn’t a matter of making a mistake with initial pricing. It’s an intentional strategy. Kind of like a reverse auction. Just keep lowering the price plumbing for the bottom until someone bites.

Problems with this strategy include:

1. Becoming shopworn is the obvious first issue. As a property languishes on the market, agents (and buyers) begin to wonder what’s wrong with the property – why hasn’t it sold?
2. Good agents will check the property history right off. Often you can see what’s going on, especially if the listing agent is one known to use this technique. Why make an offer in the face of today’s listed price when you know it will be lower tomorrow?
3. The power of scarcity has been sacrificed . If you know you be able to buy tomorrow, there’s no hurry today (even at the same price). This is a far different from a scenario from where there’s only one, everyone wants it, and you know it will be quickly sold.
4. Homes get maximum exposure within the first couple of weeks of hitting the market. There’s a pent up pool of buyers who’ve been unable to satisfy their requirements with existing homes on the market. These buyers are the “parade“. Once the parade has passed everyone goes home… and getting them back is damn near impossible. From here on it’s just new buyers entering the market. Getting the parade back requires a really dramatic price drop.
5. Emotional cost to a seller increases dramatically over time.
   • Where’s the bottom on pricing?
   • As Barb Swartz would say (yeah, I took the course), “the way you live in a home and the way you sell it are two different things.” In other words, no one can live like this for long.

Is this to say anytime you have to adjust a price it’s a screw-up that could have been avoided? No, I’m not saying that. The market changes, and although perfect pricing is the goal, it’s not always possible. But you can correct it before the parade goes home.

Price the property appropriately and expose the ‘heck’ out of it.

Note I said simple, not easy. The distinction reminds me of something I heard or read about Bob Hope being “accused” by a reporter of being worth $22 million – back when a million dollars was really something (sorry I can’t remember the exact details). Bob responded with “it’s really pretty simple, all you have to do is make $1 million a year for 22 years.”

Of course the devil is in the details. Pricing a property appropriate to a buyer’s perception of value can include enormous variation. The gap between pricing “as-is” and preparing a home to “market-ready” condition is where the majority of my efforts are spent.

Most of the marketing I do takes place before a home is ever placed on the market.

What are we selling? – we’ll probably need a home inspection to find out. What repairs are mandatory… what repairs/improvements will also provide a significant return on investment? We can’t properly price the home without knowing these things first. Who will complete the repairs and/or improvements and will I or the client incur the expenses (and risk)?

When will the home be ready for staging by a professional designer (I use professional designers rather than stagers, but that’s another story). When will it be ready for professional grade photographs? Four color laminated brochures can’t be sent to the printer, nor can we built the property’s web-site without the photographs first being completed. All support a buyer’s perception of a home’s value.

All pre-listing marketing must be completed prior to “show-time”. We only get one chance to make a first impression, to be “new on market”. NWMLS rules require all listings be turned in within 24 hours of signing, so we’re doing the all the up-front work on a handshake.

Only agents genuinely confident in their knowledge, abilities and client relationship are going to be prepared to make the full pre-listing investment in marketing. Nothing separates the talkers from the doers like having to put a significant sum of your own money at risk.

Exposure is a topic for another time.

Negotiating agreements and then getting them closed also take time and effort. But without an offer, they’re moot.

When an offer materializes within the first week or two of a home coming onto the market, there’s always someone who comments on how simple it is to sell a home. And they’re right of course… just like Bob Hope said.

Ah yes, the office tour… I concur. It’s a poor excuse for marketing offered up to anxious sellers. It always bothered me that tours were presented to a seller as meaningful exposure. And I must confess to having had and been on many office tours during 15 years with JLS.

In the end (I generally quit going or having them), the only time they were useful was if a home was otherwise very difficult to see (high end & appointment only).

The company line was that you needed to support your fellow agents by going on tour. Actually, it was a requirement for new agents to attend weekly office tours, ostensibly to learn the market and to “support” their fellow agents.

I always thought that if you had a buyer for whom a home might be a good match, why wait for the weekly office tour? You’re out the door the day it first comes on the market.

And if you’re keeping up with the market, it’s much quicker and efficient to tour alone or with one other like minded person. You only see the homes of the type and location in which you specialize.

Ditto with broker’s open houses.

I see so many agents desperate for traffic today. The level of bribes offered to tour a home keep rising. Again, I’m sure, offered up as meaningful exposure to a seller, which, of course is nonsense.

It’s one thing to offer a cup of coffee and a snack as a courtesy. Quite another to offer money or ‘big’ prizes. (It will be interesting to see how long that persists given the current title company issues and the deteriorating state of the mortgage business.)

If you think about it, a desperate listing agent will never know whether their traffic was legitimate, the result of the home (presentation) or a response to the level of a bribe.