A Near Perfect FSBO Experience (PART 3 of 3)

THIS IS WHERE THINGS USUALLY FALL APART!

It looked like we had a deal. But there were still important details to discuss. And Sarah asks the perfect question to help bring up what needed to be talked about next. “You said they need documents from me, what will they need?”

This is where things often fall apart for most sellers. But that didn’t happen here for two reasons:

(1) My buyer was certain that she wouldn’t have any problem qualifying for a loan, she just didn’t know what was required of her to do so.

(2) I prepared in advance for an unprepared buyer because most potential buyers are in fact “un-prepared”.

Keep in mind I’m talking about an average priced home in a typical middle income neighborhood.

If you’re selling a house in a “high end” neighborhood where driveways are filled with BMW’s, Mercedes Benz and Jaguars you may find buyers are a bit more prepared, but don’t count it!

No matter the price range, the smart thing to do for any seller is to be prepared for the UN-prepared buyer. You may have heard this before but it bears repeating …

“Luck is what happens when preparedness meets opportunity” Seneca

You could go back through this story later and replace Sarah’s name with “opportunity” and mine with “preparedness” and it would all make perfect sense in the end (I think)!

BE PREPARED FOR THE UN-PREPARED BUYER!

Sarah’s question “… what will they need” was a good indication that she had NOT been pre-qualified for a mortgage and that she probably hadn’t even spoken with a mortgage company yet.

So I had to ask to be sure: “Have you been pre-qualified for a mortgage yet?” 

She said “No, but I have good credit so I don’t think it will be a problem.”

I said “I have the name of mortgage broker that was referred to me by a local real estate attorney. He can write up a pre-qualification letter for you in no time at all and then check on who has the lowest mortgage rates for you too, unless you already have someone else in mind to do that for you”.

She said “No, I don’t really know anyone in the mortgage business so that would be helpful.”

Me … “Okay, great!” And I proceeded to tell her “Before I put our house up for sale I checked around to find a good real estate attorney because I wanted someone with plenty of experience to handle the closing for us. When I found one, one of the questions I ask him was if he could recommend a good mortgage broker in the area. This is the one he recommended (as I hand her his card) … I called him after right after talking to the attorney. He sounded very knowledgeable, he was really nice and answered all my questions … and he even had someone drop off these business cards at my door the day after I talked to him. Now since I’ve already talked to him I’ll call him tonight and leave him a message to let him know you’ll be in contact with him about the house sometime tomorrow morning!”

She thought that was a great idea and thanked me again for being so helpful!

I told her “The first thing he’s going to need, aside from getting your permission to run a Credit Report, is a Sales Contract. And here’s what we’ll do about that …”

[I was NOT going to sign a “Sales Contract” with anyone who did not have a mortgage “Pre-Qualification” letter, and aside from that I wanted to make sure that when I did have a sales contract that it was filled out correctly!]

So here’s how I handled that:

I grabbed a pen and paper and said “Let’s make sure we have all the details right and then what I’ll do is send the numbers over to the attorney’s office and have them write up the contract so we know everything’s done right. And by the way, his office is only about 10 minutes from here and if I remember right, he said his fee for doing the closing would be $400 … as long as you don’t mind doing the closing at his office my wife and I will pay that $400. Does that sound fair to you?”

Sarah … “Yes it does.”

There are two main reasons why I didn’t mind paying the closing fee for the attorney.

(1) If I’m paying the attorney fee, I feel it’s my right to choose who the attorney will be and I wanted to be sure it was an attorney with plenty of experience.

(2) Since I’m paying the attorney’s fee, the attorney is actually working for me versus the buyer and therefore should be working in my best interest.

Now after you agree on a purchase price and terms (as above where we’ve agreed on a sale price, “as is” and a closing date “3 weeks” out) you’re going to have to ask some questions that you might feel a little uncomfortable asking.

I say “uncomfortable” because most of us (people like you and me) are not typically “nosey” people that would rudely blurt out what seem to be very personal questions like “Have you been pre-qualified for a mortgage” or “How much cash do you have for the down payment?”

But let me tell you a BIG SECRET about asking those questions …

If that buyer sitting in front of you is truly “well qualified” to buy a house in your price range (with good credit and money in the bank) … they are secretly DYING TO TELL YOU THAT!

People that have money in the bank and good, high credit scores (720+) are PROUD of that fact and would love to have a good reason to actually tell somebody, but how often do they get the opportunity to do that? Not often.

So if they don’t already have a “Pre-Qualification Letter” stating that they’ve been pre-qualified for a loan up X amount (at least your sale price, preferably higher), then go ahead and ask those questions.

If they hesitate in giving you an answer, it’s probably because they’re not sure they have enough money or good enough credit to actually buy the house!

If they have BAD credit, or don’t have enough money to qualify for a loan, wouldn’t you want to know that NOW rather than 6 weeks from now?

That’s the reason I wanted to find a good local mortgage broker before I put my house up for sale!

Actually there were two reasons:

The first being, I wanted to be prepared for someone who was interested in buying but didn’t know what to do. The second reason being, if I referred my buyer to a mortgage broker, that mortgage broker would feel obliged to keep me in the loop throughout the mortgage qualification process (and you’ll see where this comes into play in a moment).

Now back to my buyer, Sarah. I confirmed the sales price, the terms as mentioned above, and the approximate closing date of 3 weeks out. I then told her that “we need to put in an amount for how much you’re down payment will be and how much you’re financing … how much were you planning to put down on the house?”

Without a moment’s hesitation she said “$20,000” … (See? I told you they were anxious to tell you!).

Then she asks “How much do think closing cost will be?” I told her “It depends on your lender but the mortgage broker I gave you will find you the best deal. From my experience though, it usually runs about 3-4% of the loan amount (and I had confirmed that with the mortgage broker in my first conversation with him) but he’ll give you a Good Faith Estimate (GFE) as soon as he finds the right lender for you and then at least 48 hours before closing they’ll give you the exact dollar amount. And like I said before, I’ll pay the attorney fee for the closing, so that will take at least $400 off of your closing cost.”

What if the closing cost had been something my buyer didn’t know about or hadn’t thought about? What if she wasn’t prepared or couldn’t afford to pay that 3-4% closing cost? If that had been the case I would have simply told her to take it out of the $20,000 she had allotted for the down payment.

But what if your buyer can only afford the lender’s required down payment but they don’t have enough money to cover their closing cost? My answer to that would have been to tell her that I would raise the PURCHSE PRICE enough that I could pay a large part of her closing cost. As long as my house appraised for the higher amount, there shouldn’t be any problem with that as far as FHA or the lender were concerned.

Fortunately, my buyer didn’t have an issue with paying her own closing cost. I think the fact that I was willing to pay the attorney’s $400 fee made her feel that I was already contributing and helping her with her closing cost.

So with that, I moved onto a question about “earnest money” (aka Good Faith Deposit).

“We need to get an earnest money deposit to go with the sales contract … it goes toward your down-payment once you get your financing”. She asked “How much would that be?”

Things had gone so well up to that point I told her that “$500 would be fine as earnest money and you can just make the check out in the name of the attorney and add on the words “escrow account” after his name. Then on the bottom of the check you can write for “Earnest Money For (house address)”.

Earnest money is typically 1-2% in most areas of the country. What I asked for was considerably lower. Ask your attorney and your mortgage broker their opinion on how much you should ask for as earnest money. They will know what is “common” in your area.

She pulled out her checkbook and wrote a check for $500.

I told her to just “hold onto it and take it to the attorney’s office with you tomorrow and that way they can make a copy of the check to go along with the contract when they send it over to the mortgage broker”. (Now today, I might not do that. I would probably take that check and hold onto it until I got over to the attorney’s office myself, but it worked out okay anyway).

So at that point I told Sarah … “It looks like we’re all done! I’ll call the mortgage broker tonight, so be sure to look for his call sometime tomorrow morning. While you’re doing that, I’ll get the contract information over to the attorney’s office so they can fill in the blanks on the sales agreement. I’ll ask them to call you when they have it filled out and that way you can stop by their office anytime after that to sign it and get a copy for your records.”

And with that, we all shook hands and my wife and I walked her to the door. As she was walking out she said “This is great, I’m excited! So I guess I’ll talk to you sometime tomorrow!”

COOL!

One minute later I was searching for my phone so I could call the mortgage broker and leave him a message about contacting my buyer in the morning.

Then the “I-Hope’s” and “I-Should-Have’s” started racing through my mind: “I hope she’s qualified. I should have taken her check. I hope she doesn’t change her mind …” But it was my first “By-Owner” sale and I knew that being a little nervous was inevitable. Plus, we assumed that she was probably just as nervous and hopeful about everything as we were.

The next morning, I was planning on calling the mortgage broker at 9 am to make sure he got my message. But by 8:30 my phone was ringing. It was the mortgage broker.

“Good Morning Michael! I got your message last night and I was calling to tell you I’ve got good news for you this morning.”

Kind of confused, I said “Great, what’s going on?”

He said “I’ve already talked to your buyer. She called me bright and early at 8 o’clock this morning and I’ve already run her credit for her. I just wanted to let you know that I really appreciate you referring her over to me and that based on her credit report and income information she’s not going to have any problem at all qualifying for a mortgage!”

Me … “FANTASTIC! Thank You!”

And I proceeded to do my version of “the happy dance”, which is not really a dance at all but more of a “two arms straight up with fist in the air” kind of thing. Like a fighter that just won a championship!

Great, right?

But it’s never over until the money is in the bank … YOUR bank. And as it happens, we still had a scare later that day.

I called and sent details for the sales agreement to the attorney’s office around 9 am. He told me he would have the “documents ready to sign by 3 o’clock” and that we could “come by anytime after that”.

“Great. That works for me.”

Then I called Sarah and told her “anytime after 3 and before 6 … and we don’t need to be there at the same time to sign, so you can go by at whatever time is best for you” and I gave her the attorney’s phone number so she could call to confirm the documents were ready before driving over.

The attorney had mentioned earlier that he was usually at the office until at least 6-6:30 every day and that “if you want, I’ll just give you a call after your buyer comes by.” I thought that was a good idea. But when 5:30 rolled around and I still hadn’t heard back from him, I was starting to get nervous.

By 6 o’clock I was thinking the worst. “No deal. She’s backed out!”

Then at 6:01 my phone rings.

It’s Sarah.

She said “I called them at 3 o’clock like you said but the girl I talked to said the papers wouldn’t be ready until around 5 o’clock. I have a couple other things I have to do this evening so I told them I would come over tomorrow morning. They said that was alright but I wanted to let you know in case they haven’t called you yet.”

Me … “I was just about to call them because I hadn’t heard anything since I sent them the information this morning. Thank you Sarah. I appreciate you calling to let me know. I’ll talk to my wife because I know she’s working tomorrow so we probably won’t see you in the morning but we should be able to get over there by about 12:30 when she takes her lunch break. But either way, if we don’t see you tomorrow we’ll see you soon at the closing!”

The next morning I got a call from the attorney’s office around 10 am to tell me that the sales documents were ready, Sarah had already been there, signed everything and just left and that my wife and I could come by anytime (which we did … right around 12:30)!

I didn’t see or hear from Sarah for the next two weeks.

But during that time, I DID hear from the mortgage broker!

He called to let me know an appraiser would be out to appraise the house for the lender (which went well). But just as important, he called me every few days with an update on the status of my buyer’s “loan process”. Other than typical delays in getting verifications from third parties, things went fairly smooth there as well, with no real problems.

My last call from the mortgage broker was about one week prior to the closing date. He said Sarah (my buyer) should be calling me in the next 24 hours to do a “final walkthrough” of the house which is customary to be sure everything is (the house, appliances, condition) acceptable and as agreed.

Sure enough, she called early the next morning and was at the house later that day. She was smiling the whole time she was there and said that everything looked great and that she was looking forward to moving in. That’s when I remembered to ask “do you know what day you’re going to be moving in yet?” She said “I’d like to start moving things in the following week but whatever works best for you and your family is okay with me."

THE CLOSING

Five days later, we (Me, Sarah, my wife and the attorney) were all sitting around the “closing table” signing documents. It was a fairly quick and easy process that only took about 20 minutes!

As we were all signing documents and passing them back to the attorney, my wife was talking with Sarah and told her “We brought you two sets of house keys today and a list of contact numbers for all the utility companies (water, power, cable and trash) so you can have everything switched over to your name!”

As she handed these over to Sarah, she also told her “We should have everything out and everything clean by around 2 o’clock tomorrow afternoon. Michael and I both have another set of keys so what we’ll do when we leave is put them in the top kitchen drawer right next to the refrigerator so you’ll have them when you get there”.

Sarah was excited about buying the house and my wife and I were excited about the big 5 figure check we received!

Yes, it was all “hugs, happy happy and good luck” as we left the attorneys office.

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