Ralph's Helpful Tips: Holding Deals Together - How to Get Creative
Purchasing a home these days is not as simple of a task as most people think. Even just negotiating the purchase contract has so many more elements now than it used to. I hear all the time from some of the agents who have been in the business for 20+ years how they used to sign deals on the hood of their car!
But going past the point of a mutually accepted offer, there's the huge task of getting through the escrow all the way towards closing. And I know everyone out there can relate. We all have had and continue to have our episodes of bumpy escrows.
I've been known as a "dog with a bone" when it comes to holding deals together. I NEVER give up when it starts to get a little turbulent.
The key to that is creativity, and knowledge. Knowing what possible options are available when you come to what seems like a possible road block in your escrow is absolutely critical, and the biggest difference between those agents with a higher or lower closing ratio is exactly this factor.
Knowing the legalities of not only a real estate transaction but with mortgage loans is absolutely a prerequisite. It is imperative that you know the current guidelines for the different types of loans available for buyers out there now. Why? Because knowing what to anticipate AHEAD of time will more than likely eliminate any hurdles before they become problematic.
An example: FHA loans are a fantastic tool these days for buyers. Government backed, and only 3.5% down payment. But these types of loans have a long list of lender requirements. You need to learn how to play "Matchie-Matchie" between the buyer's loan and the property itself in order to pave the way for a smooth escrow closing.
Knowing what to do and options available to your client when you hit a hurdle is extremely important.
An example: What do you do when the property does not appraise? What are the possible options at that point? Here are some options that may hold your deal together:
1. Draw up an addendum to the purchase contract reducing the price to the appraised value (if the seller agrees).
2. Have the buyer bring in the difference in cash (if the buyer agrees and IF their lender will allow more than 100% loan to value ratio)
3. See if the seller can hold back a small 2nd lien on the property for the difference between appraised value and purchase price (if the buyer agrees and feels the home is worth that much to them, and IF the buyer's lender will allow it). Maybe a small term like 5 years or less with a favorable interest rate to the seller.
4. Challenge the appraisal (this one topic is a blog post in itself). A rebuttal to an appraisal is NOT a simple and easy thing to do. I've challenged appraisals in the past with success, but it is a detailed report you must submit with market statistics, comps, testimonials from the selling agents of the comps, market trend reports, and a presentation as to why the appraisal is incorrect. This is going to an underwriter, so OPINION DOES NOT MATTER one bit when it comes to challenging an appraisal.
5. Small loan from another party or hard money lender (if the buyer's loan guidelines will allow)
6. Any combination of the above.
These are just some of the ways to get over what may seem at the time to be an insurmountable issue.
Appraisals are just one of many possible issues that may arise. Inspection issues, HOA issues, loan issues, seller logistic issues, and more may come up. And knowing how to get through these and what the many different solutions are will help you close more deals.
If you think it would be useful, I can make a blog series out of this topic. Let me know if you think it would be helpful and depending on the response, I will make a commitment to creating a series.