You’ve pre-qualified your prospects. They look good and you’ve made an appointment with your lender for the formal loan application. You’re feeling good about yourself now because, as far as you’re concerned, this house is sold…or is it?
Don’t spend your money before you get it!
Would you be shocked to learn that a full 25 to 40% of the buyers you put before a lender will not make it to the closing table even after they were prescreened? That’s right. Over one fourth won’t close and you’ll have to start all over. Most of the time there are things you can do to raise your odds of success.
That’s what we’ll cover here. However, sometimes there are things that crop up that cannot be controlled no matter how good you are. As I write this, I’m shedding tears on my paper, because of one of those uncontrollable events that happened to me.
I bought a house for $12,000 through a Realtor¨. I then spent $7,000 fixing it and put it on the market for $49,900. A buyer came along who agreed to buy it if I’d add a garage. I had already pre-qualified this buyer so I said OK, I’ll add a garage after the loan is approved and raise the price to $51,900. The buyer agreed so we got the loan working. About three weeks later, she was approved. So I added the garage for $3,000 and installed the carpet and A/C, which I planned to do anyway. (note the 1989 prices)
Well, to make a long story short, we were two days from closing and she decided she didn’t want my house anymore. She had found one she liked better. Now, this was after we spent the time and effort to get her approved and after I built her a $3,000 garage. There just wasn’t any way I could convince her to close on my house instead of the other one she liked better.
Now, I can just hear you say…but you had her deposit and a contract. That’s true. I did have a $500 deposit and a signed contract. So what! Obviously, I kept the deposit. Naturally I was upset. But none of my feelings got me any closer to that fat profit check I was going to collect in two days. So the moral of this sob story is…don’t spend it until you get it. There just might be a case here for another strong message too. When you collect a binder from a buyer…get every dime you can.
Looking back on my dilemma, I should have collected another thousand or two before I built the garage. If I had, the deal would be closed by now instead of me starting over. I knew better, I just didn’t do it. Man, this education is expensive. You’d think there would be a time in the life of a guru that he wouldn’t have to keep going to these seminars, wouldn’t you? All right, let’s get on to making your closing easier. I’ll give you a step-by-step process to get you from loan application to closing and beyond.
Step 1. Make Sure the Lender Orders Appraisal and Credit Report Immediately
You should tell your buyer to bring in the amount needed the day the loan application is taken (usually $300 – $400 to cover the credit report and appraisal). Insist to the lender that both be ordered immediately. Many loan processors tend to wait until the documents are all in before they order the appraisal. Don’t allow this to happen. If you do, it will take an additional two weeks to 30 days to get your buyer closed because of the time needed to get the appraisal done.
Another reason to order now is the appraisal can be used for your next buyer if this one doesn’t make it. Let this buyer pay for it. FHA and VA and most conventional appraisals are good for six months. Make sure your contract is written so you are not required to reimburse any expenses to a buyer who does not qualify. If they can’t qualify, you’ll have nothing to refund except the binder deposit.
Step 2. Call the Loan Processor within 3 Days to Make Sure the Appraisal Was Ordered as Soon as Possible
That’s right; you actually have to check to see if they did. Remember this…every day that goes by decreases your chances of closing. It’s your job to take care of the details. No one else cares whether you get paid or not. Let me tell you another tear-jerker about the guy who was ready to close on a $60,000 purchase from me. Closing day was set and everything was in order. And as lenders frequently do, mine called the business where the buyer worked the day before closing and found out he had been laid off that morning. Needless to say, that was the end of that closing.
My son-in-law, Bobby, was a partner in that deal. He had already spent his share of the $25,000 profit. When he found out it wasn’t going to close, I had to give him a Valium so he wouldn’t go into cardiac arrest. But soon he got over the agony of defeat, found another buyer and finally closed. By the way, we used the previous appraisal. The point of this story is if we had shaved two days off of the process, it would have closed the first time.
And if we all had a crystal ball that would foretell the future, we wouldn’t be allowed the fun of making mistakes. And so on, and so on. We do the best we can and try to eliminate as many possibilities of error as we can, but regardless of how good we get…things happen.
Step 3. 7-Day Check-Up
Call your processor in about 7 days to see if these things are in order:
• Credit Report. It should be finished by now. Are there any problems?
• Verification of Deposit. Is the money in the buyer’s account to close?
• Appraisal. You should have been called to meet the appraiser by now. If you haven’t, find out why.
• Other Documents. What else is needed for loan submission? What can you do to help?
Step 4. 14-Day Check-Up
The loan should be ready for submission by now. If it’s not, find out why and take charge of getting what’s missing or correcting what’s wrong. This will save days or weeks in some cases.
Step 5. Loan Approved
The long awaited day has arrived. Your buyer has been approved. Now it’s time for you to take control and get this thing closed fast. There are five things that you must get done before you can even set a closing date. All five should not take more than 72 hours. If you don’t accomplish these, it could really be the PITTS!
P – Payoff Letter for underlying loans, especially if they’re from private individuals. Now’s your time to negotiate discounts.
I – Insurance must be purchased by the buyer and pre-paid for one year. The lender must be named as insured.
T – Title Insurance must be ordered. I strongly suggest you order it from the same company who issued the policy to you when you purchased. This will eliminate any problems the first company may have missed that might crop up when two different companies are involved.
T – Termite Report should be ordered by you. It must be free of any live infestation and damage. If it’s not, fix it and get a new report. Then, and only then, send it to the lender.
S – Survey has to be completed and in the hands of the lender or closing agent before closing will be scheduled. You are in control. Don’t let anyone talk you out of getting these items done. Remember, no one cares as much as you do. If you let others take charge of these five items, you’re headed for one of those seminars.
Step 6. Setting the Close Date
When these items are completed, along with any other contingencies, the lender wants cleared up, you can now simply pick up the phone, call the closing agent and set a closing date and time. It probably would be best at this point to call the buyer as well. Closings go better when buyers are present.
Step 7. The Day before Closing
Call the closing agent and get the exact amount the buyer will need to bring. Usually a cashier’s check is required and you don’t want this to be a last minute thing that was missed. Call your buyer with the amount and confirm they have the insurance needed to close. Your loan agent will likely do the same but you should make sure it gets done.
Step 8. Closing Day
If your closing is scheduled in the late afternoon, which is quite common to accommodate your buyer’s work schedule, this could be one of the longest days of your life. Especially if you’re a new investor or you really need the money bad. Just go take a walk and relax. None of these 25 things you’re thinking about will go wrong. Forget the horror stories I just shared with you. They only happen to gurus, not you. The only thing left for you to do is call the closing agent and confirm they have everything they need. Put the keys in your briefcase so you don’t forget them while you’re having your anxiety attack.
Show up at closing, smile a lot, sign where you are told and pick up your check. Once you get that big fat check in your hands, your heart rate will slow and you will be thinking to yourself…that really wasn’t so bad after all. Congratulate your buyer on their wise decision, hand them the keys and thank the closing agent and wait until you get at least 100 yards away before you start screaming…I did it!…I did it!
Now, pick up the phone, call your spouse and tell him/her you’re taking him/her to the finest restaurant in town to celebrate your success. Well, congratulations, you can now call yourself a true blue…Real Estate Entrepreneur. I hereby give you permission to wear that title. But hold on now. We’re not done yet. You have one more step to go.
Step 9. Follow Up
Here’s the step most so-called experts ignore. You’ve made the sale. You’ve gotten your check. Now let’s make sure you’ve got a satisfied customer. Within three days after the closing, send your new buyer a congratulatory letter. In the letter you should ask them to call you with any problems that should occur with the house. Make sure they know how important they are to you and how you are concerned that their move went OK.
Why would you want to do this, you say? It’s simple. You will develop a good image, feel better about your business, and make more money in the process. If you treat your buyer’s right, guess who they will tell about it. Everyone they know. You’ll soon discover that 25%-50% of your new buyers will come from referrals from your old buyers. People just can’t wait to tell the world about good service!
If you really want to get them talking, add this sentence as a P.S. in the letter you send them: P.S. If you refer someone to me who buys one of my houses, I’ll make your next house payment for you!
Well, I hope you enjoyed our journey to the closing table. This information should make that journey a more pleasant one if you use it, and I hope you do. It’s better to suffer the pain of victory than the agony of regret.