The owner of a property who sets out to sell it without the help of an experienced, professional Realtor may encounter some unexpected problems. In Part One, I spoke about pricing and marketing. Part Two covered the consideration of buying and selling at the same time and negotiating the contract. In this final article, I explore the vagaries and vicissitudes of managing and closing the escrow and the questions you must be ready to answer. Once you and the buyer have approved a purchase contract, you will need to know how to deal with a variety of parties and issues.

Lenders

How will you know the buyer is proceeding in good faith with getting a loan? If the buyer is having trouble qualifying and may be unable to complete the purchase, who will give you warning? When will you find this out? Bear in mind that the buyer’s lender may be reluctant to give you too many details without the buyer’s permission. If you find yourself in this position, would you know how and when to cancel the contract? Under those circumstances, what happens to the buyer’s deposit? 

If the buyer is approved for a loan, do you know what to do to assure the loan documents are in escrow on time in order to close on schedule?

If you have a mortgage on the property, there are several items on your end which must be handled. “Payoff demands” on your current loan must be sent to escrow in a timely manner in order to avoid delaying the close. Do you know when that is? Also, special care must be taken with “private” loans on your property. 

Appraisers

Lenders send out appraisers to determine value.  If the property does not appraise at full price, what will you do? The buyer may want you to carry the difference in the form of a second mortgage. What are the risks if you agree to do so? 

It is possible that the property will not appraise at full value and the lender will still agree to make the loan. This might happen if the buyer’s large down payment covered the deficit in the appraised value. The buyer, however, may choose not to proceed unless you discount the price to the amount of the appraisal. A full price appraisal is a common contingency in many purchase contracts. Buyers are very concerned about not overpaying, especially when they see how many properties on the market today are selling at substantially less than the seller paid not that long ago. Are you prepared to handle such a contingency?

Structural pest control inspectors

Experienced professionals recommend an inspection shortly before the property goes on the market. Waiting until the buyer orders a report might save you an inspection fee, but could cost you many times more for the work. What do you say when making the appointment to avoid having to pay for a second, “supplemental” inspection? 

Realtors deal with many pest control companies. Do you know which ones the local real estate community find acceptable?  Will you know what to do if you get a large report? What if the buyer wants to get a second inspection with his own pest control company?

General structural inspectors

Buyers customarily hire a professional home inspector to carefully evaluate the major systems for structural, health and/or safety problems. Following the inspection, buyers often ask sellers to either repair or leave money in escrow for defects uncovered during the inspection. Which will you take care of? Should you have your own home inspection? Sometimes this is appropriate before you begin marketing. 

Escrow

Do you know which escrow/title company to use? Normally, since the buyer is paying for escrow and title insurance, he chooses the company. As with everything else, however, this is negotiable. Do you know how to track the escrow and make sure each “milestone” occurs on time? What do you do if deadlines are missed or ignored? How and when do you execute escrow instructions? What will you do if the buyer cannot or will not close escrow on time? If you cannot close on time?

Title insurance

Do you have any “informal” arrangements with neighbors regarding the use of your property or their use of your property? Do you or your neighbor have driveway or other easements? Is your fence, deck or patio encroaching on your neighbor’s property or vice versa? These and other scenarios can effect both title and value and must be fully disclosed.

Homeowner’s insurance

It has become increasingly difficult to obtain a homeowner’s fire insurance policy today. The buyer’s lender will not make a loan without one. Will your current insurance carrier write a policy for your buyer? Will they write one for the home you are purchasing? What is the last resort if no other coverage is available? What if the insurance company requires work as a condition of writing a policy, e.g., roof, electrical, seismic, or plumbing upgrades? Who pays? When must this work be completed? What if you have extensive work done and the buyer backs out? How do you protect yourself?

Down payment, closing costs

It is important to know how much cash the buyer will need to close escrow, where it is coming from and how the buyer will get it there on time. Do you know how you could  avoid last minute problems with the buyer getting his money into escrow? How will you determine your closing costs and net proceeds?

Final walk- through

Standard real estate contracts allow the buyer a “final verification of condition,” generally three to five days prior to close of escrow. How will you handle it if the buyer uses this occasion for a final attempt to get additional concessions from you?

Final thoughts

Real estate professionals deal with these questions and many more every day. If you decide to work with an agent, choose one who is experienced, detail-oriented and has a track record of protecting clients.

We all like to save money, and real estate commissions can be considerable, but so is the risk of selling on your own. Unfortunately, reading a book or taking a seminar is not enough to prevent most people from getting into trouble. Neither the book’s author nor the seminar leader will be there to protect you.

As I mentioned previously, if you have decided to sell on your own and “cooperate” with agents, you are not saving a full commission. You may think saving one-half is better than paying the whole amount. The fifty percent  you think you are saving, however, can be eaten up by  attorney’s fees, marketing costs, phone bills, signs and other incidentals.

The biggest imponderable is how much it will cost you in areas where you did not know how to protect yourself. In the end, when you hire a Realtor, you are buying protection. Do not underestimate how much that is worth.

Related Articles: Selling By Yourself, Part 1 and Part 2; Protecting Sellers; How Important Is Permit?; Not Just Termites, Part 1 and Part 2; Check Drainage; Understanding The Market; Why Expireds Expire; What is a Bedroom?; and Earthquake Country.