$ecret $trategy to Prevent Real Estate Closing Chaos!

The Ultimate Addendum: How to Insure Against Eleventh-Hour Underwriting Drama

What are the things that cause a deal to catch fire a few days (or a few hours) prior to closing?

What if there was a way to prevent these problems before it’s too late?

What is UNDERWRITING?

Deal Killing Drama What are the top ten things that make you crazy when you thought you were about to have a closing?

1. The buyer hasn’t even applied for the loan yet, so no one knows a thing about them until you’re halfway through inspections.
2. The buyer had great credit and ratios when they applied, but you find out three days prior to closing that they just bought a new boat/car/rental property/etc., thus screwing up their credit and/or ratios.
3. The buyer hasn’t disclosed that they are actually contingent on home sale, they are presenting as contingent on financing.HUGE Announcement: You will love this! Looking for the full outline from today’s presentation? Our DAILY Newsletter featured lead generation systems, real estate scripts, daily success plans and (YES) the notes or today’s show. Best part? The newsletter is free! https://harrisrealestatedaily.com/
4. The buyer’s down payment hasn’t been verified. Is it coming from gift money? A divorce settlement?
5. The buyer’s lender has only done a preliminary, “soft” credit check; in underwriting, it turns out they have credit issues to fix.
6. The buyer is so strapped for their down payment that going over appraised value (like their contract calls for) will unravel your deal.
7. The buyer’s employment wasn’t verified when they wrote the offer and got themselves in contract. They are underemployed, unemployed, self-employed, or otherwise challenging to get approved. They may also have further difficulties, such as being too short of a job history, having an unrelated history, etc.
8. The buyer is not actually an American citizen or has other documentation issues.
9. The buyer is secretly FHA or VA and wrote conventional but doesn’t have a big enough down payment to close that way.
10. They can only close if you and/or the other agent chip in for inspection or repair items, appraisal issues, etc.
11. The buyer claims to be all cash but hasn’t sent proof of funds.

All of these issues spell trouble before closing! It all boils down to the underwriting happening after the inspections and appraisal in most cases. How do you get in front of this and buy yourself more time to fix any issues? The answer is what we call The Ultimate Addendum!

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Mission: To force the buyer’s lender (whether that is your buyer or another agent’s buyer) to get approval well before the week of closing, and not wait until days or hours before, and not with an extension needed.

Things to Consider:

Cultural Practices If you live in a market where 90% of your deals are cash, modify as necessary. If you are in a military market, farm, ranch, condo, etc., modify based on your own closing challenges. Make a list of anything we didn’t mention and build them into your own Ultimate Addendum.

Timing Modifications Just because it is supposed to take 17 days in your market to do inspections doesn’t mean you have to take that long. Modify that down to ten days to get the ball rolling more quickly if that is an issue for you.

Appraisal Issues: If you’re selling for 10% or more over the last highest comp, you’re in for a cut appraisal. Talk to your clients before it happens about what they will do if it happens.

How To Use It: Use it either as an addendum upon acceptance or as a counteroffer, depending on your negotiations.

When To Use It Use it when you are the listing agent every time you send over to the buyer’s agent, even if they have a strong finance letter. The exception is cash deals, where you ask for proof of funds, etc.

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Suggested Wording

Addendum A (require full signatures)

The lender’s letter of pre-approval is to be received within 10 business days of contract acceptance, specifically verifying the following:

a) Buyer’s down payment is adequate for the purchase price of this home, at the contract price, has been verified, and is acceptable to the lender.

b) Buyer’s employment and employment history have been verified and are adequate for purchasing this home at contract price.

c) Buyer’s credit has been checked with all three reporting bureaus and is adequate for the purchase of this home at the contract price, with a verified down payment amount.

d) Buyer is not contingent on the sale of any property, real estate, or otherwise.

e) Buyer’s ratios are verified and adequate for purchasing subject property at the contract price, with a down payment, employment, and credit in alignment.

f) The buyer’s identity has been verified and is sufficient for the lender.

g) Buyer has been advised not to apply for new credit until after closing of this property.

h) Buyer has disclosed any simultaneous closing requirements, and the lender finds such acceptable.

i) The buyer is not dependent upon commission kickbacks or other contributions to execute this contract.

Optional: This depends on what the buyer is willing to do. Note that many of you have a market-specific, board-approved appraisal, home sale contingency, and escalation addenda, you may need to be using.

a) Should appraisal become an issue, buyer and seller shall split the difference up to $______.

b) Should appraisal become an issue, the buyer shall agree to pay up to but not over X% of the appraised value.

c) Should the buyer be in a competitive situation, the buyer to escalate up to X% of the list price, not to exceed $______.

d) Contingent on sale of buyer’s home, however, seller shall continue to market home. Should the seller receive a non-contingent offer, the buyer shall be given 72 hours to remove the home sale contingency and proceed to close, decide to become a backup offer, or cancel the contract in writing.

Note: Consider what happens to the buyer’s earnest money deposit funds in any of the above situations. This varies significantly from market to market, and you will need to check with your broker or legal counsel regarding cultural expectations in your marketplace.

This is done for you in Premier Coaching and waiting for you to use on your next transaction, whether you’re on the buyer side or seller side!!

At the very least, use the QUESTIONS in the Ultimate Addendum for the lender the buyer in question is working with!