Michigan Realtors: Writing a Great PA; or, Being your LO’s Best Friend
Occasionally, frustrations build as a file in processing begins to struggle a bit and the question may occur to you, “Why are these things arising now, when they seem like they should have been settled so long ago?” And as a good professional it will probably lead you to the next question, “What can I do to help prevent this with my future transactions?”
I would like to examine a few simple things that you as a Realtor can do to become your Loan Officer’s best friend and subsequently write a Purchase Agreement that will be well appreciated by all involved.
Timeline. Obviously it will always be frustrating when files run into turn-time troubles and it begins to seem like it may never close. You end up feeling like you have heard the same response from the LO a dozen times, and you just want to know what to do.
We can prevent a lot of these headaches by having realistic and achievable expectations at the time the PA is set in motion. Obviously, this is mainly reliant on the communication with the LO, but in general you are going to need between 30-40 days to close a loan. It would, however, be extremely unrealistic to just blindly expect 30 days as an appropriate time frame on each and every PA. If you make adjustments for the specific factors involved in each individual file, you will greatly improve the chances of setting a proper expectation for your client. This may mean more work up front, but way less work down the road when it is more important.
Your clock starts ticking when the buyer signs the PA but for a Loan Officer we are very limited in what we can do until we receive the seller signed PA. For instance, I NEVER order an appraisal until there is a written agreement allowing the client to purchase the home. Doing otherwise is asking for trouble, no matter what someone may have told someone about how this certain bank responds quickly or how the listing agent said that they have all of the short sale terms are already agreed upon, or how you have a “verbal agreement”. That means nothing until the signed PA is in my hand. So, if you write a PA dated July 1st to close in 30 days and the bank takes until July 15th to send it back approved, we will immediately be asking for a 15 day extension and the frustrations will begin. Simply compensate for this at the beginning if you are submitting an offer to a notoriously slow responding bank, or if it is a short sale, or any other complications you may think of. I personally put right on my Approval Letter that we need 30 days for underwriting from the day that a seller signed PA is delivered to our office. All loan officers may not do this but I can assure you that this is the case. No lender will be able to do anything other than a basic underwriting until they have a signed agreement between both parties.
Inspection Reports. I know there are a lot of people that are running into this for the first time now, but Lenders are scrutinizing the relationship between LO and Appraiser very carefully now at the behest of the Federal Government. A Home Inspection performed by a third party adds another layer of protection for the Lender to ensure that the Appraiser is not looking the other way on Property Standards in order to continue a relationship with the LO. Since you as a Realtor are typically present for the inspection or at least more aware of the scheduling, it is essential to communicate this with the LO.
If you really want to be “super agent” you can be present for the inspection and communicate to the inspector and client what should be for the buyer’s information only and what should be included in the inspection report. Things that are not even an issue to the HUD Handbook or normal property standards WILL become issues if an inspector flags them. A perfect example: Inspector, in trying to provide good service, writes in his/her report that the buyer should probably have a radon test. The buyer says, yeah that’s useful; we will do it after we close but before we move. NOPE! The buyer will now have to do it before they close. It may seem like this should be the buyer’s prerogative, but if a Lender sees that an Inspector flagged a radon test as needed…it WILL be needed. Now just tack that on to your turn times and before you know it it’s time for an argument over PA extensions and $100 Per Diem.
It is also important to discuss with the buyer whether or not they are actually going to have an inspection or not and to properly mark the PA. If you mark that the buyer will be having an inspection and they do not, then a couple of weeks into the transaction the Lender will be asking for a copy of the non-existent inspection and will require that the PA be amended to state that the buyer has waived their right to an inspection. This is just add another few days in tracking down the seller to sign the addendum, faxing it back to the LO…and so on. It may not seem like much, but that is still another two days to tack on to an already intense process.
Property Standards. We know that you are not an Appraiser, or an Inspector, but there are some obvious things that we all realize are going to be an issue when financing a home. Communicating these to your LO will not only make their day, but it will help them get you money faster.
A few of these things that I find astonishing that I have to wait until the appraisal comes back to find out about include: broken windows, busted locks, holes in walls/ceiling, unfinished flooring, missing toilets/sinks, broken plumbing, rusted out furnaces, missing siding on house/garage, missing handrails on stairways and a multitude of other visually obvious items. I’ll address these things two paragraphs below, but for now let’s look at the essentials in the not below.
***Special Note*** I hear this phrase all the time: “The bank will only accept Conventional Financing because (insert problem here) is wrong with the home.” I, again, understand that you are not Lenders and do not know the guidelines but let me assure you, as a Lender that does mostly Rural Development and Conventional loans through Fannie and Freddie, that most problems with a Government loan are also true for a Conventional loan. So please stop the argument over the fact that you can close a home with no running water with a conventional offer. Cash offer yes, but any…repeat ANY financing will need the home to have the bare essentials. Government loans are in fact more particular, but most of the differences are easily fixable problems.
That’s why I just forewarn you now- if you want to keep your Asset Managers happy- alert them to the fact that the basic utilities will have to be working if they expect to have financing on the property. It does none of us any good to argue for three weeks over how to get the power on in the property or who has to pay for it. If you want to take a financing offer for more money, you will HAVE to provide working utilities for an inspection of any sort. If you are a selling agent, eliminate the headache and note it right in the purchase agreement that the buyer will need these on to agree to purchase the property. Again, I personally put this right in my Approval Letter, but either way it will need to be done!
Now, as for the little things, I mainly do RD financing so it is much easier to deal with any other issues, because the buyer can do a post-closing repair escrow to fix them. This does require quite a bit of extra work and buyer preparation so it is best to alert your loan officer of the issues noted two paragraphs above before you write an agreement. If we have to wait until the appraisal comes back we are already 5-7 days in and just now finding out that the buyer has to make a bunch of repairs. We tell the buyer, the buyer plans on doing it that weekend since most folks work during the week, the buyers fixes everything, the appraiser goes back out to re-inspect the property and now we are 14-16 days in and we are just getting the appraisal back. Now underwrite the appraisal and the conditions that can’t be submitted until the appraisal is done, wait until any further conditions come back and are then cleared, send to RD for a certificate, let the bank have 48 hours to approve a closing, and guess what we need… an extension on the PA.
Appropriate Documents. Specifically, if the buyer is applying for FHA financing, an FHA Amendatory Clause will be required so contact your loan officer for the form ahead of time. Having the document that you can find – Here – signed right up front can eliminate another step down the line. There may be others for certain loans but this is the most common. Again, a 1-minute phone call can save 2 days later on.
My Final Word. Teamwork is more essential now than it has ever been. If we are all honest with each other in the beginning we can set a realistic expectation for everyone involved and proved a rewarding experience for all. I hope I have helped, and Good Luck with your future transactions!
