Greg: Steph, it’s been a couple of weeks. Good to see you!
Steph: Good seeing you, Greg.
Greg: Why don’t we change gears a little bit, if that all right. I think a few of the earlier podcast episodes have been geared toward consumers and I suppose agents alike, but maybe we zero in on a few things that a Realtor in Louisville can do to make sure that a transaction goes smoothly. Maybe walk us through a purchase to buy, purchase to contract … I said that backwards. A contract, a purchase contract. What does a Realtor need to do to ensure that the whole transaction goes as smoothly as possible? Or, if you want to do it the other way, what should they not do that’ll make things go slowly and painfully.
Steph: Well, it’s kind of like a good loan officer. A good loan officer takes a good application, and if you take a good application, it’s like nine times out of ten they get it right and you’ll know if there’s an issue. It’s kind of like: take a good app, you’re going to have a good start of a transaction. It’s the same thing with writing a residential sales contract, there’s a few things that you really need to look out for under the new TRID rules. Under the rules, if you don’t do certain things, it can really extend the length it takes to close. One of the first things, it seems very simple, but we’re seeing, is on the new closing disclosure, the agent’s name is needed, along with the name of their company, but also their license number and their broker’s number. What we’re seeing is agents accidentally putting their MLS number instead of their license number.
Greg: When you say license number, you’re talking about state license number and not my member number in the local GLAR membership?
Steph: Correct. We do not need your GLAR membership number, we need your KAR, your Kentucky Association of Realtor, your licensing that you’ve got from the state. That’s the license number we need, not your MLS, so just make sure. That’s just one small thing.
The other thing is, it’s very important that what you be accurate on the, what I’ll call, security systems, satellite dishes, tanks, water softeners, the area in the contract that has fixtures or personal properties such as … Make sure if there’s a refrigerator, ovens, make sure you’re very accurate in that area, and not to include things that are not fixtures.
Greg: Okay. The fridge, for instance, what’s the best way to handle the refrigerator that’s already in the kitchen?
Steph: You just need to make sure that you list everything that stays and just be very accurate, especially on this section. This section, if you start saying that you’re going to have the pool table, and that it’s listed in this section, that isn’t something … That’s a personal property, you’re not going to be writing that into a residential sale of land contract, the sale of the pool table.
Steph: Make sure it’s very clean and accurate, because otherwise that is just going to cost you more time in having to do all kinds of addendums to get it out, say it’s of no value.
Greg: On the back end.
Steph: Yeah. The other section is on the earnest money in section 3, there is is a question of who is going to be holding the escrow. Under the new lending laws, if this contract involves the buyer getting a loan, if the agent holds the earnest money in escrow, there’s a question that technically these could be reviewed later by an auditor and they could ask to see if the third party’s escrow was compliant. For all the Realtor escrow accounts, if you’re holding escrows, you have to make sure that you understand by holding that escrow, this is again a technicality, but there is a question that you’re opening yourself up in a loan transaction to being a third party, and the lenders, later on upon review, could try to audit your escrow account.
Greg: That doesn’t matter if you’re on either side of the transaction? If you’re the listing brokerage?
Steph: Whoever’s holding the escrow.
Greg: Okay. There’s not a necessarily the listing brokerage should hold it or the selling brokerage should hold it, either one can hold it, but whoever does hold it better make sure their brokerage account, I mean their escrow account, is ship shape.
Steph: Correct. It would have to be a separate escrow account. It’d have to be compliant, and in a sense, just know that by having the agency hold the escrow, you are opening yourself up to audit by the lender, post-closing. That’s something we are seeing more, more real estate offices and agents having the attorney or the title company who’s going to handle the closing, having us hold the escrow. You can just designate that it is held in the account of Horne Title. That’s just something to consider. Just make sure that your broker’s escrow is compliant, or you can have the attorney hold the escrow.
Greg: Even if your broker’s account is compliant, you would hold it anyway if someone asked, if we just don’t want to deal with it. If an agent said, “You know what? I’d just rather Steph deal with this.” I don’t have to worry about bringing it to closing. It just makes it a little bit easier from beginning to end?
Steph: Yeah, so it’s just something to consider in writing your contract. You may not want to just default to have your agency hold your escrow, you can have the attorney hold it, and therefore the real estate agency wouldn’t be opening themselves up, when there is a borrower getting a loan, to third-party audit in a post-closing situation.
Greg: Right. Okay.
Steph: That’s just something to think about. If there is a application for a loan, some of the things that are not defined in the current GLAR contract is the word apply. If you look at number 4, where it says that somebody is going to be applying for a loan, it isn’t defined, so that can be something that if you have a listing, you might be wanting to make sure that … It says that borrower must apply for a loan, well, what does apply mean? How long do they have to get approved? It doesn’t indicate how long they have to get approved for the loan.
Let’s just say they come to you with a pre-approval, you really have to question what is that. What is that? Is that just a preliminary or did they already submit all of the loan information other than the property address? That’s the key, is applying for a loan, is it just a stated income where they did it verbally or did they actually apply and all they need to do is identify a property. There’s two different definitions. It would be the number two definition that you would want. If you haven’t already submitted all your personal financial information to the bank, and you’re just waiting on the property, with the new loan estimate disclosure rules, it can take up to ten to fourteen days.
Greg: How do you protect your client? If you’re the agent who has the listing and you get an offer, how do protect your selling client, the home owner? What do you need to say? As a realtor, what do you put in the contract that says I want my definition of apply for a loan to be in effect here? Is there something that a Realtor-
Steph: Yes. To apply would be everything but identification of the property, the accepted offer.
Steph: You have to indicate how long they have to get the approval. Party could have a rite, like if you really needed to close within 30 days, there’s really no way you could close with a specific buyer if they hadn’t really applied.
Steph: It just depends on how sure they have to close. You just want to be very careful. If your listing is a timely issue, you’re going to want to define apply and indicate how long they have to get approval.
Steph: The home warranty information, the lender needs to disclose on the loan estimate and also the closing disclosure. You have to be much more specific if you don’t want this to cause delay, so if you know upfront that your cost is going to be three ninety-nine, that’s great, but most of the time there are add-ons, so it is better to over-estimate than under-estimate. You just need to be very specific because, think of it, they need the home warranty, the amount, to be disclosed on a loan estimate.
Greg: Okay. You can’t just put in: the seller will buy the buyer a home warranty and we’ll figure it out later which policy, maybe we’ll be nice and do the most expensive one, maybe we won’t and do the least expensive one. You need to know exactly which policy we’re talking about.
Steph: Yes. The amount that’s shown on the contract needs to be specific.
Steph: It will be taken from the contract and put on a loan estimate which is issued within three days of getting the last bit of information for an application, which should be the property.
Greg: Right. Okay.
Steph: You get the name, the address, there’s five bits of information, social security number, and then your number six is your property. Once they get that, that’s an application and the lenders now have to get that submitted and a loan estimate back to the party within that time frame. They have to disclose this home warranty on it, so please be specific with that amount, or over-estimate so that it will be less, but not more.
Greg: Okay, because we’re allowed to go backwards in fees, right? That would not cause a problem if we over-estimated the price of the home warranty.
Steph: Correct. The other section that’s getting really touchy and can lead to delays in closing, is the closing date, section 9. How is the date calculated?
Steph: Just remember that the closing date has to be acceptable to the bank. If there are changes or delays, the bank has to re-disclose. The question is, when you’re selecting your closing time-frame, if you’re going to go with the closing shall occur no sooner than thirty, no later than forty-five days, which is standard, you’ll have to make sure that that … If you’re going to accept a contract, if there’s any changes, the lender will have to approve and you could be asked for extension.
Greg: How does that typically work? If in a negotiation, the seller’s probably not going to have time to talk to the banker during the negotiations on a contract, so if you get one that says thirty to forty-five days, and then you get out to day forty-two, and it seemed like the buyer’s a good person and trying to do what they should be doing, but the bank says, “I can close in five days,” which puts you at day forty-seven, is that normally good enough and we should tell people that’s good enough, we’re not going to make a big stink over it? How does that work if it’s out of your control, if the third party delay?
Steph: I think that there has been … Obviously that’s been litigated in this community, what is a reasonable time period after, if it’s forty-seven days. You always want to ask for an extension if you really don’t want to have any problem with your client, so that somebody tries to say that their contract is invalid, because it has lapsed.
Greg: Okay, so if you represent the buyer and you think it’s going to go a little long, cover your bases, get an extension.
Steph: Yeah. Correct. You’d want an extension, but up to seven days if you’re moving toward closing and this community is being held to still be in effect. In order to forestall any kind of question, you always want to get an extension of the contract. The idea is, obviously when a lender is ready to close, you’re going to be able to close, so that can cause the extension if this contract is contingent on financing. The lender isn’t going to be able to close if you didn’t have the right home warranty price. You know what I mean? Then they could say, “Oh, we want to re-disclose.” Let’s just say, I’m not saying they would, but, they just say, “We want to re-disclose. We need extra time.” Then the lender isn’t ready to close yet.
On the other scenario, which is 9B, where you pick a date certain, you’ll note that the contract says that closing shall be at a time agreeable to both buyer and seller, which agreement shall not be unreasonably withheld. Well, what if the lender is complying with the TRID requirements of disclosure, would that be considered reasonable? The buyer could withhold … They can’t agree to close yet, because the bank is still-
Greg: The bank won’t give them the money. That’s right.
Steph: Yeah. We have no money, and it’s totally reasonable. The question would be: is it reasonable? Was it reasonably withheld? Was it not? Who caused it?
Greg: Who’s deciding the definition of reasonable?
Steph: Yeah. As a realtor, you don’t want to be the cause of the delay. The key is that making sure you write your contract sufficiently just to make sure that you’re not the cause of the delay, because you just didn’t disclose something.
Greg: What are you seeing in the marketplace? What’s a good time-frame to let all these issues work through the system in a nice, smooth manner that’s not … Obviously you don’t want to say between one month and six months for closing. What’s a nice, smooth-
Steph: It just depends on the lender. The loan officer should be able to give you an idea that your buyer is working with on whether thirty to forty-five days is an accurate assessment of the time-frame.
Steph: If a buyer puts thirty to forty-five days, they could reasonably get there if they applied previously to looking at this house, and all they’re waiting for is identification of the property. Within three to five days they could get a loan estimate out, and then they could be working toward getting the appraisal done and closing. That would be the ideal scenario. I don’t think that the thirty to forty-five days should be ruled out, but if your buyer has not really applied for the loan, you can see how you might need ten to fourteen days to submit all this information, and then you’d need three to five days for them to get the closing estimate, the loan estimate. It can post-pone it, if they really haven’t applied, for fifteen days,
Greg: Right. Okay.
Steph: Then they’re looking at getting the appraisal, which takes a couple weeks, so you’re already at pretty much thirty days.
Steph: If that’s the case, are you going to close? Probably not.
Greg: Probably not. Right.
Steph: You can see how if you work backward from the date you want to close, it might be helpful to really make sure what did you just receive related to the application. When you get that piece of paper that they’re pre-approved, make sure that you actually get it.
Greg: Right. Okay. Great! Wow. Couple tips there to put into practice right away. Once again, thank you so much for your help and your advice.
Steph: Thanks Greg.
Greg: See you next time.