Make Sure The Buyer Can Close
All buyers are not created equal. If you are choosing between
multiple offers on your property, the highest offer may not always
be your best option. You definitely want to consider the buyer’s
ability to close before accepting an offer.
If you are one of the few lucky sellers whose buyer is paying all cash, this is really not an issue, other than verifying proof of funds via a confirmed bank statement or an official letter from the bank. But if you are the average home seller, you do not want to take your property off-the-market for thirty (30) days or longer (passing up other potential buyers), only to find out on closing day that the buyer’s loan fell through.
Before you add your signature to an offer, turning it into an executed real estate contract, you want to make sure the potential buyer can close. Many contract also give the seller the right to cancel the contract if the buyers does not provide a letter of pre-approval (not just pre-qualification) from the lender within agreed upon time frame.
Some buyers may already have a letter of pre-approval from their lender. Others may only have a letter of pre-qualification. Different banks may vary in their definition of pre-approval and pre-qualification but common sense should prevail. Pre-qualification typically means the lender has not verified the buyer's information yet, but the buyer is qualified for the loan if all of the information they gave the lender is correct. A true pre-approval should mean the lender has already checked the buyer’s information and is simply waiting to verify the chosen property’s information and value. In other words, the buyer is approved for the mortgage; the lender just has to make sure the property is also.
The pre-approval should have very few contingencies. Lender contingencies such as an appraisal and survey are typical, but if the pre-approval includes contingencies such as verifying employment and credit score, it is not really a letter of pre-approval but simply a pre-qualification written on a pre-approval form.
If the buyer is pre-approved and the lender (or buyer) in stating it will take over thirty (30) days to close, you need to find out why. Sometimes this can be a touchy subject for the prospective buyer. The buyer may not understand why you (the seller) have a problem with waiting forty-five (45) days for some “special” type of mortgage to be processed before closing. The issue is not with waiting to close. The issue is waiting the whole time and then not closing because the buyer did not get the loan.
Be sure to take a look at the name of the bank on the letter of pre-approval or pre-qualification. Is it is a nationwide or smaller local bank you recognize, or is it an out-of-town bank you have never heard of? You may want to inquire about any bank with which you are not familiar. There could be a very good reason the buyer is using this bank. For example, it could be the town the buyer is moving from and they have been banking there for years, or it could turn out that this is the only bank that would “promise” them a loan.
Since the binder deposit is typically returned to the buyer if the transaction does not close due to a problem with the property, you should also consider the amount of the binder deposit (earnest money) the buyer is offering to put up. If the buyer is making an offer on a $200,000 property and only wants to put up a $500 binder deposit, you may want to ask why.
Naturally you must be tactful when asking these types of questions, and in situations where you and the buyer both have real estate agents, it can be difficult to get clear answers with so many different parties relaying the information. But remember: you have a very valuable asset the buyer is going to be “tying up” for the length of the contract, so they need to be able to close.
Obviously, you want to get as much as you can for your property. However, the better the financial qualifications of the buyer whose offer you accept, the more likely the closing will actually happen.
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