Situational Training - Working with Sellers

If you would prefer to hear an audio version of these situations, you can hear Seller 1 HERE, Seller 2 HERE, and Seller 3 HERE.

After 3-4 weeks on the market, the home is not selling

 First, evaluate market conditions over past 30 days.  Have houses sold similar to what you have on the market?  Run a report for 10-15% up and down from your price point to get an idea. If you have a house on for 200K, see what has sold for 175K-225K and how does that compare to what  we have.  Does it make sense these other houses sold before yours?

Run the 30 day marketing report so you can justify and prove to your sellers we are getting the marketing clicks.

Use frequency of showings as a leading indicator of remaining market interest.  If you have a property that has not had a showing in 7-10 days, likely the market has seen the property, and passed.  If however you continue to get showings...at least a few a week, it may not be price, but rather a unique characteristic of the home….small yard, small bedrooms, bad location, and you just need to find the right buyer or do a better job presenting the house.

What are the 3 things that impact the ability to sell.  Price, Condition and Marketing.

1. Is marketing on point - of course...use the 30 day marketing report to prove it, as well as number of showings at open house and private.

2. Is condition good...home is decluterred, no pet smells, no water stains on ceilings

3. Price - Only one of the 3 left….

Let the seller know that, for example, we have had 30 people come through this house, and either all 30 or wrong on the price, or we are overpriced.  Typically, buyer #31 is not going to disagree with the first 30 buyers.

Time to add value...add it to the buyer (price drop or closing credit), the agent (agent bonus) or the house (upgrades likes rugs, countertops, appliances)

Alternatives to a major price drop:

• Stage the home and take new pictures. Pair this with a small price drop and try changing the main photo. This will be money well spent and will add value

• Try offering an agent bonus in conjunction with a small price drop. e. $2000 agent bonus if home is under contract by X date

• Consider adding value to the home...new rugs, countertops and potentially take new pictures.

• If you are near a price threshold, get under it/to it. 205K down to 200k. 260K get to 250k.

Compare current price to whats on market. Are we in position to grab the next buyer.

You receive an FHA offer on a multi-family home and it's fully occupied, why should you be concerned and what can you do about it

FHA requires occupancy, so on an investor owned multi-family this can be difficult to make work.  In some situations, if the FHA offer is strong enough, we have had the seller offer up to the tenants to pay for moving truck, expenses, and rent payments to entice vacancy. You need to structure the offer so that the seller doesn’t give notice to the tenant that he is going to ask to leave until after the buyer has mortgage commitment. This can be tricky to do because that means you probably won’t close for 45 days after mortgage commitment which the lender may not be ok with. If you don’t do this you risk evicting one of your tenants and the buyer not getting his mortgage.

On the day of final walk through, seller repairs are not completed and closing is in two hours.

If minor, try and make arrangements to have the issue resolved quickly.  If its items leftover that should have been moved, I typically ask for the seller to provide photos of the items in the back of a truck to show it has been moved.

If something more serious that the buyer does not want to close (plumbing/electrical repairs) then often times a holdback is suggested.  This is an amount that is held back from seller proceeds, in escrow, until an issue is resolved.  Typically, its around 120% or so of the cost if the job has been quoted.  Other times, it's just a flat amount mutually agreed upon of 1K or 2K.

Obviously we want to try and avoid this situation by communicating with our seller about the repairs prior to close and having our seller provide documentation of all repairs.

The house doesn't appraise.

 Understand with FHA loans, the appraisal is “in the system” for 6 months so it will not be as easy as trying to get a new buyer with a new appraisal.  When representing the seller, I normally try and feel out the other agent to see if closing costs are a requirement or not.

The first option if the buyer had requested closing cost would be to not remove the payment of those closing costs as it’s possible that the 5000 back they were asking for is the reason it didn’t appraise.

The second option would be to split the closing costs with my seller.  So if originally the buyers were asking for 5000 back we only give them 2500 back and drop the sales price 2500.

At the end of the day, this is about expectation setting with your seller when setting the price and also when accepting an offer. You should be having conversations with the buyers agent around if the buyer really needs the closing cost or if it’s a nice to have and if the buyer has the ability to come out of pocket cash if the property doesn’t appraise. Not much you can do at the end of the day if buyer is not able to help. Very unlikely the appraisal will change much if you go out and get another buyer, and you lost another month, and have to go through inspections again with a new buyer. Often times, the seller is stuck selling the home at the new lower appraised value and also giving closing costs back.

The home continues to get feedback about small bedrooms.

 Are the bedrooms staged?   As an example, we have a 2-bedroom on the market where the 2nd bedroom is being used as an office...it's a tiny bedroom, but after we staged it with a twin bed, it sold. Without the bed, people envisioned it being difficult to even fit a dresser and twin bed.  Help people visualize their stuff will fit in your seller’s home.

You continue getting feedback on showings about something that is significant in value repair/replace. Age of mechanicals, Roof, Heating, asbestos.

Make sure to try and jump the gun on this and advertise even at the open house that the seller is willing to take care of these things with the right offer, especially if you know the house is overpriced. The key is to get the seller the net they want and the buyer the new item.  It's easier for a buyer to pay a little more in a mortgage payment then to have to dip in to savings after buying a house to replace an item. Maybe at full price the seller has room to take care of an issue...maybe you negotiate that with an over asking price offer, you can get that new heating system installed. These things need to be communicated to the agent prior to the showing so when you see the showings scheduled you must call them.  Maybe you split the difference on an item.  Using HCPS, we can get items installed and paid for out of closing without any upfront cost to the seller. For example, we had a house in Westfield with a boiler from 1900’s...worked like a charm no need to replace, but the public perception was not favorable.  We ended up getting a full price offer after many weeks on the market, but agreed to have a new boiler installed prior to close.  Logistically, we got a deposit from the seller equal to the cost of the products, and Jared got it installed near closing when the seller had a high likelihood of closing.  Ideally, a clear to close is best.

Buyer submits a long repair request.

 Have a conversation with the agent on what is really bothering the client. What are the major issues at hand. Categorize them by trade. Let your seller know it's not the amount of items, it's the cost to repair. Get HCPS out their to quote the work. It might look like 12 items on a list, but maybe it just ends up being  minor issues.  If 10 of the items are plumbing and 2 are electrical, sometimes I try and say that to get the electrician over to take care of those 2 items is going to be expensive even if it's a small job, but since we are going to have the plumber here for A, B, and C how about we agree to just the plumbing items so we don't have to get an electrician over here.

Always consider a closing cost credit in lieu of repairs as well, assuming you have room to increase the closing cost credit.  I like this approach the best because it's easier...no up front cost to your seller, no grey area at final walk through if items were repaired correctly, and no issues after closing if work is done improperly or fails.

During the sale, the agreed upon closing date is too far out for the buyer and they must close earlier.

 Just had this happen where the buyers agent calls and says if the buyer can't close on X date (about a week prior to close) they cant buy the house. It was a combination of rate lock and other factors.  What we ended up doing is closing early to keep the buyer happy but then doing a leaseback where in essence the current owners become tenants for 7 days until we hit the original closing date. Also keep in mind if your sellers are relying on their new house to buy, give some buffer on the leaseback so they have room to move that date if needed.

Agent calls on your listing and asks will the house go FHA.

 The answer is almost always yes! Just about Anything can go FHA.  Houses can be painted, windows can be replaced, handrails can be installed.  Never tell an agent a house wont go FHA. Of course, some properties severely distressed are an exception but never lose a potential buyer.  Of course, have a discussion with your seller that certain FHA issues are likely to come up, but FHA loan is easiest to qualify for given they accept lowest down payment and lowest credit scores, so we don't want to alienate that group of buyers. At the end of the day, the seller does not HAVE to do the repairs that come back on the appraisal, but of course if not, the buyer can not get the loan. Consider telling agent we will not consider any repairs unless they come up on the appraisal report. Also ask the agent when they call you if the buyer is handy...its ok to allow the buyer to do the work too (just make sure you get a hold harmless agreement ) and they will if they love the house. The sell to the buyers agent here is that these repairs are only required because the buyer wanted to go FHA so let the buyer make the repairs sometimes the buyer will even hire their own contractor to do the repairs.

You find out a week before closing your seller has a title issue.  The seller is irate why is this just coming up now.

 Explain to the seller the process.  The buyer’s attorney is the one who orders title and typically, because of the cost, they wait until the end when the deal is most likely to close that they order the title. Sometimes they have known about it and expected it to clear up in time, so you may already have a jump start. Typically, nothing you can do on these except wait. Typically, they take 3-4 weeks to clear, and the buyers attorney never wants to close with a bad title...it has happened on both cash and finance deals.  It just becomes a waiting game and from my experience there are never really any updates...its either still outstanding, or its cleared...which can make it difficult to set expectations.

Your seller wants to move into their new home earlier than the closing day

 Speak with the agent on the buy side to see if they will entertain a hold harmless agreement (your client gets to move their stuff in before they actually own it)  for garage only, contents only.  Clarify they are not looking to gain access to inside the home or take occupancy. This is something the attorney can draft up. Consider writing this in to the offer for your seller on a buy/sell. Occasionally you might run into a situation where your client actually needs to move into the property in which case you will have to try and negotiate a “use and  occupancy” agreement which would allow your clients to move in but not create a tenancy.

After closing, you get a call/text that the work done was not good or failed.

 The goal is always to try and work things out.  If it's within a few days of the closing, perhaps it was work that was not done correctly.  After a few weeks out, it's likely just home ownership. This is why I always stress to my sellers to hire good professionals for home repairs so you can rely on them after closing if something is not right. I had a situation where a roof was leaking and they had a sewage backup just a few weeks after closing.  It ended up just being coincidental and I told my clients they would have to prove we purposely withheld information about the home in order for it to be an issue. 

We want to price reduce, how much should we reduce too?

The general rule of thumb here is a minimum price reduction of 10,000.  Reason being, if someone wanted to offer just 5K less on the house, we likely would have received an offer by now….so I suggest a minimum of 10K and then maybe even 15K.  I like to consider the search increments on websites like Zillow too….200,250,300,350 etc.  If a house is at 265, it maybe worth going down 15K to get under the 250K pricing threshold. Also, there is a way within MLS to see how many new “eyeballs” will see the house if we reduce the price...its called Marketing Overview and it tells you exactly how many new search results it will show up in based on the new lower price.  While awesome agencies like ours don't use MLS for listing alerts, many do.  At minimum, you can use it as gauge in terms of % of people we are likely to attract based on any given price reduction.  The only exception to the 10K rule is if you are just above a pricing band for example 205K, 305K etc. you want to get it down 5K to get to 200K and 300K respectively...but you probably never should have been there in the first place :)

Deal appears to be falling apart due to inspections?

It's crucial to keep in mind whether you had multiple offers or not.

With multiple offers, go back to those buyers who submitted offers and let them know we are in the middle of negotiating inspection repairs and that the current buyers are asking for X,Y and Z...and you were curious if these buyer cared about those items.  If the agent says the buyer is still in the market and doesn't care about GFCI outlets, or loose toilets etc, have them write up a backup offer and submit it, even while you are in the middle of the current transaction. Use this as leverage with the current buyer saying you received a backup offer from a couple who made the offer when the house was on the market, and they don't care about X,Y and Z. See if you can get the current buyers to ease up on the request.  If not, consider accepting the other offer.  It depends on the severity of the issues….maybe another buyer has an electrician or plumber or contractor in their family and it's no big deal.

If no other offers, if your seller is leaning towards not doing some items, make sure the seller understands that its not just the cost of these repairs at this points, if we have to go on market, its another 45 days, another mortgage payment or two, higher holding costs and most importantly, the new buyer very rarely pays the same price the current buyer did during the feeding friendsy we had...its very difficult to get over ask when coming BOM...so he/she might not want to get a plumber or electrician over to the house for $1,500 bill...but the alternative, even if they just have to pay their mortgage for 2 extra months while we find a new buyer, is likely much more expensive in the long run...and that assumes new buyer pays the exact same price, does not have the same inspection concerns as this client, and has a good lending situation.

Deal appears to be falling apart due to mortgage?

Find out from the buyers agent what the situation is and see if one of your go-to lenders can help.  Everyone is trying to get to the finish line and I am sure the buyer wants to as well.  Don't be shy and sell the agent on the ability for your lender to close loans.  Different lenders have different rules in terms of credit scores, missed payments, time elapsed from bankruptcy and foreclosure...some go from time of filing, some go from time of recording. This is especially true when the buyer is going through a bank where there is one set of rules...you either fit their mold or not, as opposed to a broker who can shop out the situation and get someone to take the risk. We had a deal where our lender was able to get the buyer a loan because of the reason for the foreclosure...in this case they understood that the buyer owned his own company and lost a couple of large government contracts and basically, even though he was employed, had his income severely reduced and it was somewhat out of his control.

You have a 3 bed home, typically a ranch, where that 3rd bed was converted in to a dining room or just open floor plan.

We all know that a 3 bedroom is worth more than a 2 bedroom in most situations.  If the house really was a 3 bedroom, and they knocked down a wall to make a larger living room or make it a formal dining room, I have no problem listing that home as a 3 bedroom.  I had a house in Springfield and Chicopee and currently have another one in Chicopee where this is the case and I listed them as 3 bedroom homes and they appraised and worked out find.  Of course at the open house as I spoke with clients I let them know if this was a major concern, we can construct and complete the wall at the right price.

The buyer requests an extension for mortgage or closing.

This always comes back to expectations you set with your sellers.  Let them know these dates are what everyone is shooting for, but rarely what is met.  Make them feel as if this happens all the time and is completely normal...because it is.  I never ask my sellers to sign an extension without understanding from the buyers agent why they need more time...why?...because the seller is going to ask you that question and you want to be prepared.  Understand now whether there is a larger issue at hand or not.  Depending upon the situation, I am also not keen on week long extensions.  I like the keep the pressure on the loan office to get it done...the one thing I have learned over the years is that if you give the lender a week to take care of an issue, they will take a week.  See if it makes sense...if they need a pay stub and they need a week extension, that doesn't add up.  If they need to get a gift letter from their brothers cousins uncles aunts family members friend who lives in Australia who doesn't have email and has to mail something, maybe it makes sense for a week.  Use your better judgement and pressure the buyer that this one extension is fine but that its getting the seller nervous and we need to get this done.  Also, keep in mind in the courts eyes, a reasonable amount of time for an extension is 30 days.

After requesting a 2 week extension, the buyer requests a second 2 week extension for mortgage or closing.

Unfortunately the sellers still dont have any leverage. If the buyers have filed the proper extensions there is really nothing you can do. Additionally, most attorneys will tell you that you have to give reasonable extensions in real estate to allow buyers to close. For definitions of reasonable I feel like most attorneys will tell you 2-4 weeks. So if the total extensions have not exceeded 4 weeks, it would be tough not to grant the extension.

Once you get past the 4 week timeline, then you and your seller are faced with the decision of what do we think our best option is a: extend another 2 weeks and try and let this buyer figure it out or b: not sign the extension and come back to market. In most scenarios its probably going to be to grant another extension.

After the 4 weeks you could agree to grant extensions with consequences. Ie we will grant you 2 more weeks but if you dont close we retain the deposit (obviously you may lose the buyer if you try this method).

The final concept I want you to understand here is that if the purchase and sale had the phrase "Time is of the essence" (most attorneys make sure this language is not in the purchase and sale and you typically only see this on bank contracts) then all of this goes out the window and you wouldn't have to grant extensions or you could have consequences for extensions (ie per diem charges)

The buyer backed out due to inspections or inability to get a mortgage...we get to keep their deposit right?