Don’t spend your money before you get it!
Would you be shocked to learn that a full 25% to 40% of the buyers you put before a lender will not make it to the closing table? That’s right–over one fourth won’t close, and you’ll have to start all over.
Most of the time there are things you can do to raise your odds of success. That’s what we’ll cover here. However, sometimes there are things that crop up that cannot be controlled no matter how good you are.
As I write this I’m shedding tears on my paper because of one of those uncontrollable events that happened to me just last week. I bought a little house for $12,000 through a Realtor. Then I spent about $7,000 fixing it and put it on the market for $39,900.
A buyer came along who agreed to buy it if I’d add a garage. We’d already pre-qualified this buyer, so I said, “Okay, I’ll add a garage after the loan is approved and raise the price to $41,900.” The buyer agreed so we got the loan working.
About three weeks later she was approved. So I added the garage, which cost $3,000 and installed the carpet and A/C, which I planned to do anyway. Well, to make a long story short, we were two days from closing, and she decided she didn’t want my house anymore. She found one she liked better around the corner.
Now, this was after we spent the time and effort to get her approved and after I built her a $3,000 garage. There just wasn’t any way I could convince her to close on my house instead of the other one she liked better.
Now I can just hear you saying, “But you had her deposit and a contract.” That’s true, I did have a $500 deposit and a signed contract. SO WHAT!
Obviously I kept the deposit. Naturally I was upset. In fact I was downright PO’d! But you see, none of my feelings got me any closer to that fat profit check I was now watching fly away. So the moral of this sob story is–don’t spend it until you get it. There is a case here for another strong message too. When you collect a binder from a buyer…
Get every dime you can
Looking back on my dilemma, I should have collected another $1,000 or $2,000 before I built the garage. If I had, the deal would be closed by now. I knew better; I just didn’t do it.
Man, this education is expensive. You’d think there would be a time in the life of a guru that he wouldn’t have to keep going to these seminars, wouldn’t you?
Alright, let’s get on to making your closings easier. I’m going to give you a step by step process to get you from loan application to closing and beyond.
Step 1. Make sure the lender orders appraisal and credit immediately.
You should tell your buyer to bring in the amount needed the day the loan application is taken (usually $250 to $300) to cover the credit report and appraisal. Insist to the lender that both be ordered immediately.
Many loan processors tend to wait until the documents are all in before they order the appraisal. Don’t allow this to happen. If you do, it will take an additional 15 to 30 days to get your buyer closed because of the time needed to get the appraisal done.
Another reason to order now is that the appraisal can be used for your next buyer if this one doesn’t make it. Let this buyer pay for it. FHA or VA and most conventional appraisals are good for six months.
Make sure your contract is written so you aren’t required to reimburse expenses to a buyer who doesn’t qualify. If they can’t qualify, you will have to refund the binder deposit, but nothing else.
Step 2. Call the loan processor within three days to make sure the appraisal was ordered.
That’s right, you actually have to check to see if they did what they said they would. Remember this: Every day that goes by decreases your chance of closing. It’s your job to take care of the details. No one else gives a whit whether you get paid or not.
Let me tell you about another tear-jerker about the guy who was ready to close on a $60,000 purchase from me. The closing day was set and everything was in order.
As lenders frequently do, mine called the buyer’s job the day before closing and found out he had been laid off that morning. Needless to say, that was the end of that closing.
My long-haired, hippie, rock star, guitar-banging son-in-law, Bobby, was a partner in that deal. He already had his share of that $25,000 profit check spent. When he found out it wasn’t going to close, I had to give him a tranquilizer, so he wouldn’t go into cardiac arrest.
But he soon got over the agony of defeat, found another buyer and this time it closed. By the way, we used the previous appraisal. The whole point of this story is: If we had shaved two days off the process, it would have closed the first time.
And if we all had a crystal ball that would foretell the future, we wouldn’t be allowed the fun of making mistakes. We do the best we can and try to eliminate as many possibilities of error, but regardless of how good we get, things happen.
Step 3. 15-day checkup
Call your processor in about 15 days to see if these things are in order:
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Credit report – it should be finished by now. Are there any problems?
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Verification of Deposit – is the money in the buyer’s account to close?
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Appraisal – you should have been called to meet the appraiser by now. If you haven’t, find out why.
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Verification of Employment – has it returned? If not, when was it sent? Is there anything you can do to help get it done?
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Other documents – what else is needed for loan submission? What can you do to help?
Step 4. 21-Day checkup
The loan should be ready for submission by now. If it’s not, find out why and take charge of getting what’s missing or correcting what’s wrong. This will save days or weeks in some cases.
Step 5. Loan approved
The long awaited day has arrived. Your buyer has been approved. Now it’s time for you to take control and get this thing closed fast. There are five things that you must get done before you can even set a closing date.
All five shouldn’t take more than 72 hours. If you don’t get them done, it’s really going to be the P – I – T – T – S.
P – Payoff letters for underlying loans, especially if they are from private individuals. Now’s your time to negotiate discounts.
I – Insurance must be purchased by your buyers and prepaid for one year. The lender must be named as insured.
T – Title Insurance must be ordered. I strongly suggest you order it from the same company who issued the policy to you when you purchased. This will eliminate any problems the first company may have missed that might crop up when two different companies are involved.
T – Termite report should be ordered by you. It must be free of any live infestation and damage. If it’s not, fix it and get a new report. Then, and only then, send it to the lender.
S – Survey has to be completed and in the hands of the lender or closing agent before closing will be scheduled. You are in control. Don’t let anyone talk you out of getting these items done. Remember, no one cares as much as you do. If you let others take charge of these five items, you’re headed for one of those seminars.
Step 6. Setting the closing date
When these items are completed, along with any other contingencies the lender wants cleared up, you can now simply pick up the phone, call the closing agent, and set a closing date and time.
It probably would be best at this point to call the buyer as well. Closings go better when buyers are present.
Step 7. The day before closing
Call the closing agent and get the exact amount the buyer will need to bring. Usually a cashier’s check is required, and you don’t want this to be a last minute thing that was missed. Call your buyer with the amount and confirm they have the insurance needed to close.
Step 8. Closing day
If your closing is scheduled in the late afternoon, which is quite common to accommodate your buyer’s work schedule, this could be one of the longest days of your life. Especially if you’re a new investor or you really need the money bad. Just go take a walk and relax.
None of those 25 things you’re thinking about will go wrong. Forget the horror stories I just shared with you. They only happen to gurus, not you. The only thing left for you to do is call the closing agent and confirm they have everything they need.
Put the keys in your briefcase, so you don’t forget them while you’re having your anxiety attack.
Show up at closing, smile a lot, sign where you’re told to, and pick up your check. Once you get that big fat check in your hands, your heart rate will slow, and you’ll start thinking to yourself: That really wasn’t so bad after all.
Congratulate your buyer on their wise decision, hand them the keys, thank the closing agent, and wait until you get at least 100 yards away before you start screaming, “I did it! I did it!”
Now pick up the phone, call your spouse and tell him/her you’re going to the finest restaurant in town to celebrate your success. Well congratulations; you can now call yourself a true blue Real Estate Entrepreneur. I hereby give you permission to wear that title. But hold on now. We’re not done yet. You have one more step to go.
Step 9. Follow up
Here’s the step most so-called experts ignore. You’ve made the sale. You’ve gotten your check. Now let’s make sure you’ve got a satisfied customer.
Within three days after closing, send your new buyer a congratulatory letter. In the letter you should ask them to call you with any problems that should occur with the house. Make sure they know how important they are to you and how you are concerned that their move went well.
Why would you want to do this? It’s simple. You’ll develop a good image, feel better about your business, and make more money in the process. If you treat your buyers right, guess who they will tell about it. Everyone they know.
You’ll soon discover that 25% to 50% of your new buyers will come from referrals from your old buyers. People just can’t wait to tell the world about good service!
If you really want to get them talking, add this sentence as a P.S. in the letter you send them: P.S. If you refer someone to me who buys one of my houses, I’ll MAKE YOUR NEXT HOUSE PAYMENT FOR YOU!
Well I hope you enjoyed our journey to the closing table. This information should make that journey a more pleasant one if you use it, and I hope you do. It’s better to suffer the pain of victory than the agony of regret.