Note: This is the latest in my blog series about the ABCs of buying, selling and investing in real estate. Each post I select a letter, M this month, and write up a fictional advice column around it. The story is fake, but the advice is real(ty).
This post continues the story found in Three Motivational Ideas for Sellers During Showings
Mary was a single mom with three kids and had come to me to find some inspiration to get her house on the market. She dreaded the showing process and really wanted to know how to keep her spirits uplifted so she can sell her house and get her children in a larger home. After our initial conversation, she emailed me a couple of days later. She was still dreading the selling process. She had heard so many horrible things that had happen to some of her friends that she dreaded the process itself. She wrote, “Adam, I am not one for change and either are my kids. It seems that selling your house is a roller coaster ride of ups and downs. What do you think are some of the most dreaded disappointments that I might face while my home is on the market.”
This is how I responded to Mary….
I decided to call Mary versus replying via email. Sometimes, it is just easier to talk to someone about things bothering them. She was happy to hear from me. I started by telling her that I completely understood that she did not look forward to the selling process. It can be very stressful, especially when bumps in the road are encountered. Every seller has them and it depends on the individual on how to handle the mood swings that come along with the selling process. At one point, you could be very satisfied with everything only to receive a phone call from your agent completely ruining your mood by giving you some news you didn’t want to hear. When selling your home, you have to approach it like a good third baseman approaches baseball (which I love! Go Rangers!). With the game of baseball, you will get hundreds of opportunities during a season to field a ball hit towards you. You will have some balls hit your way that you drop or kick or juggle resulting in an error. These professional ball players are known to let go of the “bad error” so they can be prepared for the next ball hit their way. If you hit a road block in selling your home, it is best to focus on the problem at hand and when the problem is solved (as they are in most cases), you have to learn to let go of them to move forward to the next step in the selling process. I realize that this is much easier to say than to actually do as selling your home can be a very emotional experience. However, let me tell you about three mood killers that a seller might face when selling a home. Hopefully, knowing these might happen will help you to face them should they occur.
1. Get a good offer, buyer backs out during option – Once you get an offer executed, it can be a huge relief. You have had your home looked at for days, or even weeks, at a time and now you have a buyer in place to purchase the home. Five days later, the buyer terminates the contract. Your mood went from excited to frustration in a heartbeat. In Texas, buyers can give seller’s consideration(usually around $100) for an option period. This option period allows a buyer to perform inspections, look over the home again and think about the purchase of the home. During the option period, the buyer can back out of the deal for any reason whatsoever. The earnest funds deposited in the title company’s escrow account would be returned to the buyer if they terminate during the option period. Sellers have to face the fact that a buyer can back out of option period. The joy of getting a contract should be short lived and then sellers need to brace for the possibility of the buyer terminating the contract during the option period. Hopefully, the agent has reminded the buyer about this possibility so the shock of the contract suddenly being terminated can be lessened.
2. Get through option, home does not appraise – Buyer has the house inspected, repairs are negotiated and the option period ends. The seller breathes a sign a relief and can relax. Not so fast! There are still some stressful possible actions that could happen at this point when selling your home. One of the most frustrating missteps for the seller is that home does not appraise at the sales price, or at least not at the price where the buyer can get approval for the mortgage. When this happens, the buyer will often come back to the seller requesting the sales price be dropped. Otherwise, the buyer will have to pony up additional funds for a larger down payment. In my experience, most of the time the two parties reach an agreement where the buyer puts down some extra cash while the seller consents to lowering the price. They meet in the middle. Sellers need to realize that there are additional ways a buyer can terminate a contract without default after the option period including the property does not pass lender standards for the mortgage to be approved. Be sure to ask you agent before you start the selling process the various ways a buyer can terminate a contract without defaulting on it. It will save you a lot of surprise shocks down the road.
3. Get through it all, to have it fall apart at the last moment – You have made it through every step of the selling process. You are three days from closing on the property when you get a call from the listing agent. The buyers did not get final clear to close. Your mood goes from relaxed to major stressed at the last moment. If this ever happens to you as a seller, I recommend you consult an attorney to seek out possible legal actions. It is amazing to me some of the reasons that buyers suddenly do not have a loan approval. In one case for me personally, the lender discovered at the very last second the buyers had falsified all their credentials including where they worked. I had one property failed to close because the buyer was arrested a week before closing and the spouse did not want to carry through with the purchase. Earnest funds will most likely be given to you if this does happen. It does not help the frustration to go away completely but it does make it a little easier to swallow.
Mary groaned when I finished my lesson on possible mood swings a seller can experience when selling a home. She sounded scared on the other end of the phone. She said she could handle the option period as she knew about this already, but she didn’t realize the appraiser played such a huge part, or that deals fall through at the final hour. I assured her that we would make sure to help her through the ups and downs of the selling process. For example, if we price the house correctly, the appraiser should not be an issue. We could also call the lender directly to ask for how credit worthy the buyer is before signing on the dotted line. I told her that there were ways to manage the stress, but make sure she understood that there was no way to eliminate the stress all together. You have to keep you eyes on the end goal, getting a larger home for her family. In the end, she agreed with me and we set up a time to talk further.