What Keith R. Gordon and His Staff does for Professional ADDvantage™ Clients to Close a Deal

Guide to negotiations, contracts, inspections, and closing

This is a guide to show you what you can expect from working an offer to a contract, inspection negotiations, contract law, seller and buyer communications, buyer and seller due diligence WDO inspection, wind mitigation inspection, septic inspection, HOA, addendum request, contract related language, appraisal, Realtor relations, walk-through inspection, title insurance, early move in agreements, seller financing, insurance, HUD settlement statement review and who pays title insurance, documentary stamps of deed and mortgage, and day of closing procedures.

Negotiations

Working with sellers, buyers, and Realtors is an important task that should be handled professionally at all times. I believe the best results a seller can achieve, when negotiating an offer, is not to deal directly with a buyer's agent. First and foremost, a seller removes the opportunity from a buyer's agent to persuade you on why you should sell your home for their offer amount. They do this by showing you a comparable sales analysis or CMA. A buyer's agent is a highly skilled, hard working, aggressive, knowledgeable, and commission motivated. As a seller you should not go up against a buyer's agent without having your own representation from a real estate broker/agent to represent your best interests. Every seller has different motivations about selling. As your broker, I explore your goals and then get busy negotiating the best deal possible with a buyer's agent. Please read my related article about a current ADDvantage client and why he chooses the Professional ADDvantage™ plan as opposed to negotiating his own contracts. This client happens to be a CPA, helicopter pilot, and successful businessman.

Best Way to Negotiate

Patience is the best form of negotiations. Buyers hate waiting. Drives them nuts! Slow price drops are effective for maximizing the highest sales price possible. But, in a buyer's market, but you should be priced initially within 5% of the current market values. This brings more showings and ultimately the highest and best offer.

The Contract

In Florida, there are two types of contracts: those with repair limits and those without, also known as “As-Is" contracts. Most buyers and Realtor use “repair limits”, often 1.5% of the sales price, as a basic guide for negotiating items found to be in disrepair as a result of a home inspection, also called “warranted items”. Buyers and buyers' agents alike feel that this clause in the purchase and sale agreement adds leverage to maximize any potential credits due to the buyer as a result of the home inspection. Sellers, in general, feel that it is to their advantage to have either an “As-Is” contract with no repair limits or $500 maximum as opposed to 1.5% of the sales price.

My experience says an “As-Is” contract works best for both buyer and seller. As a seller, you can request offers to be made on an “As-Is” contract, but that carries a stigma that something is wrong with the property. On a side note, all short sales and bank owned “foreclosed” properties are required to be on “As-Is” contracts. Bank owned properties often require an addendum to an “As-Is” which states “As-Is-Where-Is”, which means right to inspect but take it or leave it.

While sellers can request offers be made on an “As-Is”, it is my opinion not to request such but rather work all offers using the skills of a well-qualified real estate broker to maximize the sellers upside working within any contract parameters.

As a buyer's agent, I hold the opposite opinion of most in that I believe an “As-Is” is to the benefit of a buyer. The primary reason is the language in the contract regarding repair limits states that the seller will provide buyer with a written estimate by appropriately licensed persons for all warranted items noted in the inspection report. If buyer and seller disagree with the report, paid for and provided by buyer, then the remedy is a second inspection paid for by the seller. This is an oxymoron in many respects. First and foremost, it opens the door for a fight between buyers and sellers rather than a productive arms-length negotiation with regard to repairs. As well, why would the seller provide a buyer with cost estimates? It is the buyer's due diligence that should be the foremost consideration. The ultimate reason for buyers using an as-is contract to present their offer is to preserve their right to escape the contract without any reason other than requesting a “release and cancellation” signed by buyer within the inspection period time limits. As I have noted, a FAR/BAR contract with repair limits can work for and against a buyer. If a buyer, after an inspection, chooses to escape the contract, the seller can, within the terms of the contract, attempt to force the buyer to buy the property citing the “repair limits” clause of 1.5%. If the 1.5% is within the realm of the inspection repair costs estimates, then there exists the potential for a dispute. As well, a seller's agent (listing agent) can add fuel to the fire by boasting to the seller that they can hold the buyer in by following the contract to the letter.

Buyer Due Diligence

Buyers represent opportunities and risks. Make sure the buyer is qualified. Speak with the mortgage broker and verify what you can. If ever in doubt about the buyers' financial compatibilities, the seller can require a “buyer-ready” underwriting due diligence also known as “underwriting approval”.

Pre-Inspection Seller Due Diligence

Prior to accepting an offer, it is often prudent to have a licensed electrician and well-qualified handyman inspect your home thoroughly for electrical issues such as ungrounded pool equipment, verse-polarity outlets, missing CGFI within 6' of water, the attic for open junction boxes, the main panel for possible arching issues, leaking facets, missing stoppers, cracks in the exterior stucco, cut back bushes from sides of home, malfunctioning windows, gutters, secure roof nails popping through shingles, reattach lose shingles, replace missing shingles and roof titles.

With regard to the seller's disclosure statement, if there are issues with the home that are not repairable or should be noted, then disclose those issues in the real property seller's disclosure. It may be to the benefit of the seller to include items in the seller's disclosure that are known to be defective. By doing such disclosure, this should preclude the buyer from requesting repair of these items from seller.

Home Inspection

The buyer will hire and pay for a home inspection from a licensed home inspector. It costs between $300-$500 and usually comes with pictures and a detailed report about your homes electrical, mechanical, plumbing, roof, drainage, some structural inspection, water intrusion, windows, paint, pool, sprinkler, and gutters.

WDO Inspection

Wood Destroying Organism (dry-wood and subterranean termites) inspection is typically performed by an inspector specializing in termites. Like a home inspector, this is a highly specialized service. The buyer pays for this report, except with VA loans, which typically costs $90 dollars. The treatment for drywood termites is tenting with a gas called Vikane. The costs range from $800-$4,000. Drywood termites are colonies of a few thousand termites that nest inside wood members. Once a home is tented, the gas kills all existing termites but leave no residual material. Drywoods can reinvest and therefore it is recommended to get a termite warranty. Subterranean termites are a completely different type of issue and are regarded as more destructive. A subterranean colony can be in the millions. They are veracious eaters returning to the ground to gain moisture and then returning to the wood elements leaving rails of dirt called “mud tubs”. If these trails or tubes are moist, then the activity is likely fresh. The treatment for subterranean termites is a chemical called Termidor. Termidor bonds with the soil and lasts up to 10 years. It is either trenched 18" into the soil around the homes or drilled into the slab to treat hard to get areas. The cost of this treatment varies from $500-$3,000. If a home is found to have termites, this cost of remediation is negotiable.

Wind Mitigation Inspection

Insurance companies evaluate homes for wind tolerances for underwriting purposes. This inspection is usually performed by a certified inspector and is typically arranged by the insurance company.

Septic Inspection

This is separate from a home inspection. A septic inspection is required for VA and FHA financing. The cost of a septic pump and inspection is near $250. The buyer pays for such an inspection except if the buyer is going to be financed through the VA.

Condominium HOA Defaults

Banks and mortgage companies require there be no more than 15% of the home owners delinquent or in default with the HOA.

Addendum Request

Once a contract is negotiated, there are often requests from all parties to the contract for addenda to adjust dates and modify terms within the contract. These changes must be agreed to by all parties.

Risks of Contract Related Language

All contracts used by Florida Realtors are approved by the Florida Supreme Court. Because real estate practitioners are only licensed to make minor changes to contracts, it is recommended to seek the legal advice from a real estate attorney for matters that concern a buyer or seller.

Short Sales in Florida

It is recommended that all sellers contemplating a short sale seek the advice of a lawyer. While we at ADDvantage handle many short sale transactions for both buyers and sellers, we use a law firm to negotiate for our sellers. Our choice is Chad Orsatti located at 3204 Alternate 19 North, Palm Harbor, Florida office: 727-772-9060; Cell: 727-643-4023. Chad does not charge sellers a fee, but rather earns their fee through title fees paid by the primary short sale lender. Sellers pay no fees, no commissions, and no closing costs when doing a short sale with ADDvantage.

Short sales can take anywhere from 60-200 days to close depending on the number of loans involved, the prowess of the short sale negotiator (listing agent controls the short sale process and selects along with the seller whom will be negotiating for the seller), the bank negotiator, if there is PMI on the mortgage, whether or not the seller is cooperative with the process, the seller's hardship and subject to the banks, seller and buyers final approval.

Option Contracts and Lease to own Contracts

Florida Supreme Court does not allow licensees to alter a purchase and sale contract to include language that modifies such a contract in an effort to create an option contract or a “lease to own”. What is acceptable under the licensee's capacity within the laws of the State of Florida is to create a lease and include an addendum or attachment, add a purchase and sale agreement. It would be advisable to seek a qualified real estate attorney when dealing with option and lease to own contracts.

Appraisal

Since the Real Estate bubble of 2006, Real Estate appraisals have been placed into a blind pool whereby no one controls the exact individual who does the appraisal. Appraisals are typically ordered by the lender, if financing is involved, and paid for typically by the buyer. If the appraisal value falls short of the sales price, typically the parties to the contract negotiate the difference or possibly order a second appraisal. The seller would pay for the second appraisal which costs about $380. The seller is not obligated to sell at the appraised price nor is the buyer obligated to buy.

Buyer and Seller Relations

If ADDvantage is representing you (PLATINUM and Altru®), as your broker, all communications come through our office. The ADDvantage team is the fastest document turn-a-round team in the industry as we respond within 30 minutes to all requests from parties to the contract. All verbal and email requests are properly named and stored electronically in your client control panel under “client documents”. This creates a fluid and a timely closing. In a typical transaction there are between 20-50 emails and supporting documents.

Walk-through Inspection

One day prior to closing or the same day of closing, the buyer should inspect the property for condition, appliances, and outside air condition/heat pump. We use this form.

Title Insurance

Title insurance is paid for by seller in all counties in Florida except Collier and Miami-Dade counties, where the buyer traditionally pays. All costs of closing are negotiable. The State of Florida publishes the fees for title insurance and the rates are currently $5.85 per $1,000 of sales price, although all other title fees (junk fees) can vary from one title company to another. An efficient closing agent coordinates with all parties to a closing including buyer, seller, buyer's agent, mortgage broker, HOA representative for an estoppel letter, and listing agent. ADDvantage trusts this important task to RoxAnne R. Bocich at Wollinka-Wikle Title Agency, 1835 Health Care Drive, Trinity, Florida 34655; 727-937-4177(phone) 352-650-0758 (cell) 727-934-3689 (fax)

Survey

When closing a residential transaction, lenders typically require a survey, especially with VA and FHA financing. In most Florida counties the buyer pays for survey, with the exception of Duval County where typically the seller pays for a survey. Residential surveys can vary in price from $300-$600 depending on the size of the home and lot.

Early Move in Agreements and Seller Lease-Backs

At times, buyers requests sellers of vacant properties to move in before closing. There is no rule of thumb to minimize the risks associated with such transactions. At the least, a lease should be executed.

Day of Closing Belongs to Buyer

In Florida, unlike many other states, the day of closing belongs to the buyer. The buyer pays for real estate taxes, insurance, mortgage costs and gets position of the property on day of closing. The seller must deliver a “clean swept home”. The question is always the same, how does a seller schedule a moving truck, pack, and move the day before closing when there is no guarantee that the transaction will close. In many states, there is a 3 day delay between closing and possession for this reason. The short answer is there is no 100% test here. There is what is called a “clear to close” which typically occurs within two days prior to closing where all parties to the closing have given the OK to close including the lender funding the transaction. At this point, the title company coordinates a time to close. Another important hurdle to clear is the buyer's file coming out of underwriting at the lender.

Insurance

As a buyer, it is always a good idea to get a quote for insurance either before you make an offer or during the due diligence period. Buyers can in most cases assume the prior insurance policy.

HUD Settlement Statement

Prior to closing, all parties receive and must approve the closing statement which is a spread sheet of debts and credits for buyer and seller. The US Department of Housing and Urban Development mandates what must be disclosed.

Closing Costs

Traditionally, the seller pays for title insurance (except in Miami-Dade and Collier Counties), documentary stamps in deed (.45 per $100) while the buyer traditionally pays for survey (except Duval county), appraisal (except VA loans), all buyer closing costs related to acquiring financing including documentary stamps on mortgage (.35 per $100) and intangible tax on the new mortgage (.002).

Professional ADDvantage™ Discount MLS Program

All of the broker assistance above is available to sellers through our Professional ADDvantage™ discount MLS listing program. We hope that you will explore the Professional ADDvantage™ program and choose ADDvantage to help you sell your home.