In This Chapter

This chapter is about representing the buyer. It begins with a buyer prospect whom you qualify for readiness to purchase. When your prospect is qualified, you deliver your buyer presentation. This presentation does not result in a signed agreement with your buyer, the way it did with the seller, but it does establish your relationship as this buyer’s agent. After the two of you commit to the job at hand, you begin the process of touring properties and ultimately making an offer to purchase.

Later in this chapter, we look at the most important offer terms and how they should be handled with your client. Some states have forms that define transaction terms. This form can be a useful tool for explaining terms to your clients. Opening escrow is the next step, followed by performance of the all-important loan and physical inspection contingencies. At closing, you want to be with your client when he confronts the huge stack of documents to sign.

Before you start searching for listings and driving prospects around to tour properties, you want to qualify them, just as you do your sellers. Showing properties to clients takes a lot of time and energy. Before you make this investment, you want to determine whether your potential clients are ready or close to ready to buy, both emotionally and financially.

Here is a checklist of issues to discuss with prospective buyers in order to qualify them:

It is only through discussing the previous set of issues that you can know your prospect’s level of motivation. It makes no sense to cart people around to properties for sale if they are not ready to sign on the dotted line, or at least, if they are not reasonably close to buying.

After you have qualified the buyer, you will prepare your buyer package, which should include:

Print out a full-color buyer’s listing from the multiple listing service as an example of how a property is listed. Point out the categories and explain how you use specific criteria under each of these to select properties that match their needs. For example, show them a sample three-bedroom, two-bath home with a pool. If they desire each of those characteristics, this property will show up as a match in your search of the MLS. This illustration shows them that the more specific they are in their criteria, the more likely a matching property will fit their needs.

On your computer show them how a search is performed and how you are alerted when a property match occurs. As I’ve mentioned before, agents are far too guarded with the MLS. Clients are highly interested in this service that is off limits to them and appreciate your introducing them to how it works. There’s nothing in the MLS rules prohibiting client review as long as you are the one doing the showing and do not show clients the confidential remarks. Now with IDX/MLS we can feature current MLS listings in a client-ready format on our websites and clients can search current listings themselves in real time.

If your prospects do not yet have loan preapproval, advise them that this will be the first step on their home-buying agenda. Only with that in their possession will they be taken to look at properties. No buyer offer is seriously considered without a preapproval letter. The preapproval process will also tell them the loan amount for which they can qualify. With this important financial step taken in advance, they can focus on finding the right property within their budget instead of finding a property they are uncertain they can afford.

Clients want to know who you are almost as much as what you will do for them. They are interviewing you for the important job of helping them buy their valued asset. Include a mission statement that distinguishes your services from the rest of the pack.

Include information about the company you work for, but keep it to a minimum if you personally have an impressive listing history to show. If not, include the company’s listing and sales statistics, but also include information about yourself.

If you do have an impressive history, list current and past listings. Include client contact information (if those clients have given you permission). Attach letters your clients have written thanking you for your help.

Include your most recent newsletter with your buyer package. Some agents have a mailer covering a variety of topics. If you have one tailored to the steps in a transaction or the services you will provide to the buyer, include that also. If you give free seminars, include your schedule.

Have a list of the standard transaction steps, what will be expected of the buyers during the transaction, and which transaction fees are customarily paid by the buyer. Even if the buyers have purchased many times before, it always comes as a surprise to realize just how complicated the real estate transaction is. Most people purchased real estate when the transaction was far less cumbersome. This list helps buyers understand the course their purchase will travel and the need to have an agent by their side who really understands the process and will protect their interests. The agent who explains the process simply and straightforwardly stands out to them. This step will also cut down on surprises later if the transaction takes unexpected twists and turns.

When you describe the physical inspection contingency, let them know that you will guide them to inspectors who will assess the condition of the property for them. You will review their experts’ reports with them and decide whether a seller credit should be given or if perhaps the transaction should be terminated. Tell them that you will support the right course of action for them, whatever that may be, because you are part of The New Ideal.

If you use a transaction management program, include a sample transaction so your buyers can see how professionally their transaction will be handled. If your transaction management program is online show them how they also can track the progress of their purchase online. Tell them that statistics show that transactions handled with a transaction management program have a higher incidence of closing than those not so coordinated. Explain to them how all of the professionals who will be involved in their purchase will be able to follow the status of the transaction online. They will be impressed by your professionalism and competence.

The final step of your buyer meeting is to discuss two primary issues with your potential clients: first, what they want in an agent; and second, what they want in the property they are looking for. Always use your best active-listening skills while at the same time making it perfectly clear that you will find them the home they want within 30 days as long as they are specific about their needs. They have to do their part of the job, which is to know what they need and agree on it. If you have a husband and wife who have different needs tell them to call you later when they are in agreement. Then bid them adieu.

After this presentation has concluded you will know whether you and your prospects are a match. If you are, commit to one another. In most states, there is no formal agreement entered into with the buyer. In some states there is a buyer representation form, but buyers hesitate to sign it and would rather wait to bind the relationship until an offer is made. The commitment at this point is more of a moral one where you agree to help them find the right home and they agree to work with you in doing so.

In selecting properties to match your clients’ needs, make sure you use the purchase price listed in your clients’ loan preapproval letter. Before you tour your clients, make sure you preview properties. There should be no surprises when you arrive at a property; if you have not previewed a property, there will invariably be conditions you are unprepared to address. Do not make this mistake.

At the property, give your clients all the space and time they need to really get a feel for the home. Tour them through and answer any questions they may have, but don’t crowd them. Nationwide, the typical search takes eight weeks during which the buyer visits nine homes before they buy. If your buyers are Internet searchers, it takes them only four weeks and six homes.

When you are prospecting for buyers, let them know the results of your daily search. Even if there are no new properties meeting their criteria, report that to them. The only way to keep clients happy is to frequently let them know you are working for them and looking out for their best interests.

A recent survey by the National Association of Realtors reports that communication is the key to homebuyer satisfaction. The survey states that Internet buyers were contacted by their real estate agent every 4.3 days, while traditional buyers were contacted every 6.5 days. More frequent communication resulted in a higher degree of satisfaction among Internet buyers; 90 percent claimed to be very satisfied with their agent as opposed to 32 percent of traditional buyers. The main reason for Internet buyers’ satisfaction was that their agent was “always quick to respond.” In contrast, the main reason expressed by traditional buyers for their dissatisfaction was the lack of communication from their agent.

When your clients find a property they are prepared to make an offer on, the old sales trainers tell you to sit them down immediately at the property, pull out the offer you’ve got hidden in your notepad, and go for it. Don’t give ’em a second to start second-guessing themselves. If you do, you’ll lose ’em. This is Smoking Gun script No. 44.

The agent with The New Ideal is not pushing his clients to make impulsive decisions. Drive your clients back to your office and prepare the offer in a professional setting. There is no rush other than the normal time consideration in making the offer before someone else does. For those occasions when clients are in their own rush, and in some hot markets there is good reason to be, bring out your technology and let ’er rip. For the agent whose other middle name starts with a C, computer technology is the name of the game. The savvy agent has her laptop and printer stored in her car for just this type of occasion.

The next chapter describes in detail the required written agency disclosures you will make and the terms of the offer that you will now prepare. Use it as a guide as you put your client’s offer together. Go through each and every term and the significance of each to your client.

It is entirely possible that your client’s offer will be responded to by the sellers with a counteroffer. Always prepare your clients for this possibility so that when a counter is received, they are not unduly disappointed. It is just another step in the purchase process.

For agents still practicing salesmanship standards, presenting the offer involves setting the stage for a Hollywood soap opera. Many sales trainers advocate the sales pitch method—you’ve got to pitch the sellers so you can sell them on your clients. They instruct you to contact the listing agent and ask to present your offer in person to his or her clients. If the listing agent is crazy enough to let you in the client’s door, you sit down with the sellers and use every gimmick in the book to try to get them to accept your client’s offer. Bring your client’s letter of introduction and a nice glossy picture of them. Oh, heck, why not bring a video tape of them and play it for the sellers? Better yet, bring your clients with you and let them crawl!

For the agent with The New Ideal, Hollywood dramatics have no place in the offer presentation process. The sales pitch method is clearly not in the seller’s best interest, and both listing and selling agents should refuse to participate in it. The buyer’s personal characteristics have nothing to do with whether the seller should accept their offer. The offer and acceptance process is not a social or dramatic engagement; this is a serious business transaction where the sellers should exercise objective judgment based on the terms set forth in the offer.

After your client’s offer is accepted, you will prepare your transaction timeline. Hopefully, you will use a transaction management program, and we encourage you to use the online version. This is also the time when you pull in your transaction coordinator, if you have one. It is now time for you to jump into action on three important fronts:

The first step taken after an offer is accepted is to open escrow. Typically this step is taken by the buyer’s agent. When you open escrow, you submit your client’s purchase deposit and provide the escrow officer or closing attorney (depending on the state you are in) with the relevant details relating to this transaction. You don’t have to know what to say. The closing professional will ask you a list of questions, and you provide the answers. Other than that, make sure any terms relating to amounts to be paid or credited are related to this professional who will itemize these amounts on the settlement statement.

The closing professional serves as a neutral intermediary facilitating the transaction and ordering title reports and title insurance. This professional takes buyer funds in the form of buyer and lender deposits and distributes them to sellers, lenders, and real estate agents. He gives lenders recorded security instruments and gives buyers deeds. He handles the paper and money exchange required in the real estate purchase and sale process.

Within a matter of days of opening escrow the preliminary title report or abstract is received, which your client then has a limited number of days to review and approve. Sometimes this requires attorney scrutiny if there are easements and other conditions which limit the use of the property. If an attorney is not handling the closing, make sure you refer your client to one if there are unusual exceptions on the report. For the first several transactions, show the report to your office manager so you may learn what is unusual and what is not.

Although you should not give legal advice, and interpreting these reports is giving legal advice, it is important for you to understand these reports. With a basic understanding of title reports, you can head off any title issues that become apparent through your early review. Even trained professionals tend to run the other way rather than attempt to grasp complex title terminology that sounds like language from another planet. Understanding these reports is actually not complicated after you see them in a practical, logical way.

Each property comes into legal existence through a legal description recorded with the recorder’s office of the area where the property is located. Often the property’s legal description is expressed by reference to a parcel map such as the following for a client’s six-million-dollar home:

Each time the property’s legal existence is affected, a document is recorded on that property. These documents add to or subtract from the full rights of the property. For instance, an easement against the property subtracts from the property’s rights whereas an easement in favor of the property adds to the property’s rights. The following is an example of an easement in favor of a property, which becomes part of the property’s legal description:

The title report then lists all exceptions to clear title, meaning all financial obligations for which the property serves as security and all physical constraints that restrict the use of the property. For example, the easement described above in favor of one property will be shown as a title exception for the property burdened by the easement. When there is a loan that the property secures, the loan is recorded on the property as a mortgage or deed of trust, whichever security instrument is used in your state, and is also listed as a title exception. Think of the original legal description of a property as its birth certificate and the rest of the documents that affect the property as its credit report.

Title reports sometimes list covenants, conditions, and restrictions (referred to as CC&Rs) that affect the use of the property and may affect its value. Buyers must thoroughly analyze these constraints to determine whether they are willing to live under them. These restrictions can mandate the nature and extent of improvements that can be made, whether the property may be leased out, how many animals the buyers can have (and their sizes and weights), and a long list of other freedom-inhibiting factors.

CC&Rs also can show up unexpectedly on title when there is no condominium or home owner’s association. These restrictions most often come into existence when the original developer creates a subdivision. In the subdivision process, each parcel will have conditions recorded on title to allow the properties to legally reciprocate with and conform to one another. Sometimes owners enter into agreements with adjoining owners and record these agreements on title.

Often the seller who failed to analyze his own title report when he purchased is unaware that there are title restrictions. These may come as a complete surprise to the unsuspecting buyer. The educated and prudent agent who understands these title warning signs can alert his buyer to these issues early on.

Title companies and closing attorneys search title to make sure all rights and obligations affecting a property are set forth in one report for the buyer’s review. Title insurance is then issued to the buyer and lender, insuring that title confers the ownership rights described in the title report. If a claim is later made that the title report was in error, the title insurer steps in and defends the parties, legally protecting their property interests.

Title insurance has a body of law all of its own, which can benefit your clients if you understand it. Just like any other insurance policy, title insurance policies offer a wide range of coverage. There is basic coverage, extended coverage, gold coverage, platinum coverage, and everything in between.

Some policies provide protection that others do not. The property your client is buying may have unique characteristics that require a special endorsement. For example, if your client is buying a property that was just renovated by the sellers, there may be a potential for mechanics liens to be recorded on the property after close of escrow.

Basic title insurance does not ordinarily cover mechanics lien claims without a special endorsement. Your client should be advised to talk to the title insurer about additional coverage. It is only through knowing the types of extra coverage available for title insurance policies, or at least those most customarily used, that you can guide your client to make these important title insurance decisions so they do not become last-minute issues.

Contingencies are conditions that can make the difference between a purchase closing or not. A contract is conditional (meaning not yet a binding contract) until its contingencies are released, at which point the contract becomes binding and enforceable. In other words, it’s a done deal when the contingencies have all been satisfied or removed. Until then, it is conditional.

Most contingencies are general; some are finely crafted works of legalese. Some say practicing law while others say practicing real estate. The most typical contingencies are the loan and the physical inspection contingencies. You have to plan ahead for these contingencies, carefully monitoring the progress of steps being taken to satisfy these conditions. Until the buyer receives full loan approval from their lender and releases the inspection contingency, the contract is just that: contingent.

The physical inspection contingency can be a hair-raising experience for you and your client. It takes a lot to perform a medical checkup on a property in a brief timeframe. The condition of the property—all the way from its soil to its roof and then out to its boundaries—requires assessment in order to determine if the property is worth what is being paid. In addition, its feasibility and legality must be analyzed. The feasibility relates to the use that legal zoning allows. Legality is the term that refers to whether improvements have been performed with the correct permits and according to building codes.

During this contingency period the sellers (and the agents in some states) also make their written disclosures of the property’s conditions, covered in the next chapter, and often provide the buyer with a pest inspection report. These reports should be carefully analyzed by the buyers and their consultants. Most buyers have a pest control (often ordered by the seller), home, and sometimes roof inspection performed. Others also require a soil inspection, structural inspection, and survey. In most states, these inspections are made at the buyer’s expense, with the exception of a seller-provided pest report which is often paid for by the seller.

All purchases should include a trip to the local building inspection department to assess the property’s zoning and legality. Your client must confirm that all required permits were obtained when improvements were made to the property and that the use of the property conforms to the zoning requirements. In some localities, a city inspection report detailing these matters is a condition of sale. Although the seller’s disclosures should detail these conditions, the buyer is prudent to make his own independent analysis because the seller may be unaware of some requirements and less than forthcoming as to others.

Generally, the buyer has a short timeframe within which to complete these inspections. Assume that you are representing the buyers who have 15 days to remove their physical inspection contingency. Get them set up for general building inspections immediately. When the market is busy it often takes a week to 10 days for these professionals to conduct their inspections, and then they must produce a written report. Often recommended repairs need to be analyzed and seller credits need to be negotiated, which may involve hiring a contractor to provide a professional estimate for work to be done.

Fifteen days is therefore a very short period, but the seller wants this period to be brief because this is the contingency when some transactions fall out of contract. Because marketability of the seller’s property is impaired during the time a contract is contingent, it is in the best interest of the seller for the inspection contingency to be as brief as possible. It therefore behooves you to move forward with setting up inspections immediately.

Allow your clients to choose their own inspectors. If they ask you for recommendations, and they will, give them a few to choose from. I have handled more than one lawsuit by the buyer against her agent because the buyer was unhappy with the inspector’s services—and the inspector was referred by the real estate agent. The arm of liability swings wide in real estate transactions because of agency relationships that weave in and around the transaction.

The physical inspection contingency is ready to be released only after the inspections of the buyer’s choice are performed, the legal analysis has taken place, and the buyer is satisfied with all evaluations. If, based on these many analyses, the buyer feels a credit should be made to the purchase price, this is the time to negotiate its amount. It is during this stage that some contracts terminate because the seller does not want to give the credit the buyer desires, or the buyer decides against purchasing because of facts that come to light during inspection.

The loan contingency is another time-sensitive step. Because the loan can hold up a transaction, make sure you continually check in with the loan broker to ensure that the loan is on track for full loan approval. The loan contingency typically consists of two stages—preapproval and full approval. Historically, buyer prequalification was sufficient as stage one. Times have changed. The modern buyer should be preapproved for the loan, not prequalified, either at the time the offer is made or within a few days of its acceptance.

After a preapproval letter has issued, loan approval is no longer considered much of a contingency because the buyers are already approved for the loan. The only thing left to approve is the property, which depends on its appraisal and a review of the contract. Typically, neither of these factors presents a problem, but you should continually monitor the loan. Track the date for full loan approval and continue your monitoring thereafter because lenders are famous for last-minute preparation of hundreds of pages of documents requiring review and signing by the buyer. Don’t let a last-minute lender spoil the transaction you have taken such care to maintain in a balanced, stress-free manner.

About a week before closing make sure the settlement statement addressed in the next chapter is correct and the lender documents are in or at least ordered. For the buyer, signing closing documents can be a nightmare. If it were not for the loan documents, closing would be rather simple. The loan documents are sometimes a full inch thick and require numerous signatures. If you want to really understand them, it takes more than an advanced degree.

Because of this, it is important for someone who can explain the closing documents in a clear, concise way to accompany your buyer to the closing. For the buyer side of the transaction, the professional team may consist of one or more of your Power Team members. Both your escrow professional and the mortgage broker are well qualified to undertake this task. Because you are the person who has been by your client’s side every step of the way, you should also be at their side when they sign the closing documents. It is part of good service and caring about your clients.