Month: January 2017

Closing Statements Match Terms of Offer Contracts

If the buyer and seller agree in their contract that the purchase price shall be $300,000 the closing statement must show a sales price of $300,000. We all agree on that. If the contract states the Seller will credit the Buyer $1,500 for closing costs the closing statement will show a credit of $1,500 from Seller to Buyer. What if the Seller’s agent and Buyer’s agent correspond (by phone, text, email, in person) and agree that the credit will be $1,000 instead of the $1,500 the buyer and seller agreed to in writing?  The closing statement must reflect the terms of the Offer and the terms of the Offer must be in writing  using approved forms as long as Wisconsin Real Estate Licensees are involved. $1,500 is the only agreement the buyer and seller have. That’s the amount that has to be on the closing statement.

What about the situation where the buyer’s broker and listing broker agree to contribute money to the transaction by lowering the broker’s commission? Assuming the Offer to Purchase includes a statement where buyer has directed buyer broker to reject listing broker’s offer of compensation, and have the Seller pay the buyer’s broker at closing (assume 3.0% of the purchase price), the Offer to purchase must be amended to change the 3.0% to an amount less than 3.0%. If the Offer is not accepted a counter offer is the proper form. If the Offer is accepted then the buyer and seller must amend the Offer. An appropriate statement for the counter offer or amendment where the buyer’s broker is accepting $1,000 less to improve the Seller’s bottom line could be:

Addendum A, page 1. Buyer Broker Commission: Change 3.0% to 3.0% minus $1,000.

Nothing else in the Buyer Broker compensation contingency of the Offer is changed. Buyer is still directing the buyer broker to reject the listing broker’s offer of compensation. The only change is that the seller is not paying buyer broker 3.0%, they are paying 3.0% less $1,000.

The listing broker, selling broker, title company, lender, closing agent want to be careful to make sure all of the agreements the parties have with respect to money are documented and signed by the buyer and seller.

Obviously, a listing broker who reduces the commission the seller is to pay at closing will use an amendment to the listing contract to document the commission change. The title company receives the listing contract and amendments to that contract as well.

 

 

Reasonable and Logical Value Opinions

The appraiser must provide appropriate comment(s) reflecting the logic and reasoning for the adjustments provided… Selling Guide FannieMae.com  Adjustments to Comparable Sales.

Prices offered for homes last year were at times neither reasonable or logical. Home sellers were ecstatic and would-be buyers were anything but. I don’t know what the market will be in 2017 and I’m not going to guess. If we assume the next six months will be more or less like the first two quarters of 2016, it will be wise to pay attention to this publication MGIC How to Review an Appraisal. Mortgage underwriters have a critical role in protecting the lender who does not have the enthusiasm for the risk of owning properties at undocumented prices…if worse comes to worse (again).   Inflated values documented in appraisals are well documented as a contributing factor to the collapse of the last housing bubble. The prepared underwriter looks at each appraisal with a critical eye. Adjustments for amenities, improvements, location, market conditions are open for discussion. While there are not limitations or guidelines associate with net or gross adjustments, it’s the underwriter who will decide on behalf of the lender if the adjustments used by the appraiser conform to the neighborhood.

The listing agent or buyer’s agent who has a reasonable and logical method for comparing relevant sales to a subject property, using value adjustments, may be highly valuable in the process if avoiding hurdles and surprises is important. Creating a spreadsheet that functions similar to a uniform residential appraisal  form is a start. The art  to produce more or less useful results from that spreadsheet is to use dollar amount adjustments that would be acceptable to underwriters. Considering there are no published standard adjustments, we’re on our own to use numbers that are reasonable and logical to the underwriter … a person we do not and will not know. It’s all reasonable and logical. Or magical.

I have a spreadsheet I started using in 2014. It’s not perfect because it’s not the unknown underwriter, but to document the evidence and add some logic to the illogical process of pricing property, it’s a reasonable tool.