The Transaction

Once a contract (purchase agreement) is signed, the transaction begins. Every real estate transaction takes on a personality of its own. It seems simple enough. A seller wants to sell a property and a buyer wants to buy one. However, there are a lot of moving parts, and a lot of parties involved. Managing the transaction starts long before the signing and involves everything from preparing the home for sale as a Seller and getting pre-approved as a Buyer, all the way through closing. There is a priority level to the tasks and it’s not the same for every transaction.

Risk to all parties

Entering a purchase contract DOES carry some risk for the parties involved and many tasks within the transaction could be defined as “mitigating the risk”. For some, the risk is generally investing resources (time, effort, and money) up front, understanding that if the transaction does not close, the investment is lost. For others, the risk is much higher. Listed below are some examples of the risk the parties take by entering the transaction and possible actions taken to mitigate that risk.

Buyers:

  • Want to know the condition of the property, without surprises.
    • Research the neighborhood and surrounding area as necessary prior to viewing the property.
    • Review documents available with the listing, particularly the Seller’s and Broker’s disclosures.
    • View the property closely prior to entering contract.
    • Order inspections as necessary, possibly more than just a general home inspection.
  • Want to know the current market level price.
    • Market analysis adjusted for apparent condition.
    • Appraisal- usually required by lenders but can be ordered by the Buyer, especially with cash sales.
    • Counteroffers and negotiation, within reason.
  • Want to know their loan conditions are the best available at the time.
    • Work with a good lender and provide documents requested in a timely manner
    • Lenders have lists of things a potential buyer should and should not do, starting several months in advance.
  • Want the timing of the transaction to align with their living arrangements.
    • Structure the transaction and work with all parties to maintain the schedule, although there is very little control over the schedule and priorities of others. Plan for alternate arrangements if closing is delayed.
  • Want to minimize their exposure to non-refundable expenses paid with nothing to show for it.
    • Structure the transaction such that the more likely possibilities for termination are performed first. It’s difficult, because tasks almost always overlap to meet a closing schedule.

Work with a broker you trust and that can help with all the above

Sellers:

  • Want to receive the best price they can for the property.
    • Market analysis
    • Curb appeal and overall condition
    • Know what you need and what you are willing to accept.
    • Counteroffers and negotiation.
  • Want to have a high level of confidence that the transaction will close rather than losing days, weeks, or months in “Pending” status, only to have the transaction terminate for reasons out of their control.
    • Get a pre-listing inspection and resolve the problems found or at minimum, include them in the “Sellers Property Disclosure Statement”.
    • Require earnest money or “Time Off Market” (TOM) fee
    • Analyze the offer in detail and counter to minimize potential problems.
    • Be prepared for further negotiation when the appraisal and inspections are complete. Buyers have a right to order any inspections they choose and to object to the results of the appraisal and inspections.
  • Want to know the Buyer’s loan details and that they are pre-approved for the purchase price. VA, FHA, and Conventional loans have varying conditions, for both the borrower and the property.
    • Require a pre-approval letter from the lender or “proof of funds” for a cash purchase.
  • Want the timing of the transaction to align with their living arrangements.
    • Structure the transaction and work with all parties to maintain the schedule, although there is very little control over the schedule and priorities of others. Plan for alternate arrangements, such as renting short term and for packing and storage arrangements.
    • Packing, moving, and cleaning, within strict time limits is difficult. If possible, complete the move before listing the home. In a perfect world, the timing might work to move out of one home and into another without having to double pay your living arrangements. It rarely works that way. TWO transactions would have to be scheduled and close simultaneously on time. That’s difficult even with just one transaction.

Work with a broker you trust and that can help with all the above

Seller’s Broker:

  • Want to have a reasonable expectation that the transaction will make it through closing.
    • May have had requirements before listing the property to begin with
    • May require a pre-approval letter or proof of funds from Buyer (possibly even before viewing the property)
    • May have up front Seller fees due for listing a property and for preparing the purchase agreement.
    • Look at the proposed transaction details and identify potential problems based on facts available.
    • Work with Seller to structure a counteroffer to minimize potential pitfalls

The goal at Mach 1 Realty is to structure a transaction that will work for all parties and use clear, concise communication, and our understanding of the industry to see it through closing.

Buyer’s Broker:

  • Want to have a reasonable expectation that an offer will be made on a property being shown and a transaction has a reasonable chance of making it through closing.
    • Pre-screen Buyers and complete Buyer-Broker Agreements prior to performing services.
    • Review property’s available data with Buyers in detail before physically showing the property

The goal at Mach 1 Realty is to structure a transaction that will work for all parties and use clear, concise communication, and our understanding of the industry to see it through closing.

Loan Officer (and their team):

  • Want to have confidence in the Buyer’s ability to perform, and that the property being financed has the value stated in the purchase contract
    • Pre-approve potential Buyers. Prescreen the property. The loan officer will try to identify the problems at the earliest possible time.
    • Require an appraisal.
    • Coach the Buyer on what they should or shouldn’t do (with finances) for the duration of the transaction.

Require documentation to provide to the underwriters.

Title Officer (and their team)

  • Want to know the Buyers and Sellers have legal rights to complete the transaction and the property is not encumbered in any way.
    • Provide a title commitment that specifies what is required to get title insurance at closing.
    • Order the survey as necessary (who orders the survey and who pays for it is specified in the purchase agreement).

Require documentation to support their legal requirements.

Appraisers, Surveyors, Inspectors and possibly others (such as utilities, repair contractors):

The Purchase Agreement (or Contract) will specify who is responsible for payment for these services. In nearly all cases, the service provider wants paid at the time of service, limiting their risk to the quality of their work and NOT to the successful closing of the transaction.

More than just mitigating risk

There is more to a transaction than just mitigating risk. An argument could be made that the entire real estate industry exists to complete transactions. Brokerages are only one of the service providers, the one that is there to guide Buyers and Sellers through the entire process. Here is a link to an explanation from a transaction management software website.  https://www.paperlesspipeline.com/blog/real-estate-transaction-process 

When the time comes to choose a brokerage, please consider Mach 1 Realty.