Thursday, February 15, 2018

PAPERWORK! PAPERWORK! WHAT DOES IT MEAN TO A FSBO SELLER?

Everyone seems to think that filling out the contract forms and subsequent forms can only be done by a real estate agent or broker. A recent conversation I had with a Realtor© friend provided me with more insight as to why I am writing this blog. I have a lot of respect for Realtors© that go the extra mile for their clients, but most don't  and are in it for only the money. Allow me to spend some time on what we talked about, I think you will find it enlightening.   

The conversation started with filling out forms and quickly escalated into multiple subjects. First the forms, he indicated that a FSBO seller was setting themselves up for a lawsuit by using improper forms not approved by their state association of Realtors©. I indicated to him that his forms were developed by the state association to primarily protect the realtor from any illegal action and that the seller benefited from the same protection. A set of contract forms that covers the legal selling of a home had to cover the states legal transfer of the property and did not have to contain all the clauses protecting the real estate agents interest in the sale. He did finally agree that they had a number of clauses in the state approved contract that went beyond the legal needs, but still insisted that no other forms could be used. UsLegal forms provide its users with the proper forms needed by sellers to legally complete the sale. Here is a link to their website: http://www.uslegalforms.com/index.html?auslf=fsrl2018

He then switched the conversation to stating a fact that the National Association Of Realtors© (NAR), recently reported that as compared to selling with an agent FSBO sellers on the average sell for $41,000 less and take 19 more days to sell their property. I was prepared for that statement, my research was already done long before he made that statement. Taking 19 more days to sell is not a big deal for anyone. I assume it takes a little longer because a FSBO seller does not have placement on the exclusive MLS site. However there are plenty of internet sites that provide similar services and that the MLS is not the only internet presence out there. As far as the statement about the $41K difference, there is always a disclosure on that statement that reads similar to: " FSBO sellers generally sell at a price point lower then that of Realtors©".  They want you to read that statement as meaning that Realtors© will sell your house for $41K more than as a FSBO. The real meaning of that statement is that FSBO sellers have homes that are in a lower market value than the ones listed by real estate agents. Real estate agents cannot get $41K more by simply listing the property with them.- market value is market value and they have no magic wand to change that fact. Since the MLS does not list for sale by owner properties without being represented by a broker, there is no creditable data that can be gathered to justify the claim that by listing with real estate agents will net you more money in your pocket or sell any faster. When establishing a market value all real estate agents gather that information from the MLS and generally not from any other source. They refer to this as a CMA - Comparable Market Analysis and never includes For Sale By Owner properties.

From here we started talking about how, he, as a real estate agent justified his commission. He stated that he was educated in real estate law, had a marketing plan to get the home sold, be present to show the home, and handle the escrow and title companies on behalf of the seller.  If questions about real estate law is a concern, then I suggested that a real estate law attorney would be best qualified to answer any legal questions that arise. A real estate agent cannot give legal advice under any circumstance, especially without permission of the designated broker in charge. Next as far as marketing, I told him that a FSBO could plant a sign in his front yard with the same or better quality than a branded company sign, hang a printed flyer box and insert quality flyers rather than one of the generic flyers used by them and definitely have a significant presence on the internet. Since most Realtors© stopped using printed ads in newspapers and real estate magazines as their best marketing effort,  they instead, rely on the internet and so can a FSBO seller. A well disciplined seller knowing that the sale of his home is a business transaction can be as good as any real estate agent in showing his home. After all, selling your home is a matter of developing a sales pitch, like an agent, pointing out the unique features in the home, usually something an unfamiliar buyers agent cannot do properly. More often than not a sellers agent is NOT present for the showing making this a mute point. If a sellers agent shows the home to a perspective buyer, and writes the contract for the sale, then he is violating his fiduciary responsibility to you, the sellers, and your best interest by putting himself in a bad negotiating position for either party. A real estate agent cannot be a servant of two masters.

Once the contract has been negotiated and signed by both parties, it is time for the buyer to designate which title company they want to use for guaranteeing clear title to the buyer. Most often the title company will also provide escrow services. A quick explanation of escrow service; they represent both parties in the transaction equally, have no opinion about the transaction, will follow up on the lender, if there is one, will calculate all the costs and fees necessary to make the deal balance for both parties, collect all monies from buyers, lenders, pay from the proceeds all outstanding liens or taxes on the property from the funds, and when the recording of the new deed is complete, they will dispense new tile from the title company and disburse all funds as necessary. Although they cannot give advice or provide forms, they can tell you what is missing in their escrow as far as forms and agreements to make the transaction complete for both parties. I know this was a mouthful, but escrow services perform the most important part of the process by keeping the transaction as clean and smooth as possible. Always use their services, this will provide a major safeguard for you as a FSBO seller. Avoiding the escrow services and guarantee of title would certainly be disastrous for any real estate transaction. 

Now for the details of filling out a complete contract. Using the form you provide to the buyer, you will generally start with naming the buyers involved. If married then both should be named at the top. The description of the property will be found in the recorded deed and often on the property tax statement, it usually appears as a subdivision, lot & block or tract and lot numbers, and map position such as 0751N03W. Use this type of description as it is deemed more legal than just an address in a city. Both can be placed on the purchase agreement, lot and block AKA (also known as) 1234 ABC street, anywhere, any state, 88888. The purchase price will need to be written out in words and numerals. The need for this is obvious, it prevents any discrepancy in understanding the amount agreed to. Speaking of purchase price, read my next blog on how to negotiate that purchase without giving up some ,if any, of your hard earned equity. Whenever you are filling out any legal and binding form it is always a good idea to fill out every blank spot with an answer or write in N/A if it does not apply. Not only does a blank spot create a potential discrepancy between the parties as to what the agreement stated in the form, but will provide an opportunity for a buyer to add a statement or clause that is to his benefit. Remember, you want to avoid any "He Said, She Said" scenarios always put it in writing on the form.

Generally, the next section will be how the buyer will pay for the purchase. It will usually state an amount of EARNEST MONEY (more commonly called "Good Faith Money") that will be deposited into an escrow account. This is the amount of money a buyer is willing to give up if they decide to leave the deal for no legitimate reason. Legitimate reasons can include but not limited to; refusal by the seller to repair something found from the home inspector, the loan applied for will not be funded, lack of good faith by the seller to have disclosed material facts that would have affected the offering price, etc. As you can see the seller must be upfront on disclosures and always act in good faith when selling a home. Following the earnest money, the buyer will disclose how they intent to raise the funds for the purchase. The buyer needs to state if it will be all cash,  if they intent to get a first mortgage including stating the type of loan sought, such as FHA, VA, CONVENTIONAL, or OTHER. The buyer will usually state as a condition of the sale that he will put a limit on the highest loan interest rate he  is willing to pay, or and any other loan condition that would be just cause for terminating the transaction. All this will help you understand the loan position the buyer is willing to accept, very necessary for you to review and understand that if the buyer cannot qualify for a loan then you have lost valuable time in marketing your home to someone else, as well having to return the Earnest Money. That is why it is important to understand the difference between being pre-qualified and pre-approved for a loan. Pre-qualified means that a lender is willing to consider a loan for the amount stated in the Pre-Qualification Letter and that there may still be factors affecting final loan approval. However, a pre-approval means that the buyer will be able to purchase a home up to the limit stated in the letter, this is the best guarantee that a lender will follow through with the purchase. It is advisable to try and enter into a conversation with the buyer indicating that since he is pre-approved for the loan, that the buyer should not make any large purchases that will affect how the lender will look their ability to pay back the loan. If they want a new car, boat, or additional credit cards, they should wait until after the home purchase so as not to affect their credit position to obtain the loan.

Most often the next section will include terminology that will be similar to: "Other Terms and Conditions". This is the section that you would use to clarify that a buyer might need to sell a property prior to completing the sale, that 
an inspection of your property might not happen until their property is in escrow, any term of the sale that could affect the sale, and any condition of the property that needs to be handled prior to completing the sale. This might include paying off a future improvement lien or a major repair agreed to in the negotiations. Following the above section, there is usually an area for stating items that are included or excluded from the sale. This is always a difficult area, as most buyers that viewed a special item like a unique refrigerator, a free standing bar that appears to be permanently installed, or workbenches on hidden wheels. When showing, it is important to state in the showing what items are included and not included , then restate that in this section. Remember to always put it in writing. This is the one area where most discrepancies occur and often end with cancellation of the contract.  The rule of thumb used by most courts in deciding whether an item should have been included or not included is very simple- "If it attached permanently then it belongs with the sale. As an example a picture is hanging on a wall, not permanently affixed, nor is a refrigerator permanently attached, however, a cook top installed in a counter, or a microwave built in would be considered attached.  Drapes could go either way and should be negotiated and written into a contract, while attached blinds would be considered permanently attached. I think you get the idea.

Water rights, mineral rights and title conveyance are generally not negotiable sections of contract, and simply discuss state law pertaining to ownership rights. There will be section on Title insurance whereby you will be following state guidelines for inspection of title and title transfer. Generally a title company can guide you in filling out this section as it pertains to them. Again they will not give legal advice but can provide you with information in this area.  This is the section that the buyer states which title company they desire to use. You can suggest a company to them if they are not familiar with any, but you cannot designate one. Only the buyer can decide that. I suggest that you investigate a couple of them so your suggestion might be a couple for them to choose from.

We have covered a lot of area in real estate forms. My next blog will show you the last of the items that are usually on the form. It will also cover any necessary other forms and their completion, and most importantly cover "How To Negotiate Your Best Deal" as a For Sale by Owner. 

This blog has had a fair amount of page views from all over the world, but oddly enough no one is actually following me. So if you like what you are reading and I am doing you some good in helping you do the ultimate DIY project by selling your own home, please click on the follow button to let me know that I am providing some good answers. You can reach me at fsboanswerman@GMail.com or Comment below.


Roger, 
The For Sale By Owner Answer man
 (fsboanswerman)