When I first started out in real estate, I started out by earning my real estate license. As a licensed agent, I had to become very familiar with the closing process because the highest value proposition I felt you could have was navigating your clients seamlessly through the process of buying or selling their house. What I learned very quickly was that traditional real estate sales can be set up for failure from the very beginning. Simply put, there are too many hands in the pot. Let’s take a traditional real estate sale from the top and look at who is involved in the process. Seller Side:
- You, the seller
- Your Listing Agent
Buyer Side:
- The Buyer
- The Buying Agent
- The Closing Company/Attorney
- The Lender/Mortgage Broker
- Inspector
- Appraiser
Now that we know who all is involved, let’s look at a bird’s eye view of the traditional selling process after an offer is accepted. What you’ll see is that the amount of moving parts, coordination, and reliance on other professionals which you have no control over, to do their job – sets most transactions up for failure from the beginning. Traditional Home Selling Process:
You’ve decided to list your house – Get your pen ready.
When you list your house, you’ll be signing a lot of paperwork. There is a listing contract, multiple brokerage documents explaining your obligations as a seller, a 9-page seller disclosure, a lead based paint disclosure, a OGM (Oil, Gas, Mineral) Disclosure, and a property information sheet.
Marketing, Marketing, Marketing, and maybe a price reduction or two.
When you list your house, you understand that you will be paying a 5-7% commission to the agent, as well as closing fees so you list it for a price much above your actual bottom line. Unfortunately, a lot of agents these days simply want your listing because it’s great exposure for them. When you work with a professional agent, they will tell you what you need to hear vs. what you want to hear when it comes to price. Everyone has the same goal – to sell your house in the shortest time for the most money.
Congrats! You’ve got an offer – Get the Pen back out!
When you get the offer that is worth taking, now the real work begins. First, you’ll be signing a 13-page sales agreement – I know crazy, right? Truth is, you only need 3-4 of those pages but a lot of the rest is to protect everyone else involved. Once the agreement is signed, you are now marked Contingent. This is when the work starts for the buyer to obtain their financing.
All documents go to a closing company/or attorney
Once an offer is accepted, a closing company and or attorney is notified to begin their title search. Over the next 45-60 days they will handle the legal due diligence on the property. They are simply making sure there are no liens or encumbrances on the property and that it can be sold with a clear title. Often, they are very professional and will do everything they can to help in the process. Most agents have worked with their title company for years and have great relationships. Unfortunately, like all professions there are closing companies that aren’t very responsive and or customer service oriented. Title has been started, and now you have a two-week limbo period for inspections.
Inspection Period 10-15 Days
Most traditional offers these days come over with an inspection contingency. This is a 10-15-day period where the buyer can get a full home inspection. Radon and pest inspection, well/septic, boundary and easements, deed restrictions, flood plain, lead based paint, and “others” election. The buyer will conduct their inspections within the time and come back to you with a “reply to inspections”. On this, they will request items either be repaired or you credit them with $$$ at closing. If you come to an agreement, then you have successfully navigated one obstacle.
Buyer Makes Mortgage Application
During this period, the buyer is supposed to meet with their lender and or mortgage broker. When they sent over their offer, they had what is called a pre-approval. I used to think that a pre-approval meant they were good to go once they found a house within the parameters…. once I asked a few lenders I found I was far from right. When a buyer is pre-approved they simply get their credit pulled and tell the lenders what their income is. Often what happens is when the buyer makes their actual application for a mortgage, there are discrepancies. Most often, they don’t make as much as they said they did and their debt to income ratio is higher – which can disqualify them from buying the home. And, because they put a financing contingency in their offer they can simply back out of the contract and receive their earnest money deposit back. (Which just wasted your valuable time and now you go back on the market to start over).
Appraisal is scheduled – to find out what the home is worth to the bank
Appraisals…oh the joy. It’s unbelievable to me after being in hundreds of transactions seeing some of the homes appraise that I never thought would and ones I thought would have no problem, not making it. What I’ve found over the years is that there is no actual single system to appraising a house. There are methods, and most use the same but in the end an appraisal is an opinion from a licensed professional.I’m not knocking appraisers, they’re doing their best to do their job and keep both themselves covered and the banks covered – but over the last few years it has become a complete crapshoot whether a house is going to appraise or not. If it appraises, perfect you are pretty much smooth sailing from here. Let’s say it doesn’t…well as the seller you either hope the buyer has the cash to make up the difference or you will be reducing your sales price to the appraised amount. (Yes, more money out of your pocket).
Mortgage commitment and final underwriting
Now that inspections are cleared, the buyers are approved, and the house has appraised – the bank will send over their mortgage commitment. This Is them saying “Yes, we will finance this property to these buyers under these conditions”. If conditions have been met by them, they will go into final underwriting.
Closing
Three days before the closing, you should receive your final settlement statement, formerly called a HUD-1, now called an ALTA. This is where you will see line item by line item your settlement charges. These include the proration of taxes, final water/sewer bill, closing fees, and commissions. At the bottom, you will see what you are receiving in the form of a cashiers’ check and or wire if you choose. Whew! I know, right? A lot more than you probably thought going on throughout a traditional real estate sale. And therefore, it is recommended to list with a licensed professional when you are not in a hurry to sell. Your home is move in ready, and you need help navigating through everything.
So, is there an easier way? Yes!
Now after having been in hundreds of transactions both as an agent, and as an investor – one thing I can tell you is that, although investors might not pay as much as a retail buyer – they are much simpler, quicker, and less of a hassle. After being a licensed agent for a couple of years, I ventured into the investor world. I began buying and selling houses, and found that it was much easier for myself and the sellers when I bought for myself than when I represented a client. So, I had a thought…. If I could focus my energy on building a company that stripped the home selling process back down to the basics and made it as simple as possible – I could really help people out. Oddly enough, this is when I met my now partner Aaron Archibald (Arch). We found that we had very similar visions and decided to make it happen.
Our Home Selling Process – Easy as 1-2-3
Now that you see all that is involved with a traditional sale, you can see why we wanted to make it much easier to sell a house. With traditional sales, the three main reasons they fall apart is because of buyer inspections, buyer financing, and or title/appraisal issues.We decided to strip the process of those pitfalls and make it hassle free. So, we became true cash investors. As cash investors, we aren’t restricted by the banks like traditional buyers. This means that we do not have to go through financing requirement, appraisals, and loan underwriting. This is typically the main reason that sales fall apart – is because of financing. So, we removed financing from our minds – and said we will use all cash. We learned enough about inspecting homes to feel comfortable with not having inspection contingencies – the second reason they fall apart. Finally, we do not require appraisals when we buy your house, so what we offer is what we pay. To summarize, when you sell your house to us we make you a cash offer with no financing contingencies. There are no inspections or appraisals, and we can close in as little as 21 days. We have been in the industry for years. We have established relationships that make the process as easy as 1-2-3. At closing, you’ll receive a cashier’s check that you can cash the same day.
Finally..
I feel you should always use a professional when you’re doing anything financial. Whether you are looking to list and sell your home traditionally, or sell your home for cash as easily as possible. You should work with a professional that can ethically guide you through the process.
If you have any questions, or more to add to this – please feel free to reach out to us.