May 2, 2021

Six Tips to buying a home in a seller's market

Anyone with their finger on the pulse of Texas real estate knows that we are in the midst of a hot seller’s market. Anxious buyers are making generous offers in a desperate attempt to buy a home. However, an offer well over the asking price is not always enough to win the right to buy your dream home.

Let me pose a unique perspective to our readers and potential buyers. At the title company, we see the winning contracts. The buyers whose offers are rejected never make it to the title company.

The successful contracts in today’s market share a few common characteristics that potential buyers may want to note. If you want to win in this competitive market to buy a house, consider these tips:

1. Keep it simple.

Make your offer clean and with just a few, short contingencies. Contingencies include financing, inspection periods, right to object, etc. Any contingencies should appear reasonable and easily attainable. Most of the contracts I am seeing have short option, financing, and objection period contingencies. In this market, you won’t have much luck including a contingency such as the sale of another property.

2. Close within a reasonable time.

Ask the seller when they want to close. Then check to see if your lender can meet that date. Most lenders require 30 days or more. The longer the time to close, the more risk to the seller. Too many things can go wrong that the seller has no control over. The buyer could lose their job or change their minds. Acts of nature can occur (remember the deep freeze of a couple of months ago?). Many savvy sellers want to narrow the time from contract to closing.
3. Provide proof of financial ability.

Knowledgeable sellers often realized that a verifiable buyer might be a better proposition than a questionable buyer making a higher offer. The buyer should show documentation that they have the financial means to pay what they are offering. They should already be pre-approved for a loan at the terms they are offering.

As is often the case, cash is king. When there is no lender involved, concerns about appraisals and financing are gone. The lower the buyer’s cash down payment, the higher the likelihood that the financing may not materialize.

4. Put down substantial earnest money and option fee.

This is a reflection of the buyer’s commitment. The option fee enables the buyer to essentially take the seller’s house off the market for a period of time. Once all parties sign the contract, it is unavailable to other buyers. The buyer should offer enough to the seller to make it worth it.

While earnest money can be any amount, it also reflects the buyer’s sincerity and ability. It can be concerning when a buyer offers a contract with a substantial down payment but the earnest money they are offering is a small fraction of the down payment.

5. Write a love letter.

I am not a fan of cover letters but I’ll admit that they sometimes help. Nothing said in a buyer’s nice cover letter is binding. Some sellers, like myself, feel that everyone’s money is the same color of green. They don’t care about a sappy story. However, people are emotional beings and sometimes a sweet letter can tug at the heartstrings. If a buyer’s agent thinks it will help them, why not give it a shot?

6. Make it easy for the seller.

Many contracts today provide a temporary lease back to the seller that allows them to move out a few days or even weeks after the closing. Some allow them to take specific fixtures with them. A buyer may offer to purchase a pool table or piano that the seller won’t be using at their next house. A buyer perceptive to the seller’s needs will find themselves a step ahead.

[where: 75230]

Mar 29, 2021

Understanding the Underwriting Process

In the real estate world, we often reference underwriting requirements, underwriter approval, and underwriting review. Many buyers and sellers don’t understand what underwriting means or how much it affects their transactions. Let’s pull back the curtain for a peek at that mysterious thing we call underwriting.    

Underwriting is a sophisticated decision making process that involves interpreting data to determine if a company will take on a financial risk. The underwriter’s job can include conducting research, investigating details and weighing the known risk factors to determine if insurance coverage or a loan will be issued.

Types of Underwriters

With the possibility of sounding like Bubba from Forrest Gump, there are different kinds of underwriters. There are mortgage underwriters, homeowner’s insurance underwriters, life insurance underwriters, health insurance underwriters … and title underwriters.

Your mortgage underwriter will verify your income, assets, debt, and property details in order to issue final approval for your loan. Your homeowner’s insurance underwriter will determine the insurability of the property and how much to charge you for insurance. And we’ve got title insurance underwriters too.

How Title Underwriting Works

Before a sale is officially closed and title insurance is issued, a property must go through the underwriting process. This is a vital component of a real estate transaction because we cannot complete the sale without this due diligence. A title agent cannot waive requirements or make special provisions to offer you insurance without the consent of the underwriter.

A title insurance underwriter is responsible for checking title to the property to ensure ownership, rights and compliance with Texas real estate laws. They evaluate your property’s history and the title company’s research of the chain of title, looking for anything that could present challenges with ownership and/or owner’s rights.

The underwriter also looks for common issues like liens or judgments attached to the property, legal description errors, deed mistakes, unreleased marital rights, rights of heirs or minors, etc. To ensure a clear title, issues like boundary disputes, divorces, probate proceedings, adverse possession, bankruptcies, and more must be addressed to determine the significance of risk.

Furthermore, the underwriter must review and disclose anything that would be an exception to the title insurance policy. These include issues that could affect the owner’s use and enjoyment of the property such as easements, encroachments, rights of way, survey matters, and restrictions.

After evaluating the title risk, the underwriter may seek ways to mitigate a risk, if possible, and will ultimately decide whether to insure the title to the property. We all want to protect a buyer from closing on a property that does not have clear title.

An underwriter authorizes the title company to write the title insurance policy, assumes the financial risk and insures the property against insurance defects. The title insurance underwriter will then legally defend the property owner if any undetected issues arise with the title. In simple terms, the title company sells the title insurance policy and the underwriter determines whether they should and will sell that coverage.  

A title company may have one, two, or several underwriters. The title company must meet strict standards to qualify to write title policies with an underwriter. I work with nine different underwriters and each has a slightly different approach.

Title companies and underwriters are cautious because a simple mistake can lead to paying out thousands of dollars on a title insurance policy. Every title insurance policy carries a risk that the customer will file a claim — a potential loss to the insurer.

Title companies must be diligent and knowledgeable to comply with state and federal regulations and to also conform to their underwriter’s standards. Avoiding claims and issuing marketable title is the goal of every title company.

If you are purchasing a property, make sure you are selective about your title company and their title insurance underwriter. Not all title underwriters are alike. As a buyer, you have the legal right to select the title company you want.  Have someone you feel is dedicated to your best interests.

 [where: 75230]

Mar 16, 2021

Cash Offers in Real Estate

We often hear that cash is king is real estate. A cash offer is more appealing to a seller than an offer contingent on the buyer financing the purchase. How much a cash offer appeals to a seller is debatable. Some buyers think it entitles them to offer less for a property. Let’s get to the heart of that conversation.

Why a Cash Offer Appeals to a Seller

When a homebuyer is financing a purchase, the sale is typically contingent on the buyer obtaining loan approval for that financing. That means if the buyer can’t get their financing, they can’t buy the property. The approval process can take days or weeks.

Additionally, the property must meet lender’s requirements for the loan. Those requirements involve the appraisal, insurability of the property and any lender required repairs. Depending on the terms of that specific contract, the buyer may be able to get out of the contract if the property doesn’t meet lender terms or if the buyer can’t qualify for their loan.

While all that is going on, the seller is in limbo waiting for the loan approval. A cash offer can typically close quicker than a purchase involving a lender. But that really depends on the lender and how ‘clean’ the title may be. 

The buyer’s financing typically makes little or no difference in the seller’s closing costs unless it involves a VA or FHA insured loan. For that reason, sellers often don’t care where the money is coming from, as long as the buyer can get their loan approved in a reasonable amount of time. For many sellers, a low cash offer doesn’t sweep them off their feet.

How Much a Cash Purchase Saves The Buyer

Paying cash for the property can save the buyer on closing costs. Of course, we’re not talking about actual cold, hard cash – as in paying for a property with $100 bills. The U.S. government doesn’t allow that to discourage illegal activities like money laundering.

But a purchase without a mortgage can save on various title and lender fees. Assorted lender fees include the application, processing, credit report, appraisal, flood certificate, doc prep, etc. Borrowers may also opt to pay points (a percentage of the loan) up front to secure a lower interest rate on their mortgage. That adds to their costs to purchase the property.

If buying with cash, the buyer also saves on the cost of recording the lien with the county court. Most lenders require additional endorsements to the title insurance policy to cover items such as restrictions, lease holds, taxes, etc. Those endorsements can add more than $100 to the closing costs.

Obviously, some purchasers finance their property because they don’t have the cash. Others may have the cash assets and don’t want to tie up their money in a non-liquid investment like real estate.

Regardless of the source of the funds, the money passes hands through the title company. In the end, the seller looks for their money from the title company. At that point, it’s all the same color of green.
[where: 75230]