I received a phone call from one of the agents I work with who is representing a seller requesting my opinion on another lender’s closing costs. The seller had agreed [photopress:MPj04331500000_1_.jpg,thumb,alignright] to “pay up to $10,000 towards buyers closing costs.
116 thoughts on “Are you leaving too much on the table?”
Excellent point. A good example of how important wording is. I think it is fair for the agent to request the GFE if the offer involves the seller paying for a portion or all of the closing costs and then be able to negotiate with the buyer on the final amount. Leaving it with open-ended phrases like “up to” or “approximately” is rather dangerous …exactly for the reason you wrote here.
What would stop the lender from simply generating a new GFE that showed a 2% origination fee?
The $10,000 is a given Rhonda. Seller never gets a portion back, or shouldn’t. All they have to do is buy down the rate. I’ve never heard of a seller thinking they are getting any of that back.
Ardell,
Would you accept an offer that said something to the effect, all closing costs paid by seller? …but didn’t have an amount set? This is extremely dangerous for the seller as there is no cap. Rhonda’s example is similar but the buyer set a cap for the amount they are asking the seller to pay, but made it potentially variable by the words “up to.”
I agree with you in practice the seller, when accepting such terminology, should assume all of it would be taken, but in this situation it would appear the LO is milking it. If seller wasn’t paying any closing costs, would the origination fee still be 2%? If that was the case, would buyer still be with that lender? If not, …then it shouldn’t be 2% when the seller is paying the closing costs.
I had a buyer make an offer on a listing of mine last year that asked for “up to” $16,000 in closing costs. Preposterous for the price of the house. The buyer’s reasoning was they wanted to make sure the figure they used covered all of the closing costs. No way dude. Figure out the exact amount or estimated amount and we might consider that amount only.
If you’re representing the seller and you did accept an offer with the wording “up to” ..and you feel they’re milking yet…then yes.. I would demand the GFE and fight it. It’s that kind of business practice that is giving the industry as a whole a bad reputation in the general public’s eye.
If you’re representing the buyer, …why bother with even putting “up to” in the contract? just say $10k. If the seller should expect the entire $10k to be going toward the buyer, why leave any doubt by using open-ended phrasing. Saying “seller to contribute $10k toward buyer’s closing costs” vs “seller to contribute up to $10k toward buyer’s closing costs with any excess applied against the sale price” has the same net effect. Less words equals less confusion.
The “up to” wording is in the pre-printed form. I’ve heard from escrow companies that often the difference reverts to the seller. But I also know that the seller assumes the entire amount will be “used up” during negotiations and the buyer assumes they will get it all. It’s part of the price negotiation. So the total amount should end up either with the buyer OR off the price, but not go back to the seller.
“Saying “seller to contribute $10k toward buyer’s closing costs
Ardell, I would assume that the entire amount would be used as well…except…not for the LOs benefit. It should have been used to buy down the interest rate for the buyer.
My main point is how do you stop the LO from gobbling the left-overs of the seller’s closing costs credit?
Great post. All to often that money just goes to the LO’s pocket and doesn’t benefit the buyer in any way. It would be interesting to see the initial GFE that was attached to that loan and what the final charged fees were. I’ve heard too many stories of LO’s wondering “how much more room” they have in terms of contributed closing costs to max their fees on the loan.
Is it just me or is $10,000 a magic number for seller contributed closing costs? Maybe its a psychologically comfortable number for sellers to kick in? $10,000 amounts to over 2.8% or points in terms of the cost of the loan. Most people would be kicking and screaming to pay 2.8 points on the front of a new loan, but gladly contribute it on the sale. Strange.
Rhonda asks: “My main point is how do you stop the LO from gobbling the left-overs of the seller’s closing costs credit? ”
Rhonda, I can’t even imagine that scenario. Well, except for that one whacko LO I mention often, who is no longer in the business.
Clearly any agent worth their weight in peanuts is “in control” of how the numbers play out. The agent is the one who puts the credit into the contract in the first place, and the one who sees the numbers on the Estimated HUD 1 before anyone signs it.
I used to do a full HUD 1 facsimile BEFORE the buyer signed an offer. I did it ON a HUD 1 form so that the buyer would be familiar with the form on the last day. At closing I would pull out the HUD 1 we did before the ball started rolling, and matched it to the real HUD 1 at the end. I guaranteed my numbers by paying any overage.
This way the buyer knew up front, exactly what their costs would be, with total piece of mind that the numbers couldn’t go sideways on them.
That got a lot harder when PMI was replaced with 2nd mortgages and the rate on the second became FICO driven. Still doable though, and getting easier.
Had one $55 charge yesterday that was just odd because the property had to be recorded in BOTH King County and Snohomish County. The County Line ran straight through the complex between buildings L and M 🙂 So everything has to be recorded in both Counties. It’s a good safeguard for both Counties to insist on having the records of all units. But the buyer couldn’t quite accept why King County was charging them $55.00 when they were paying $55.00 to Snohomish and lived in Snohomish.
You get an “odd” thing like that once in a blue moon. But we’re getting back to my original premise that the Real Estate Agent has to be on the ball. They shouldn’t just put in the number the LO says. They should be questioning the number BEFORE the offer is written, and catching it there if it seems out of line to the situation. Some buyers will have $8,000 and another buyer in the same price range could have $2,900. Depends on the buyer’s qualifications, downpayment amount, lender and loan program.
But every agent should at least be able to use the “Goldilocks Method” and know when the costs are too high for this particular buyer client given their credit score, downpayment, job history, etc..
I did two signings yeterday. I was off by $150 dollars and the credit went to the buyer to reimburse a portion of POCs, like Home Inspections cost or Appraisal Fee paid outside of closing.
The second signing was dead on, except for the $750 or so for real estate taxes. I didn’t pull that one as tight, because the buyer didn’t need me to take the chance of losing any of the credit. If the buyer has some funds, you can push the credit a little to the low side to prevent “overage”. If the buyer’s funds are tighter, you have to be smack on or overshoot a tad or guarantee the overage from the commission.
In other words, back to my original premise, it’s the agent’s job to do it right in the first place, and then double check it in the end.
When agents started “handing their job to the lender”, stopped attending signings and stopped reviewing the HUD 1 before their client signed it…things went very sideways. Time for agents to straighten up and stand tall.
I believe it is totally within the job description and power for the real estate agents to pretty much resolve the whole lending fiasco. Sure, some people will default on their loans, but only those whose situations changed from the time of purchase. Only those that were not “foreseeable circumstances”. And that’s where we need to get back to in this Country.
It happens…I’m afraid a lot. Unless you have the GFE, how do you know what the rate/origination was originally quoted? This is what I’m trying to get across with this post.
In the past, I have received phone calls from the escrow company saying, “hey, you’re not using all of the credit…” I could easily bump up my origination and leave no crumbs behind. It’s not how I do business…I like my sleep at night! 😉 If I can’t use any “left overs” to buy down the buyer’s rate…it’s going back to the seller. It’s not the Lenders to keep. I reviewed the HUD, and it is difficult for me to say without the GFE…and the LO refused to provide it to the Listing Agent…which makes us more suspicious. Since the points are listed under Origination and not Discount…I feel this LO made at least an extra 1% off of the Seller.
When you get down to closing, which is the pressure point of the whole transaction…you either have to stand up and have enough guts to say “we’re not closing until we receive a copy of the original signed GFE” or you just have to accept that the LO is too greedy. In this case, the LO, the Selling Agent and the Escrow Officer seeem to be very tight (according to “Ima Agent”).
Morgan: “Is it just me or is $10,000 a magic number for seller contributed closing costs? Maybe its a psychologically comfortable number for sellers to kick in? $10,000 amounts to over 2.8% or points in terms of the cost of the loan. Most people would be kicking and screaming to pay 2.8 points on the front of a new loan, but gladly contribute it on the sale. Strange.”
You are hitting on the strategy of “negotiating price by asking for costs”. Sometimes we need to offer a higher price than we otherwise would, and pull back on the offer by including closing costs. Sometimes that is a negotiation strategy, and not a “true need” for the seller to pay closing costs.
You are suggesting that the full $10,000 equals lender costs, when in fact it pays all costs, and prepaids, and sometimes even a few repair costs.
Most times when the credit requested is $10,000, it is a price negotiation and not a “need” for the monies to pay closing costs.
Another good way to use it up is at inspection..Say there is a $1,000 item that the seller won’t pay for from the inspection, and there is $1,000 of room in the original “closing costs” credit, you can suck up the overage by having the item repaired and having the bill paid through escrow. Or if no repairs needed, just have something the buyer wants to do after closing done before closing and use the $1,000 to pay for that.
There are many ways to negotiate using credits, without losing that credit by having it refer back to the seller. But that requires modifying the preprinted language a tad at the beginning. I don’t often do it as I don’t often need to. But once in a while that does come into play.
You don’t always want to simply “buy down the rate” with the funds. That only works for buyers who are concerned about the payment amount and/or who plan to stay in the property a very long time. But I am seeing that method used more very recently, as people become more conservative and afraid of “losing their house”.
Lots of fear out there these days. Buying down the rate is definitely “coming back into vogue”.
“In the past, I have received phone calls from the escrow company saying, “hey, you’re not using all of the credit”
Rhonda,
They are not supposed to call you, they are supposed to call the buyer’s agent.
That’s one of the biggest problems in WEST COAST real estate. They don’t give the Buyer Agent their role in the transaction. I am going to totally let loose on the topic of how “Escrow”, the entire process of “escrow” disempowers buyer consumers on the West Coast.
People think I “speak my mind”, but if I REALLY did, you’d hear me all the way to China!! Don’t get me started on the Escrow Process.
You do know that East Coast doesn’t have “escrow”. People don’t even realize how very much the West Coast tilts in its everyday practies toward screwing over the buyer. “All seller services”. “Use XYZ Title and Escrow”. Escrow never even telling the Buyer Agent when the signing IS!! Escrow calling the buyer DIRECT and telling them how much money to bring to closing, before the Buyer Agent scrutinizes the HUD 1. Escrow calling the lender when the credit is not used up.
It’s taken me some time to make sure the escrow process doesn’t put their foot on the necks of my buyer clients. But it was a hard battle, and is not done often enough by agents. The whole West Coast “common practice” system treats buyers like cattle being hearded to the closing table.
Oooops. Hit my hot button. stepping away from the computer…
ARAGHHRA… someday i will learn to compose off-line and then cut and paste into here.
basically I said, …
Ardell,
If a seller agrees to “contribute $10k toward buyer’s closing costs” it will show up somewhere in Section 200 as a seller paid credit toward buyer. If it’s more than enough to cover closing costs, then great…the entire $10k will still be used towards the buyer’s benefit. Net effect is the buyer has $10k less he has to procure at closing.
If a seller agrees to “contribute up to $10k toward buyer’s closing costs with any excess applied against the sale price” …it will similarly show up somewhere in Section 200 as a seller paid credit toward the buyer. If closing costs were only $4k, then the remaining $6k is still being used toward the buyer’s benefit. Net effect is the buyer has $10k less he has to procure at closing.
This whole point is to say …either way you word it…it’s the same net effect..Buyer should get full use of the $10k. I don’t understand what part you don’t agree with here.
What I got from Rhonda’s post was there are LO’s out there that are milking the seller paid credits to the LO’s benefit by artificially jacking up the lender fees. How do you curb this behavior? Her suggestion of getting a copy of the original GFE is a good start. Bottom line, if there is an excess in a seller paid credit to the buyer, it should be benefiting the buyer …either buying down the rate, reducing the amount down needed, etc. It should not be going to the lender’s pockets. It is wrong for the lender to take advantage of the situation like that …no matter how you look at it.
If you were the buyer ..would you put up with a lender that suddenly raised their fees to max out the seller paid credit? I’d fire that lender on the spot. From the seller, ..heck..I wouldn’t want the lender to get more money for nothing.
Speaking of escrow, .. With any transaction I’m in, I set the expectation with escrow fairly early on. I introduce myself and tell them what I want from them. When they get loan docs, I’d like to know when my buyers are scheduled for their signing, I will be attending the signing so I need to know when it is as well, or give me a range of dates and I will coordinate it with the buyers. I want an estimated HUD-1 as soon as possible to review. …With expectations set, ..I haven’t had too much trouble with escrow keeping me in the loop. (I do have to ask for things a few times on occasion).
You are missing the fact that most lenders will not allow the $6,000 to carry that way, in essence becoming a portion of the money used for downpayment. Contribution from seller toward downpayment is not often permitted.
Also, even it the buyer brings the whole down payment, you are suggesting he can get “change”, a check, for $6,000. Most lenders will not permit that either.
If it’s a zero down, stacked costs, not very likely the lender is going to let the buyer waltz of with six grand in his hand, as that is “financed funds”.
We say the “seller is paying it”, but really the buyer is financing it, and the lender calls the shots the day of closing as to whether or not the buyer can have “change” or not.
You can’t do it “off the sheet” as that is “lender fraud”, so sometimes the only way to get the credit is to apply the overage to the sale price and reduce price from $300,000 to $294,000 to capture the $6,000. Which is how I have done it.
Ardell, this example did happen. If the buyer is putting 10% down with conventional financing, the seller can contribute 6%. If the ltv is greater than 90%, it is reduced to 3%.
The loan officer pocketed 2%. A portion of that should have gone back to the seller UNLESS this is how the loan was priced. However, I don’t think it was…neither does Morgan at Blown Mortgage…he’s done a post on our example as well:
I don’t think any of it should EVER go back to the seller. It should have gotten to the buyer side somehow, and usually that means off price.
Now you see why I strongly believe that agents MUST know more about the lending process. When a buyer puts a credit it in the offer, they are factoring that off price and so is the seller on day one. For any of that to end up back with the seller is like renegotiating price without the buyer’s consent!
Or if there are no more “allowable” closing costs…and if the slimy LO hasn’t taken it. If the closing cost credit is guessed, it allows for the LO to make denerio they didn’t earn instead of the buyer having a lower rate bought with the extra funds the seller was willing to go “up to”. 🙂
How the heck does the “slimy LO” get past the Gatekeeper? The Buyer’s Agent?
I swear Buyer’s Agent has just become a meaningless freakin’ Title. I think the minute that buyers were happy with someone just CALLING themselves a Buyer’s Agent, training agents to BE Buyer’s Agents stopped dead in its tracks. I’m nauseous at the the mere thought that an LO can suck up an extra 2% with no one noticing. Give me some of that Theraflu. I just want to sleep this one off.
And don’t get me started on the freakin’ KEY debacle. AS IF the buyer getting the keys to their property is of no immediate concern and just left hanging out there. Sellers are not required to leave the keys at escrow. Buyer pays for the house and the escrow process doesn’t give a RA about how the buyer gets “possession and keys”.
I hate the whole escrow process. Buyers and sellers should MEET and the buyer should get the keys the freakin’ SECOND that they pay for the house.
Having one of those days…and no one even notices that buyers are treated like second class citizens in the whole process…and Russ wants to know why I’m so “buyer oriented”. It’s because the system NEVER screws the seller…”common practice” screws the buyer over every time, if someone isn’t riding herd over “the system”.
My sister says I should calm down and that “property OWNERS” have always been favored, in every law and common practice, since Adam and Eve were told to leave the Garden of Eden and had no recourse because they didn’t OWN the place.
Ardell–
Ah, now I understand the interest in “what to do about the keys.”
Sounds like you have your own philosophy about how it should be handled, but I’m not sure how well it jives with what’s in the contract. If the contract is written as “possession on closing” then there is no obligation or legal requirement to provide keys until closing has occurred. Closing is defined as the sale has been recorded with the county and the funds are available to the seller. If the funds aren’t available to the seller (say, he has moved out of state and they have to be wired and you missed the wire cutoff) you technically are not closed, so there are scenarios in which even though you have recorded you still as a listing agent might not provide those keys to the buyer’s agent yet. Not that I know of many agents who actually check on funds, most of us run with recording numbers and call it good.
The understanding in my office (as passed down to us from DEMCO, the Windermere attorneys) is that on the day of closing, key transfer takes place AFTER you get recording numbers and BEFORE 9pm. If you read the contract, it supports this understanding. So, that’s the way we do it here. You won’t find many Windermere agents that are flexible about this when they are on the listing agent side (though, we can be surprisingly flexible when we are on the other side of the fence and our buyers are clamoring for keys).
Most of the time by the time you get to closing you have a buyer that wants in and a seller that wants out, so it may seem silly to have to wait around. And on your average clean transaction maybe it would be fine to transfer keys early but if something goes wrong it could lead to trouble. It’s our job as agents to steer our clients clear of trouble, even when it might seem to inconvenience one side or the other.
That all said, you know I am a fan, right? I respect you for fighting the good fight, even though I won’t give you the keys…
Sandy…point is “the system” should provide the keys to the buyer and not REQUIRE agents to be in the process for that to happen.
Why does Escrow not require the seller to drop the keys off at escrow? Why does the escrow process not care how of IF the buyer gets possession and keys. OK, seller’s been paid…we’re done now.
If a buyer buys direct from the seller, the system is all in place for everything the seller needs. Why doesn’t the system include everything the buyer needs?
We’re not going to talk about why the lockbox seems to have to take a walk, even though it’s been there for weeks, the minute the real buyer might need to get in 🙂
Ardell, Escrow having the keys makes sense, since they are the “neutral third party” caring for the transfer of title and funds, etc. However, ESCROW probably does not WANT that responsibility. Where’s “our Tim”? 😉
Don’t bother Tim. Poor Lynlee got an earful from me about the stupid wording of oil in the oil tank clause. Something like “if the buyer waltzes up five minutes before closing and decides to fill the oil tank for the hell of it, the buyer has to pay that bill with no advance warning”. So much for attorney drafted boilerplate clauses.
Stepping away from the computer again…:) I’d blame it on PMS, but I’m too old for that.
Ardell–I do agree that it would make more sense for Escrow to handle the whole key issue and I do not understand why they don’t. We do definitely agree on that. It is a bit silly to have to drive to Kent and then go hang around in Kirkland waiting for recording numbers all so that I can transfer keys “soon enough but not too soon.” But though I question the need to do these things I will keep on doing them until DEMCO tells me not to.
In response to the larger philosophical question of why sellers are so heavily favored in west coast escrow, I have a feeling that it is because that is where the money is. Yes, ultimately all the money ACTUALLY comes from the buyer and his lender, but the person leaving the closing table with money in their pocket is the person who pays for the majority of fees associated with the sale, and therefore, that person is favored in our current system.
I’d be interested to hear Tim’s perspective on this too.
In my opinion, the key exchange should be set like an appointment. So, for example, if everyone signs around and documents are going to be recorded on a certain date like the 18th, then in most markets, we all know when the last run to the courthouse will be, or when the deadline is for online recording at the county courthouse. 3PM, or whatever.
Set the key exchange time and place appointment to happen after 3:30 PM on that date. Unless I’m living in a dream world and it’s never that simple.
Isn’t it the listing agent’s responsibility to make sure the keys are delivered by the pre-set day and time?
Guess the system doesn’t like my greater-than signs.
What I was trying to say was,
As the listing agent, you will want whatever is remainder to come back to your client …unless the buyer has a legit use for it, I’d fight to get it back to the seller. I’m not gonna let the LO have it especially if they’re artificially padding their fees just to get it.
On the buyer’s side, yes…I would be fighting and finding ways to use up all of the seller credit. Likewise I wouldn’t want it to go to the LO!
Line 50 and 51 of Form 21 of the Purchase & Sale agreement says, “Seller shall deliver keys to Buyer on the Closing Date or on the Possession Date, whichever occurs first.” Escrow can’t or shouldn’t handle the key transfer because according to lines 89 through 96 of the same Form (computation of time), seller would have till 9:00pm to deliver keys to buyer. Escrow isn’t going to be available that late in the evening for buyer to pick up the keys from escrow.
The buyer’s agent should arrange a time and place on closing day to get the keys from the listing agent. I’ve done it where I go to the listing office and pick them up. Upon recording numbers, the buyer’s agent goes and delivers the keys to the buyer. That’s how I do it. I know that’s not how everyone does it though.
A new construction office I work with got a call from a buyer’s agent on a house that was closing. The buyer’s agent wanted the listing office to stay open an extra hour or two so the buyer could pick up the keys after work. When asked why the buyer’s agent doesn’t come pick them up FOR their buyer …the buyer’s agent said they’re too busy.
Un-be-lievable. Too bad we can’t implement a rating system like eBay has for their sellers.
James–that is exactly why I won’t deliver keys until after recording but before 9pm. Because that is what the contract says. So that is why it isn’t possible to do key transfer as a pre-set appointment–would that our lives were that predictable that we would know ahead of time when we would record so I could plan on it, rather than waiting and waiting, and then finally I get the call from Escrow.
Also, I have had recording numbers come in very late at times and there have been instances where we funded late and therefore were late getting recording numbers…causing failure to close on the date of closing. As a listing agent, I am not giving keys to a buyer until I am 101% sure that we are closed because anything can happen. Most of the time everything works out just fine and I am being overly cautious, but I am not going to give someone keys who doesn’t own the house yet.
And yes, in a perfect world a buyer’s agent would get the keys themselves but I have found that more often than not because I am unwilling to provide keys until I have recording numbers, I end up delivering them myself. Which I think is actually a nice thing to do, gives me a chance to say “thank you” to the buyer’s agent and pass on any last words from the sellers. Also, I live in Mukilteo and seemingly no one who lives south of the King/Sno county line is inclined to drive up my way. Can’t imagine why! 🙂
Sandy,
I guess it’s also your rapport with the buyer’s agent. If they’ve been very active and involved through-out the transaction, there might be a level of trust to provide the agent the keys and trust they won’t deliver until after recording numbers. However, there’s probably just as many buyer’s agents you wouldn’t trust.
The drive through Mukilteo is a great one…especially along Mukilteo blvd. The views of the Sound are awesome.
To say you can’t trust the buyer’s agent with the key, after they’ve had the key access throughout the entire transaction, is just insulting. It says “I don’t trust you to do your job well and within the contract terms.”
Once the buyer has paid for the house and the sale has been “released for recording”, there’s plenty of time between the “released for recording” call and the actual recording, to get the keys to the buyer’s agent.
Even if someone has ever seen a property that has been released for recording not record, it’s got to be a very rare event.
I’m starting at the last reply…Ardell, yes it possible. That would be a human error. Or if the docs came at the 11th hour from the lender and they miss getting to the title co. There were times when I was in title that I was driving docs from the escrow co…meeting the TO at the courthouse…once I recorded the docs myself (again, when I was in title insurance). From my 14 years in that biz…I do everything possible to make sure docs are out well in advance to the escrow co.
In Texas, we do not have “escrow” as such. The function is performed by the title companies. Our contracts have a boilerplate “possession at closing and funding” and another choice. The title companies record the deed as much as 30 days after closing. So when the seller has the cash in his hot little hand, the keys pass over. Since we don’t wait for recording, Typically the seller shows up to closing with the keys, or the listing agent leaves the lockbox on the door and the buyer’s agent pops it open for the buyer. If the seller signs earlier, they just leave the keys at the title company until the loan funds, and the title reps hands the keys to the buyer. God Bless Texas!
Typically, “funds available to the seller” does not mean that the seller actually has to have the funds in their account. Just that the funds have been authorized for release through escrow.
James and Ardell
Just a word about the trust issue–it’s not about trust. I would trust Ardell with the keys once the transaction went pending if it was only about that–I think she’s a great agent and does a great job for her clients. Plus, she tells funny stories.
But it’s not about that, it’s about the contract and what the contract says. The reason we have contracts rather than handshakes around the sale of homes is that trust alone isn’t enough. Agent’s instincts may usually be pretty good about people, but we are not infallible and our instinct to trust someone could be wrong sometimes.
I think it’s probably better to have a policy versus playing it by ear on each transaction. “Key transfer between recording and 9pm” is my policy, and it’s supported by the terms of the contract. I do try to get the keys to the buyer/agent as quickly as I can once I have word of recording though. I agree with Ardell that they do have a right to have them, once we have passed through the final hoops.
I think the question of why the key transfer isn’t built into the process, and how come the whole escrow process seems to favor sellers is a really good question though. Seems there has to be a more elegant solution to the question than the way we do things now.
The problem with giving escrow keys to distribute falls for the most part on a convenience issue. When borrowers sign loan documents it usually is a day or two or three before closing, and escrow would have to make arrangements with the borrower to come to the office to pick them up during normal business hours (banking hours ). As it it today, it is difficult enough to schedule clients to actually come into the office to just sign closing papers. There are cases where something is not right transactionally even after a transaction records, like water heaters that blow up or a fixture is missing or movers that damaged hardwood floors or the front door, etc or whatever— and I can hear it now “hi Tim, you didn’t give the keys to the buyers did you? We have a snafu.” Escrow really is not a party to the transaction in the sense that agents are, so I’m not sure that having escrow in possession of keys is the complete answer. That being said, we have distrubuted keys before.
What happens when recording takes place late in the afternoon? Or, when the market was screaming like a locomotive last year, there were cases when we received recording numbers after 7pm. What then? Escrow would not be able to release the keys in a fashion that consumers would appreciate.
Yes, late last week we had a purchase transaction fail to record AT recording due to title pulling the plug on the deal for last minute issues. On the flipside, last year, our office pulled the plug on a deal very late into a transaction due to potential fraud. Turns out it was a very wise decision.
Also, it is possible for us to be released and never receive money from the lender. It happens. The lender filed for bankruptcy recently.
Trivia Question for local agents.
(First local area NWMLS member agent to answer “basically” correct, will win a free coffee gift certificate from me (RCG contributors excluded, sorry!)):
So agents, when escrow has been released to record and recording takes place, yet escrow is never funded by the lender, how does escrow get the title back into the sellers name again? First hint: have damp cloth nearby to dab forehead that is sweating bullets, then,walk outside of office, stare into sky and say the classic line stated by the late Peter Boyle from the TV program ‘Everyone Loves Raymond’….. “holy crap!” These buyers just got a free house!
Of course my problem is that I have done too many closings where the buyer and the seller and the agents and the Closing Agent are all in one room at a time. Everyone had ADVANCE notice of which day they needed to take off from work on the day the offer was WRITTEN.
The money arrives from the lender, real money, that morning. Buyer brings his Cashier’s Check and Seller brings keys and garage door openers, etc. Everyone signs, buyer hands money to Closing Agent and Seller hands keys to Buyer. Everyone shakes hands, says good luck with your new house. Sometimes there are gifts with pretty bows and ribbons. People leave the table and start unloading the moving truck. A straight progression, all consumer oriented.
Turning all that into a phone call (or not) that says “Property has recorded” and no mention of access and keys is a huge downer for me.
Eight years ago when I moved to the West Coast and “escrow States”, I thought I’d get used to it. But from the buyer consumer’s perspective it sucks, and I don’t want to “get used to it”. There has got to be a way to make this whole system better.
To a large extent, a very large extent, using Legacy often, has helped immensely 🙂 I had one yesterday that wasn’t Legacy, and I realize how much better I have been able to make it by utilizing, and tweaking, your services. It’s not only about how good the Closing Agent is, it is about organizing things to the convenience of the client instead of always saying “oh no, WE do it this way.” regardless of how “that way” affects “this” consumer.
I hate carved in stone, who cares about what the consumer needs, RULES of play, as if the professionals are the ONLY ones that matter. In fact, they should be last on the list. Hate is a strong word, and we were not ever allowed to use it as kids. But I do hate rules that don’t seem to match the individual particulars of each situation and are not consumer-centric at their core.
When you have a cash sale for example, and the buyer has handed over all cash and then told to go home and wait for a phone call…and then wait AGAIN for agents to have the time to get together with the keys. All I can say is, I don’t know the industry has gotten away with that for all these years. It is the listing agent’s job to get the keys to the buyer agent, and the buyer agent’s job to give the keys to the buyer. If that buyer wants those keys the second he owns the property when it records…it is his right to get them.
99 times out of a hundred it isn’t a problem. Listing Agent leaves lockbox on the house and puts the rest of the keys inside in a place pre-determined by the agents for the buyer agent to retrieve them.
I like to go the the property immediately after the property has recorded. Even if the buyer can’t be there with me at that time, I like to do a quick walk through and make sure nothing bad is going on inside. A quick walk-through, right at recording time, is a good protection for ALL parties. It can protect everyone from future claims about things that happened when the buyer moved in, the agent having been witness to the exact property condition AT time of recording.
99 times out of 100. No problem. Locbox comes off that night or next morning AFTER the buyer agent retrieves the key.
Most times it is pretty easy and no one has to go any further than the property they “sold”. Clearly reasonable to expect an agent to go to the property itself. Not reasonable to expect an agent to go to the other agent’s office, especially if that office is not near the property sold.
It’s not about ego and who will “win”. It’s about the buyer AGENT, not the buyer, having the key at the time it records. An hour BEFORE instead of an hour AFTER, or simply leaving the keybox on and the remaining keys inside the property. Not sure why that seems to be an “unreasonable” request.
Ardell, I think the closing system you mention has a lot of benefits. Just for fun I was thinking about all the postage fees we would save and everyone gets paid right away!
Speaking of transaction stuff and our business, Lynlee mentioned to me last evening that a lot of old-timer escrow folks would laugh at us for caring so much about our transactions, and doing the extreme stuff we do to help people. We’ve both been in your shoes and so we have a unique vantagepoint in that we know what is going on via the sales end of things and the ramifications for everyone in the transaction chain.
I did an East Coast style closing in CA once. Mine, of course:) I used an East Coast lender with you once, because there was no higher rate on the second mortgage.
Tim, How often do you see (as far as you can tell) a LO consume the leftover seller closing cost credits, such in my example above? Or/and how often do you refund the cost to the seller if the credits cannot be used?
Lynlee & I will do a post on your question. It deserves it. It raises tons of questions. Tons of em: ethics, agency issues, agents blind faith that the LO is acting in the best interests of their clients, agents who believe they are writing iron clad addendums regarding contributions, or ANY other P & Sale contractual item for that matter.
Tim, I would love to see your post. I don’t think that the other parties involved are aware how much this does or can happen. And from my post… I don’t think it’s really been addressed. Morgan at Blown Mortgage did a less “sugar coated” version of this post.
Maybe some LOs think it’s okay…I just know that when the offer was written, debated and finally agreed to…NO ONE was thinking they would pay me (or any LO) some extra $$.
This post went off on the exchanging of keys, etc…which it is fun to watch how the comments evolve…however… I do feel this is worth it.
🙂 And I know you two would do it justice. (Justice…what a nice word!)
I learned more about this scenerio today…kind of adds a whole new twist. The selling agent is also the loan originator (who is taking the left over “seller closing cost credit”).
The transaction did fall apart after some very strange twists and turns.
Excellent point. A good example of how important wording is. I think it is fair for the agent to request the GFE if the offer involves the seller paying for a portion or all of the closing costs and then be able to negotiate with the buyer on the final amount. Leaving it with open-ended phrases like “up to” or “approximately” is rather dangerous …exactly for the reason you wrote here.
What would stop the lender from simply generating a new GFE that showed a 2% origination fee?
I agree, James. And it leaves so much up to speculation, just as I’m doing here. The LO should almost provide a signed GFE.
The $10,000 is a given Rhonda. Seller never gets a portion back, or shouldn’t. All they have to do is buy down the rate. I’ve never heard of a seller thinking they are getting any of that back.
“Should agents require a Good Faith Estimate with the Preapproval Letter when Sellers are paying closing costs”.
No. They should expect the $10,000 to go to the buyer one way or the other and agree to the price less $10,000 and not try to recapture any of that.
The buyer clearly meant to have $10,000 when they asked for $10,000, regardless of the closing cost amount.
I usually write in that any excess will be applied agains the sale price, if I anticipate any excess.
Ardell,
Would you accept an offer that said something to the effect, all closing costs paid by seller? …but didn’t have an amount set? This is extremely dangerous for the seller as there is no cap. Rhonda’s example is similar but the buyer set a cap for the amount they are asking the seller to pay, but made it potentially variable by the words “up to.”
I agree with you in practice the seller, when accepting such terminology, should assume all of it would be taken, but in this situation it would appear the LO is milking it. If seller wasn’t paying any closing costs, would the origination fee still be 2%? If that was the case, would buyer still be with that lender? If not, …then it shouldn’t be 2% when the seller is paying the closing costs.
I had a buyer make an offer on a listing of mine last year that asked for “up to” $16,000 in closing costs. Preposterous for the price of the house. The buyer’s reasoning was they wanted to make sure the figure they used covered all of the closing costs. No way dude. Figure out the exact amount or estimated amount and we might consider that amount only.
If you’re representing the seller and you did accept an offer with the wording “up to” ..and you feel they’re milking yet…then yes.. I would demand the GFE and fight it. It’s that kind of business practice that is giving the industry as a whole a bad reputation in the general public’s eye.
If you’re representing the buyer, …why bother with even putting “up to” in the contract? just say $10k. If the seller should expect the entire $10k to be going toward the buyer, why leave any doubt by using open-ended phrasing. Saying “seller to contribute $10k toward buyer’s closing costs” vs “seller to contribute up to $10k toward buyer’s closing costs with any excess applied against the sale price” has the same net effect. Less words equals less confusion.
“Would you accept an offer that said something to the effect, all closing costs paid by seller? …but didn’t have an amount set?”
No. Where did you get that idea?
James,
The “up to” wording is in the pre-printed form. I’ve heard from escrow companies that often the difference reverts to the seller. But I also know that the seller assumes the entire amount will be “used up” during negotiations and the buyer assumes they will get it all. It’s part of the price negotiation. So the total amount should end up either with the buyer OR off the price, but not go back to the seller.
“Saying “seller to contribute $10k toward buyer’s closing costs
Ardell, I would assume that the entire amount would be used as well…except…not for the LOs benefit. It should have been used to buy down the interest rate for the buyer.
My main point is how do you stop the LO from gobbling the left-overs of the seller’s closing costs credit?
Rhonda,
Great post. All to often that money just goes to the LO’s pocket and doesn’t benefit the buyer in any way. It would be interesting to see the initial GFE that was attached to that loan and what the final charged fees were. I’ve heard too many stories of LO’s wondering “how much more room” they have in terms of contributed closing costs to max their fees on the loan.
Is it just me or is $10,000 a magic number for seller contributed closing costs? Maybe its a psychologically comfortable number for sellers to kick in? $10,000 amounts to over 2.8% or points in terms of the cost of the loan. Most people would be kicking and screaming to pay 2.8 points on the front of a new loan, but gladly contribute it on the sale. Strange.
Rhonda asks: “My main point is how do you stop the LO from gobbling the left-overs of the seller’s closing costs credit? ”
Rhonda, I can’t even imagine that scenario. Well, except for that one whacko LO I mention often, who is no longer in the business.
Clearly any agent worth their weight in peanuts is “in control” of how the numbers play out. The agent is the one who puts the credit into the contract in the first place, and the one who sees the numbers on the Estimated HUD 1 before anyone signs it.
I used to do a full HUD 1 facsimile BEFORE the buyer signed an offer. I did it ON a HUD 1 form so that the buyer would be familiar with the form on the last day. At closing I would pull out the HUD 1 we did before the ball started rolling, and matched it to the real HUD 1 at the end. I guaranteed my numbers by paying any overage.
This way the buyer knew up front, exactly what their costs would be, with total piece of mind that the numbers couldn’t go sideways on them.
That got a lot harder when PMI was replaced with 2nd mortgages and the rate on the second became FICO driven. Still doable though, and getting easier.
Had one $55 charge yesterday that was just odd because the property had to be recorded in BOTH King County and Snohomish County. The County Line ran straight through the complex between buildings L and M 🙂 So everything has to be recorded in both Counties. It’s a good safeguard for both Counties to insist on having the records of all units. But the buyer couldn’t quite accept why King County was charging them $55.00 when they were paying $55.00 to Snohomish and lived in Snohomish.
You get an “odd” thing like that once in a blue moon. But we’re getting back to my original premise that the Real Estate Agent has to be on the ball. They shouldn’t just put in the number the LO says. They should be questioning the number BEFORE the offer is written, and catching it there if it seems out of line to the situation. Some buyers will have $8,000 and another buyer in the same price range could have $2,900. Depends on the buyer’s qualifications, downpayment amount, lender and loan program.
But every agent should at least be able to use the “Goldilocks Method” and know when the costs are too high for this particular buyer client given their credit score, downpayment, job history, etc..
I did two signings yeterday. I was off by $150 dollars and the credit went to the buyer to reimburse a portion of POCs, like Home Inspections cost or Appraisal Fee paid outside of closing.
The second signing was dead on, except for the $750 or so for real estate taxes. I didn’t pull that one as tight, because the buyer didn’t need me to take the chance of losing any of the credit. If the buyer has some funds, you can push the credit a little to the low side to prevent “overage”. If the buyer’s funds are tighter, you have to be smack on or overshoot a tad or guarantee the overage from the commission.
In other words, back to my original premise, it’s the agent’s job to do it right in the first place, and then double check it in the end.
When agents started “handing their job to the lender”, stopped attending signings and stopped reviewing the HUD 1 before their client signed it…things went very sideways. Time for agents to straighten up and stand tall.
I believe it is totally within the job description and power for the real estate agents to pretty much resolve the whole lending fiasco. Sure, some people will default on their loans, but only those whose situations changed from the time of purchase. Only those that were not “foreseeable circumstances”. And that’s where we need to get back to in this Country.
It happens…I’m afraid a lot. Unless you have the GFE, how do you know what the rate/origination was originally quoted? This is what I’m trying to get across with this post.
In the past, I have received phone calls from the escrow company saying, “hey, you’re not using all of the credit…” I could easily bump up my origination and leave no crumbs behind. It’s not how I do business…I like my sleep at night! 😉 If I can’t use any “left overs” to buy down the buyer’s rate…it’s going back to the seller. It’s not the Lenders to keep. I reviewed the HUD, and it is difficult for me to say without the GFE…and the LO refused to provide it to the Listing Agent…which makes us more suspicious. Since the points are listed under Origination and not Discount…I feel this LO made at least an extra 1% off of the Seller.
When you get down to closing, which is the pressure point of the whole transaction…you either have to stand up and have enough guts to say “we’re not closing until we receive a copy of the original signed GFE” or you just have to accept that the LO is too greedy. In this case, the LO, the Selling Agent and the Escrow Officer seeem to be very tight (according to “Ima Agent”).
Morgan: “Is it just me or is $10,000 a magic number for seller contributed closing costs? Maybe its a psychologically comfortable number for sellers to kick in? $10,000 amounts to over 2.8% or points in terms of the cost of the loan. Most people would be kicking and screaming to pay 2.8 points on the front of a new loan, but gladly contribute it on the sale. Strange.”
You are hitting on the strategy of “negotiating price by asking for costs”. Sometimes we need to offer a higher price than we otherwise would, and pull back on the offer by including closing costs. Sometimes that is a negotiation strategy, and not a “true need” for the seller to pay closing costs.
You are suggesting that the full $10,000 equals lender costs, when in fact it pays all costs, and prepaids, and sometimes even a few repair costs.
Most times when the credit requested is $10,000, it is a price negotiation and not a “need” for the monies to pay closing costs.
Another good way to use it up is at inspection..Say there is a $1,000 item that the seller won’t pay for from the inspection, and there is $1,000 of room in the original “closing costs” credit, you can suck up the overage by having the item repaired and having the bill paid through escrow. Or if no repairs needed, just have something the buyer wants to do after closing done before closing and use the $1,000 to pay for that.
There are many ways to negotiate using credits, without losing that credit by having it refer back to the seller. But that requires modifying the preprinted language a tad at the beginning. I don’t often do it as I don’t often need to. But once in a while that does come into play.
You don’t always want to simply “buy down the rate” with the funds. That only works for buyers who are concerned about the payment amount and/or who plan to stay in the property a very long time. But I am seeing that method used more very recently, as people become more conservative and afraid of “losing their house”.
Lots of fear out there these days. Buying down the rate is definitely “coming back into vogue”.
Ardell, what should happen wtih the left over $ if the closing costs come in less than expected?
“In the past, I have received phone calls from the escrow company saying, “hey, you’re not using all of the credit”
Rhonda,
They are not supposed to call you, they are supposed to call the buyer’s agent.
That’s one of the biggest problems in WEST COAST real estate. They don’t give the Buyer Agent their role in the transaction. I am going to totally let loose on the topic of how “Escrow”, the entire process of “escrow” disempowers buyer consumers on the West Coast.
People think I “speak my mind”, but if I REALLY did, you’d hear me all the way to China!! Don’t get me started on the Escrow Process.
You do know that East Coast doesn’t have “escrow”. People don’t even realize how very much the West Coast tilts in its everyday practies toward screwing over the buyer. “All seller services”. “Use XYZ Title and Escrow”. Escrow never even telling the Buyer Agent when the signing IS!! Escrow calling the buyer DIRECT and telling them how much money to bring to closing, before the Buyer Agent scrutinizes the HUD 1. Escrow calling the lender when the credit is not used up.
It’s taken me some time to make sure the escrow process doesn’t put their foot on the necks of my buyer clients. But it was a hard battle, and is not done often enough by agents. The whole West Coast “common practice” system treats buyers like cattle being hearded to the closing table.
Oooops. Hit my hot button. stepping away from the computer…
We’ve had some good conversations! 😉 Ardell, when you come back to the computer…what about comment 13? Have a great Wednesday!
ARAGHHRA… someday i will learn to compose off-line and then cut and paste into here.
basically I said, …
Ardell,
If a seller agrees to “contribute $10k toward buyer’s closing costs” it will show up somewhere in Section 200 as a
seller paid credit toward buyer. If it’s more than enough to cover closing costs, then great…the entire $10k will
still be used towards the buyer’s benefit. Net effect is the buyer has $10k less he has to procure at closing.
If a seller agrees to “contribute up to $10k toward buyer’s closing costs with any excess applied against the sale
price” …it will similarly show up somewhere in Section 200 as a seller paid credit toward the buyer. If closing
costs were only $4k, then the remaining $6k is still being used toward the buyer’s benefit. Net effect is the buyer
has $10k less he has to procure at closing.
This whole point is to say …either way you word it…it’s the same net effect..Buyer should get full use of the
$10k. I don’t understand what part you don’t agree with here.
What I got from Rhonda’s post was there are LO’s out there that are milking the seller paid credits to the LO’s
benefit by artificially jacking up the lender fees. How do you curb this behavior? Her suggestion of getting a copy
of the original GFE is a good start. Bottom line, if there is an excess in a seller paid credit to the buyer, it
should be benefiting the buyer …either buying down the rate, reducing the amount down needed, etc. It should not be
going to the lender’s pockets. It is wrong for the lender to take advantage of the situation like that …no matter
how you look at it.
If you were the buyer ..would you put up with a lender that suddenly raised their fees to max out the seller paid
credit? I’d fire that lender on the spot. From the seller, ..heck..I wouldn’t want the lender to get more money for
nothing.
Speaking of escrow, .. With any transaction I’m in, I set the expectation with escrow fairly early on. I introduce
myself and tell them what I want from them. When they get loan docs, I’d like to know when my buyers are scheduled
for their signing, I will be attending the signing so I need to know when it is as well, or give me a range of dates
and I will coordinate it with the buyers. I want an estimated HUD-1 as soon as possible to review. …With
expectations set, ..I haven’t had too much trouble with escrow keeping me in the loop. (I do have to ask for things a
few times on occasion).
ARAGHHRA… someday i will learn to compose off-line and then cut and paste into here.
basically I said, …
Ardell,
If a seller agrees to “contribute $10k toward buyer’s closing costs” it will show up somewhere in Section 200 as a seller paid credit toward buyer. If it’s more than enough to cover closing costs, then great…the entire $10k will still be used towards the buyer’s benefit. Net effect is the buyer has $10k less he has to procure at closing.
If a seller agrees to “contribute up to $10k toward buyer’s closing costs with any excess applied against the sale price” …it will similarly show up somewhere in Section 200 as a seller paid credit toward the buyer. If closing costs were only $4k, then the remaining $6k is still being used toward the buyer’s benefit. Net effect is the buyer has $10k less he has to procure at closing.
This whole point is to say …either way you word it…it’s the same net effect..Buyer should get full use of the $10k. I don’t understand what part you don’t agree with here.
What I got from Rhonda’s post was there are LO’s out there that are milking the seller paid credits to the LO’s benefit by artificially jacking up the lender fees. How do you curb this behavior? Her suggestion of getting a copy of the original GFE is a good start. Bottom line, if there is an excess in a seller paid credit to the buyer, it should be benefiting the buyer …either buying down the rate, reducing the amount down needed, etc. It should not be going to the lender’s pockets. It is wrong for the lender to take advantage of the situation like that …no matter how you look at it.
If you were the buyer ..would you put up with a lender that suddenly raised their fees to max out the seller paid credit? I’d fire that lender on the spot. From the seller, ..heck..I wouldn’t want the lender to get more money for nothing.
Speaking of escrow, .. With any transaction I’m in, I set the expectation with escrow fairly early on. I introduce myself and tell them what I want from them. When they get loan docs, I’d like to know when my buyers are scheduled for their signing, I will be attending the signing so I need to know when it is as well, or give me a range of dates and I will coordinate it with the buyers. I want an estimated HUD-1 as soon as possible to review. …With expectations set, ..I haven’t had too much trouble with escrow keeping me in the loop. (I do have to ask for things a few times on occasion).
James,
You are missing the fact that most lenders will not allow the $6,000 to carry that way, in essence becoming a portion of the money used for downpayment. Contribution from seller toward downpayment is not often permitted.
Also, even it the buyer brings the whole down payment, you are suggesting he can get “change”, a check, for $6,000. Most lenders will not permit that either.
If it’s a zero down, stacked costs, not very likely the lender is going to let the buyer waltz of with six grand in his hand, as that is “financed funds”.
We say the “seller is paying it”, but really the buyer is financing it, and the lender calls the shots the day of closing as to whether or not the buyer can have “change” or not.
You can’t do it “off the sheet” as that is “lender fraud”, so sometimes the only way to get the credit is to apply the overage to the sale price and reduce price from $300,000 to $294,000 to capture the $6,000. Which is how I have done it.
Ardell, this example did happen. If the buyer is putting 10% down with conventional financing, the seller can contribute 6%. If the ltv is greater than 90%, it is reduced to 3%.
The loan officer pocketed 2%. A portion of that should have gone back to the seller UNLESS this is how the loan was priced. However, I don’t think it was…neither does Morgan at Blown Mortgage…he’s done a post on our example as well:
http://www.blownmortgage.com/blownmortgage_blog/2007/04/blown_purchase_.html
Rhonda,
I don’t think any of it should EVER go back to the seller. It should have gotten to the buyer side somehow, and usually that means off price.
Now you see why I strongly believe that agents MUST know more about the lending process. When a buyer puts a credit it in the offer, they are factoring that off price and so is the seller on day one. For any of that to end up back with the seller is like renegotiating price without the buyer’s consent!
Rhonda,
The only time the money would go back to the seller is if the Buyer’s Agent is asleep at the wheel.
Or if there are no more “allowable” closing costs…and if the slimy LO hasn’t taken it. If the closing cost credit is guessed, it allows for the LO to make denerio they didn’t earn instead of the buyer having a lower rate bought with the extra funds the seller was willing to go “up to”. 🙂
Rhonda,
How the heck does the “slimy LO” get past the Gatekeeper? The Buyer’s Agent?
I swear Buyer’s Agent has just become a meaningless freakin’ Title. I think the minute that buyers were happy with someone just CALLING themselves a Buyer’s Agent, training agents to BE Buyer’s Agents stopped dead in its tracks. I’m nauseous at the the mere thought that an LO can suck up an extra 2% with no one noticing. Give me some of that Theraflu. I just want to sleep this one off.
And don’t get me started on the freakin’ KEY debacle. AS IF the buyer getting the keys to their property is of no immediate concern and just left hanging out there. Sellers are not required to leave the keys at escrow. Buyer pays for the house and the escrow process doesn’t give a RA about how the buyer gets “possession and keys”.
I hate the whole escrow process. Buyers and sellers should MEET and the buyer should get the keys the freakin’ SECOND that they pay for the house.
Having one of those days…and no one even notices that buyers are treated like second class citizens in the whole process…and Russ wants to know why I’m so “buyer oriented”. It’s because the system NEVER screws the seller…”common practice” screws the buyer over every time, if someone isn’t riding herd over “the system”.
My sister says I should calm down and that “property OWNERS” have always been favored, in every law and common practice, since Adam and Eve were told to leave the Garden of Eden and had no recourse because they didn’t OWN the place.
Ardell–
Ah, now I understand the interest in “what to do about the keys.”
Sounds like you have your own philosophy about how it should be handled, but I’m not sure how well it jives with what’s in the contract. If the contract is written as “possession on closing” then there is no obligation or legal requirement to provide keys until closing has occurred. Closing is defined as the sale has been recorded with the county and the funds are available to the seller. If the funds aren’t available to the seller (say, he has moved out of state and they have to be wired and you missed the wire cutoff) you technically are not closed, so there are scenarios in which even though you have recorded you still as a listing agent might not provide those keys to the buyer’s agent yet. Not that I know of many agents who actually check on funds, most of us run with recording numbers and call it good.
The understanding in my office (as passed down to us from DEMCO, the Windermere attorneys) is that on the day of closing, key transfer takes place AFTER you get recording numbers and BEFORE 9pm. If you read the contract, it supports this understanding. So, that’s the way we do it here. You won’t find many Windermere agents that are flexible about this when they are on the listing agent side (though, we can be surprisingly flexible when we are on the other side of the fence and our buyers are clamoring for keys).
Most of the time by the time you get to closing you have a buyer that wants in and a seller that wants out, so it may seem silly to have to wait around. And on your average clean transaction maybe it would be fine to transfer keys early but if something goes wrong it could lead to trouble. It’s our job as agents to steer our clients clear of trouble, even when it might seem to inconvenience one side or the other.
That all said, you know I am a fan, right? I respect you for fighting the good fight, even though I won’t give you the keys…
🙂
Sandy…point is “the system” should provide the keys to the buyer and not REQUIRE agents to be in the process for that to happen.
Why does Escrow not require the seller to drop the keys off at escrow? Why does the escrow process not care how of IF the buyer gets possession and keys. OK, seller’s been paid…we’re done now.
If a buyer buys direct from the seller, the system is all in place for everything the seller needs. Why doesn’t the system include everything the buyer needs?
We’re not going to talk about why the lockbox seems to have to take a walk, even though it’s been there for weeks, the minute the real buyer might need to get in 🙂
Ardell, Escrow having the keys makes sense, since they are the “neutral third party” caring for the transfer of title and funds, etc. However, ESCROW probably does not WANT that responsibility. Where’s “our Tim”? 😉
Don’t bother Tim. Poor Lynlee got an earful from me about the stupid wording of oil in the oil tank clause. Something like “if the buyer waltzes up five minutes before closing and decides to fill the oil tank for the hell of it, the buyer has to pay that bill with no advance warning”. So much for attorney drafted boilerplate clauses.
Stepping away from the computer again…:) I’d blame it on PMS, but I’m too old for that.
I think Jillayne’s at the door making me go out to get a drink 🙂
Ardell–I do agree that it would make more sense for Escrow to handle the whole key issue and I do not understand why they don’t. We do definitely agree on that. It is a bit silly to have to drive to Kent and then go hang around in Kirkland waiting for recording numbers all so that I can transfer keys “soon enough but not too soon.” But though I question the need to do these things I will keep on doing them until DEMCO tells me not to.
In response to the larger philosophical question of why sellers are so heavily favored in west coast escrow, I have a feeling that it is because that is where the money is. Yes, ultimately all the money ACTUALLY comes from the buyer and his lender, but the person leaving the closing table with money in their pocket is the person who pays for the majority of fees associated with the sale, and therefore, that person is favored in our current system.
I’d be interested to hear Tim’s perspective on this too.
>>The only time the money would go back to the seller is if the Buyer’s Agent is asleep at the wheel.
Friends don’t let friends drink and blog.
In my opinion, the key exchange should be set like an appointment. So, for example, if everyone signs around and documents are going to be recorded on a certain date like the 18th, then in most markets, we all know when the last run to the courthouse will be, or when the deadline is for online recording at the county courthouse. 3PM, or whatever.
Set the key exchange time and place appointment to happen after 3:30 PM on that date. Unless I’m living in a dream world and it’s never that simple.
Isn’t it the listing agent’s responsibility to make sure the keys are delivered by the pre-set day and time?
Guess the system doesn’t like my greater-than signs.
What I was trying to say was,
As the listing agent, you will want whatever is remainder to come back to your client …unless the buyer has a legit use for it, I’d fight to get it back to the seller. I’m not gonna let the LO have it especially if they’re artificially padding their fees just to get it.
On the buyer’s side, yes…I would be fighting and finding ways to use up all of the seller credit. Likewise I wouldn’t want it to go to the LO!
Regarding the key transfer …
Line 50 and 51 of Form 21 of the Purchase & Sale agreement says, “Seller shall deliver keys to Buyer on the Closing Date or on the Possession Date, whichever occurs first.” Escrow can’t or shouldn’t handle the key transfer because according to lines 89 through 96 of the same Form (computation of time), seller would have till 9:00pm to deliver keys to buyer. Escrow isn’t going to be available that late in the evening for buyer to pick up the keys from escrow.
The buyer’s agent should arrange a time and place on closing day to get the keys from the listing agent. I’ve done it where I go to the listing office and pick them up. Upon recording numbers, the buyer’s agent goes and delivers the keys to the buyer. That’s how I do it. I know that’s not how everyone does it though.
A new construction office I work with got a call from a buyer’s agent on a house that was closing. The buyer’s agent wanted the listing office to stay open an extra hour or two so the buyer could pick up the keys after work. When asked why the buyer’s agent doesn’t come pick them up FOR their buyer …the buyer’s agent said they’re too busy.
Un-be-lievable. Too bad we can’t implement a rating system like eBay has for their sellers.
James–that is exactly why I won’t deliver keys until after recording but before 9pm. Because that is what the contract says. So that is why it isn’t possible to do key transfer as a pre-set appointment–would that our lives were that predictable that we would know ahead of time when we would record so I could plan on it, rather than waiting and waiting, and then finally I get the call from Escrow.
Also, I have had recording numbers come in very late at times and there have been instances where we funded late and therefore were late getting recording numbers…causing failure to close on the date of closing. As a listing agent, I am not giving keys to a buyer until I am 101% sure that we are closed because anything can happen. Most of the time everything works out just fine and I am being overly cautious, but I am not going to give someone keys who doesn’t own the house yet.
And yes, in a perfect world a buyer’s agent would get the keys themselves but I have found that more often than not because I am unwilling to provide keys until I have recording numbers, I end up delivering them myself. Which I think is actually a nice thing to do, gives me a chance to say “thank you” to the buyer’s agent and pass on any last words from the sellers. Also, I live in Mukilteo and seemingly no one who lives south of the King/Sno county line is inclined to drive up my way. Can’t imagine why! 🙂
Sandy,
I guess it’s also your rapport with the buyer’s agent. If they’ve been very active and involved through-out the transaction, there might be a level of trust to provide the agent the keys and trust they won’t deliver until after recording numbers. However, there’s probably just as many buyer’s agents you wouldn’t trust.
The drive through Mukilteo is a great one…especially along Mukilteo blvd. The views of the Sound are awesome.
Thanks James. You are correct.
To say you can’t trust the buyer’s agent with the key, after they’ve had the key access throughout the entire transaction, is just insulting. It says “I don’t trust you to do your job well and within the contract terms.”
Once the buyer has paid for the house and the sale has been “released for recording”, there’s plenty of time between the “released for recording” call and the actual recording, to get the keys to the buyer’s agent.
Even if someone has ever seen a property that has been released for recording not record, it’s got to be a very rare event.
Does anyone know if it’s possible for a property to not record once it has been released for recording?
I’m starting at the last reply…Ardell, yes it possible. That would be a human error. Or if the docs came at the 11th hour from the lender and they miss getting to the title co. There were times when I was in title that I was driving docs from the escrow co…meeting the TO at the courthouse…once I recorded the docs myself (again, when I was in title insurance). From my 14 years in that biz…I do everything possible to make sure docs are out well in advance to the escrow co.
In Texas, we do not have “escrow” as such. The function is performed by the title companies. Our contracts have a boilerplate “possession at closing and funding” and another choice. The title companies record the deed as much as 30 days after closing. So when the seller has the cash in his hot little hand, the keys pass over. Since we don’t wait for recording, Typically the seller shows up to closing with the keys, or the listing agent leaves the lockbox on the door and the buyer’s agent pops it open for the buyer. If the seller signs earlier, they just leave the keys at the title company until the loan funds, and the title reps hands the keys to the buyer. God Bless Texas!
Typically, “funds available to the seller” does not mean that the seller actually has to have the funds in their account. Just that the funds have been authorized for release through escrow.
-Russ
Thomas,
Does the buyer normally get their keys the day that they sign their papers where you are? Or is there a “lag time”?
James and Ardell
Just a word about the trust issue–it’s not about trust. I would trust Ardell with the keys once the transaction went pending if it was only about that–I think she’s a great agent and does a great job for her clients. Plus, she tells funny stories.
But it’s not about that, it’s about the contract and what the contract says. The reason we have contracts rather than handshakes around the sale of homes is that trust alone isn’t enough. Agent’s instincts may usually be pretty good about people, but we are not infallible and our instinct to trust someone could be wrong sometimes.
I think it’s probably better to have a policy versus playing it by ear on each transaction. “Key transfer between recording and 9pm” is my policy, and it’s supported by the terms of the contract. I do try to get the keys to the buyer/agent as quickly as I can once I have word of recording though. I agree with Ardell that they do have a right to have them, once we have passed through the final hoops.
I think the question of why the key transfer isn’t built into the process, and how come the whole escrow process seems to favor sellers is a really good question though. Seems there has to be a more elegant solution to the question than the way we do things now.
The problem with giving escrow keys to distribute falls for the most part on a convenience issue. When borrowers sign loan documents it usually is a day or two or three before closing, and escrow would have to make arrangements with the borrower to come to the office to pick them up during normal business hours (banking hours ). As it it today, it is difficult enough to schedule clients to actually come into the office to just sign closing papers. There are cases where something is not right transactionally even after a transaction records, like water heaters that blow up or a fixture is missing or movers that damaged hardwood floors or the front door, etc or whatever— and I can hear it now “hi Tim, you didn’t give the keys to the buyers did you? We have a snafu.” Escrow really is not a party to the transaction in the sense that agents are, so I’m not sure that having escrow in possession of keys is the complete answer. That being said, we have distrubuted keys before.
What happens when recording takes place late in the afternoon? Or, when the market was screaming like a locomotive last year, there were cases when we received recording numbers after 7pm. What then? Escrow would not be able to release the keys in a fashion that consumers would appreciate.
Ardell, re: #37:
Yes, late last week we had a purchase transaction fail to record AT recording due to title pulling the plug on the deal for last minute issues. On the flipside, last year, our office pulled the plug on a deal very late into a transaction due to potential fraud. Turns out it was a very wise decision.
Also, it is possible for us to be released and never receive money from the lender. It happens. The lender filed for bankruptcy recently.
Trivia Question for local agents.
(First local area NWMLS member agent to answer “basically” correct, will win a free coffee gift certificate from me (RCG contributors excluded, sorry!)):
So agents, when escrow has been released to record and recording takes place, yet escrow is never funded by the lender, how does escrow get the title back into the sellers name again? First hint: have damp cloth nearby to dab forehead that is sweating bullets, then,walk outside of office, stare into sky and say the classic line stated by the late Peter Boyle from the TV program ‘Everyone Loves Raymond’….. “holy crap!” These buyers just got a free house!
Tim,
Of course my problem is that I have done too many closings where the buyer and the seller and the agents and the Closing Agent are all in one room at a time. Everyone had ADVANCE notice of which day they needed to take off from work on the day the offer was WRITTEN.
The money arrives from the lender, real money, that morning. Buyer brings his Cashier’s Check and Seller brings keys and garage door openers, etc. Everyone signs, buyer hands money to Closing Agent and Seller hands keys to Buyer. Everyone shakes hands, says good luck with your new house. Sometimes there are gifts with pretty bows and ribbons. People leave the table and start unloading the moving truck. A straight progression, all consumer oriented.
Turning all that into a phone call (or not) that says “Property has recorded” and no mention of access and keys is a huge downer for me.
Eight years ago when I moved to the West Coast and “escrow States”, I thought I’d get used to it. But from the buyer consumer’s perspective it sucks, and I don’t want to “get used to it”. There has got to be a way to make this whole system better.
To a large extent, a very large extent, using Legacy often, has helped immensely 🙂 I had one yesterday that wasn’t Legacy, and I realize how much better I have been able to make it by utilizing, and tweaking, your services. It’s not only about how good the Closing Agent is, it is about organizing things to the convenience of the client instead of always saying “oh no, WE do it this way.” regardless of how “that way” affects “this” consumer.
I hate carved in stone, who cares about what the consumer needs, RULES of play, as if the professionals are the ONLY ones that matter. In fact, they should be last on the list. Hate is a strong word, and we were not ever allowed to use it as kids. But I do hate rules that don’t seem to match the individual particulars of each situation and are not consumer-centric at their core.
When you have a cash sale for example, and the buyer has handed over all cash and then told to go home and wait for a phone call…and then wait AGAIN for agents to have the time to get together with the keys. All I can say is, I don’t know the industry has gotten away with that for all these years. It is the listing agent’s job to get the keys to the buyer agent, and the buyer agent’s job to give the keys to the buyer. If that buyer wants those keys the second he owns the property when it records…it is his right to get them.
99 times out of a hundred it isn’t a problem. Listing Agent leaves lockbox on the house and puts the rest of the keys inside in a place pre-determined by the agents for the buyer agent to retrieve them.
I like to go the the property immediately after the property has recorded. Even if the buyer can’t be there with me at that time, I like to do a quick walk through and make sure nothing bad is going on inside. A quick walk-through, right at recording time, is a good protection for ALL parties. It can protect everyone from future claims about things that happened when the buyer moved in, the agent having been witness to the exact property condition AT time of recording.
99 times out of 100. No problem. Locbox comes off that night or next morning AFTER the buyer agent retrieves the key.
Most times it is pretty easy and no one has to go any further than the property they “sold”. Clearly reasonable to expect an agent to go to the property itself. Not reasonable to expect an agent to go to the other agent’s office, especially if that office is not near the property sold.
It’s not about ego and who will “win”. It’s about the buyer AGENT, not the buyer, having the key at the time it records. An hour BEFORE instead of an hour AFTER, or simply leaving the keybox on and the remaining keys inside the property. Not sure why that seems to be an “unreasonable” request.
Ardell, I think the closing system you mention has a lot of benefits. Just for fun I was thinking about all the postage fees we would save and everyone gets paid right away!
Speaking of transaction stuff and our business, Lynlee mentioned to me last evening that a lot of old-timer escrow folks would laugh at us for caring so much about our transactions, and doing the extreme stuff we do to help people. We’ve both been in your shoes and so we have a unique vantagepoint in that we know what is going on via the sales end of things and the ramifications for everyone in the transaction chain.
I did an East Coast style closing in CA once. Mine, of course:) I used an East Coast lender with you once, because there was no higher rate on the second mortgage.
Maybe we’ll try a full “Table Closing” some time.
P.S. For long closings I do “catered events”, but the champagne can’t get popped until the papers are all signed 🙂
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Tim, How often do you see (as far as you can tell) a LO consume the leftover seller closing cost credits, such in my example above? Or/and how often do you refund the cost to the seller if the credits cannot be used?
Rhonda,
Wow.
Lynlee & I will do a post on your question. It deserves it. It raises tons of questions. Tons of em: ethics, agency issues, agents blind faith that the LO is acting in the best interests of their clients, agents who believe they are writing iron clad addendums regarding contributions, or ANY other P & Sale contractual item for that matter.
Sorry I didn’t catch your question earlier.
Tim, I would love to see your post. I don’t think that the other parties involved are aware how much this does or can happen. And from my post… I don’t think it’s really been addressed. Morgan at Blown Mortgage did a less “sugar coated” version of this post.
Maybe some LOs think it’s okay…I just know that when the offer was written, debated and finally agreed to…NO ONE was thinking they would pay me (or any LO) some extra $$.
This post went off on the exchanging of keys, etc…which it is fun to watch how the comments evolve…however… I do feel this is worth it.
🙂 And I know you two would do it justice. (Justice…what a nice word!)
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I learned more about this scenerio today…kind of adds a whole new twist. The selling agent is also the loan originator (who is taking the left over “seller closing cost credit”).
The transaction did fall apart after some very strange twists and turns.
Oh that’s just got scandalous written all over it. Even if it wasn’t…it flies against my particular morals.
This is why I had to post this. I’m surprised how many agents don’t know how often this happens. According to Lynlee’s post, http://www.raincityguide.com/2007/04/25/how-loan-officers-harvest-seller-paid-contributions-an-escrow-perspective/
it’s all the time.
It would be undetected by an agent without the original GFE.
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