Sellers can avoid disaster by thoroughly researching prospective buyers. (Photo: iStockphoto)
Just three weeks after they put their home up for sale in August 2008, Lisa Diamond and her husband received an offer of their full asking price of $899,000 for their three-story, Victorian-style home in San Francisco. They were reassured by their real estate agent that the buyer had the money required to close the deal and were encouraged to allow him to move in before the close of escrow because the deal was so solid.

Unfortunately, the buyer turned out to be without the means to buy the property, and the Diamonds had to evict him. Even worse, the buyer caused tens of thousands of dollars of damage to their property.

The Diamonds were much more cautious when they put their home back on the market a short while later. To protect themselves, they used these helpful tools to research, background check and prequalify their new buyer:

• Google name search on the buyer to check for recent litigation, bankruptcy or bad press.
• Better Business Bureau check on the buyer’s employer.
• A look at the records on the buyer’s home to find out how much is owed on the mortgage, when it was purchased, and any other relevant details about its status. (This type of information can be purchased from sites like homeinfomax.com.)
• A certified letter (requested by the Diamonds) from the buyer’s personal bank attesting to the buyer’s financial status and ability to afford the costs associated with closing on the home.
Such steps would have seemed unnecessary just a few years ago, but tighter credit requirements have reduced the pool of qualified buyers — and sellers should be cautious. It’s possible to waste considerable time and energy wooing a buyer who is unqualified to purchase a home. Real estate agents also have their own qualification process to shield their sellers from trouble.

At a minimum, Marilyn Buckley, an agent with the Buckley-Parshall Team of Nothnagle Realtors in Rochester, N.Y., wants to see a mortgage pre-approval letter from the buyer within 24 hours of receiving an offer on a property. (A pre-approval lender shows that a lending institution has checked a potential buyer’s ability to borrow a specified amount.) But pre-approval on its own is not sufficient anymore. “I also look at the lender,” says Buckley. “Is it a reputable firm or someone I’ve never heard of?”

Even banking relationships are examined. “The location of the buyer’s down payment is also critical,” says Dana Graham of Prudential California Realty Palos Verdes. “I don’t want to hear that it’s in the Bank of Kandahar.” A major U.S. bank raises fewer red flags.

Graham uses the time immediately following acceptance of an offer, when buyers are basking in the euphoria of their upcoming purchase, to ask them to apply for a mortgage with a firm he trusts. At this point, buyers are generally more willing to submit to certain requests, he says, to ensure they get the house.

He also shortens buyer deadlines, such as reducing the time given the buyer to receive mortgage approval and conduct a home inspection, from the standard 17 days to 10. His reasoning? “It’s much easier for a buyer to get out of a deal than the seller,” he says, so he works to keep the sale moving forward quickly while also alerting the seller as soon as possible to potential problems. As the saying goes, “the best defense is a good offense.”

By Marcia Layton Turner

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Home sellers typically rely on information about recent sales of nearby homes to figure out how much their own home might be worth. But home buyers also can use this data, commonly called “comparable sales” or “comps,” to decide how much to offer for a home.

Comps track price trends

Rather than assume the seller’s asking price is the market value of the home, buyers can use comps to figure out an appropriate price to offer, explains Barry Nystedt, a broker at Buyer Broker Realty in Newton, Mass. Comps can also be used to track market trends, assess how active a market is and weigh whether a home has been competitively priced.

Buyers should consider the timing of home comps as well as the prices, Nystedt adds. While many sales close within four to six weeks, some take as long as five or six months. Those longer sales may be poor comps to use since they could reflect outdated market conditions. A competent Realtor can help buyers identify home sales that are truly comparable and interpret the information about those sales.

Some buyer’s agents will call the seller’s agent and ask about comps to help the buyer decide how much to offer. That strategy can be very effective, according to Linda Walters, a broker at Sage Realty in Wayne, Pa.

“If they can’t provide any comps, I have a leg-up on the negotiation because they know that I know that they can't back up their asking price,” she says.

Comps can help — but not always

Comps can be especially important for buyers if the seller has received multiple offers that have bid up the sale price. That’s because the home’s appraisal might not support that higher price, explains David Kerr, a team leader at ZipRealty in Oakland, Calif. If the appraiser believes the home is worth less than the agreed-on sales price, the buyer might have to pressure the seller to accept a lower price, pay the difference in cash or try to convince the appraiser that the home is worth more, so the loan will be approved. In any event, comps may be helpful.

That said, comps can lose their luster if a home nets a very large number of offers for much more than the asking price, says Fern Masters, broker/owner of Flagship Realty of Palm Coast in Palm Coast, Fla.

“If you are in that situation, comps don't really help you. If you want to buy that house, you have to give the sellers what they want,” she warns.

Comps also may be irrelevant if the seller’s loan balance exceeds the value of the home (i.e., a short sale) or if the seller is a bank (i.e., a post-foreclosure sale). Some seller’s agents will forward the buyer’s comps to the lender, but very often the lender will ignore that information and rely instead on an appraisal. In that case, the bank’s decision of whether to accept the buyer’s offer very often will be, as Kerr puts it, “at the whim of an asset manager.”

By Marcie Geffner

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It's fine to "spy" on the competition now and then when selling a home in today's market. (Photo: iStockphoto)
Today’s housing markets are good and bad news for home sellers: Sales have picked up, but buyers still have the upper hand.

That means sellers who are determined to get more — or at least give up less — need to be well-prepared for the negotiation that can result in a deal. Here are six tips:

1. Stand out. Homes that are decluttered, depersonalized and in the best possible condition
compared with other homes on the market in the same price bracket should sell more quickly and for more money. That means sellers need to differentiate their home on those criteria, says Greg Herb, broker of Herb Real Estate in Pottstown, Penn. Remember, if the house isn’t well-positioned, there might not be any offers to negotiate.

2. Monitor the competition. Once an offer is received, the seller’s Realtor should double check the market to find out whether any more homes have been put up for sale or sold. It’s important to monitor the market because its direction will drive the negotiation, Herb explains.

3. Price to sell. The bottom line for buyers is always the sales price, says Matt Phipps, a Realtor at Phipps Realty in Warwick, R.I. That buyer fixation on price may be painful for sellers, but Realtors insist homes that are priced “right” or “realistically” sell faster than homes that are priced too high. Sellers “aren’t in a position to demand a value that isn’t there,” Phipps warns.

4. Be flexible. Sellers should remember that compromise is the purpose of negotiation and that that purpose can’t be served if the seller just says no. Instead, sellers should consider the buyer’s demands and try to figure out what’s reasonable, says Elizabeth Blakeslee, an associate broker at Coldwell Banker Residential Brokerage in Washington, D.C. Sellers also should try to counter every offer, Phipps suggests, even if it’s lower than the price they’re willing to accept.

5. Track the tax credit. Home sellers had a brief moment of market power in November 2009, just before the initial deadline for buyers to take advantage of the federal home buyer tax credit, worth up to $8,000.

“The seller had the advantage and could get a slightly higher sales price because there were so many buyers trying to get a home before that Nov. 30 deadline,” Phipps says.

Another such moment may occur in April 2010 just before the binding-contract deadline for the current tax credit. Sellers should be aware of that deadline because buyers may be under pressure to meet it.

6. Be FHA-friendly. Many home buyers need a loan that’s insured by the Federal Housing Administration. That means sellers whose home is FHA-friendly may have an advantage, according to Glenn Kelman, president of online realty brokerage Redfin in Seattle. The FHA rules, which include loan amount limits and property condition requirements, are complicated and best discussed with a Realtor or mortgage specialist.

By Marcie Geffner

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Homes are selling for less. Everyone's trying to cut back. Yet, many real estate agents think it's wise for sellers to provide presale inspections for buyers to review before they write offers. Is the cost, which could run from a few hundred to $1,000 or more, worth the expense?

Last year, a home seller in the hills above Oakland, Calif., did a lot of work renovating a home
before putting it on the market. Her agent recommended a home inspection, which involves a more comprehensive investigation of the property. A wood pest or termite report covers damage caused by wood-destroying organisms, and conditions that would be likely to lead to future infestation.

A complete home inspection usually covers the roof to the foundation and everything in between, although this differs from one inspector to another. The seller in the above example was financially exhausted after taking care of the fix-up work and decided against providing a presale home inspection.

The house was priced under market value and showed well. It brought in multiple offers and sold well over the asking price. However, the buyers' home inspection revealed that the foundation needed replacing. The deal stayed together, but only after a much lower price was negotiated.

Changing the price in the middle of a transaction can be a red flag to the lender, particularly if it's a significant price reduction. The lender could require the work be done by closing, which could delay the closing by months. If the buyer's loan commitment expires, the transaction could collapse.

HOUSE HUNTING TIP: One benefit of providing presale inspections on your home is that you have the opportunity to correct defects before marketing the property. This will make your home more salable and increase the odds of a smoother transaction.

Another benefit is that by providing as much information about the property as possible upfront, you decrease the risk of a transaction falling apart when buyers discover information about the property they weren't aware of when they made their offer.

One seller failed to provide a foundation report to the buyers before they made an offer. When the buyers were given the bad news, the transaction fell apart.

If you have reports on your home, make sure that the buyers receive copies of them before they decide whether or not to buy your home, especially if the reports reveal conditions about the property that could influence the buyers' decision to buy or what they would pay.

Sellers often see no good reason to pay for inspection reports upfront because the buyers will want to have their own inspectors investigate the property. Buyers should have the property inspected by their own inspectors.

The purpose of getting presale inspections is not to preclude the buyers from having inspections -- it is to educate the sellers and buyers about the property condition before they enter into a contract.

Sellers are in control of who inspects their home when they pay for presale inspections. Make sure to use inspectors who are well respected in the area. The buyers' comfort level with your presale reports will be higher if their agent can vouch for the inspectors.

Even though the buyers will probably do their own inspections, having presale inspections can cut down on negotiations that can occur after the buyers do their inspections. However, don't be surprised if the buyers ask for something as a concession for removing their inspection contingency.

Recently, buyers of a home in Oakland's Rockridge neighborhood asked the seller to have the garage roof replaced, even though they were given a roof report and replacement proposal before they made their offer. Their offer was based on taking the property in its present condition.

THE CLOSING: The seller said no and the buyers removed their contingency.

BY DIAN HYMER

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