How you fill in a real estate purchase contract affects your deal all the way to closing...

This topic comes up quite often, so I feel it merits a fresh discussion this week. A cleanly written offer and acceptance contract usually starts the entire transaction on the right path to a clean closing.

On the other hand, a poorly filled-in contract makes the entire transaction disorganized,

causing more issues, questions, and delays. Whether you're the listing agent or the selling agent, using these basic contract entry guidelines will get you headed toward a much smoother transaction.

Including either too much or too little in the contract can cause delays and complications when your buyer will be using financing...

Today we're looking at a few areas in both the NABOR and FR/BAR contracts that create issues when lenders review them.

Starting at the top, the Seller has to be either a live person or a business entity (LLC, trust, corporation). "Owner of Record" will be rejected when the buyer applies for financing.

When the seller is a corporation or trust, proper documentation is needed authorizing any person who will be signing for that entity.

The Buyer's name should be shown on the contract the same way he/she/they want title held and the mortgage will be applied for and carried. Ask your buyers if they prefer full given names and whether to include middle names or initials.

Most residential lenders require the loan and title to be held by individual buyers, not business entities.

The easiest, most accurate way is to use the name(s) shown on a drivers license or other government-issued ID.

All transaction documents should have buyers' names

entered the same way.

Furniture and Other Personal Property

As we have discussed in earlier newsletters, personal property cannot be included on a real estate purchase contract when the buyer wants to use financing. This is in HUD guidelines for government-insured financing and FNMA's guidelines for conventional financing.

It's not a good idea on a cash deal either because it can inflate the real estate's actual value. This will affect refinancing, Delayed Financing, and future appraisals.

A closed sale that included personal property may not be able to be used as a valid comp on your next deal in that same neigh-borhood or community. Rather than back out the personal property, appraisers just won't want to use that sale for future appraisals.

Remember that the independent appraisal lenders use

is for current property value, not property and contents.

Even if you write "has no value" or "for seller's convenience", lenders can either kick back the contract to have it removed, or require a time-consuming and expensive separate appraisal for any personal property included on the contract.

If it really has no value, why mention it at all?

Note: Larger appliances, fixtures, and items that contribute to basic occupancy and habitability are usually understood as conveying with the property, and lenders have no problem with that. These include refrigerators, stoves, built-in microwaves, pool mechanical equipment, lighting fixtures, and basic window coverings.

Of course, if an appliance or fixture does NOT convey, enter that on the contract also.

Many managers, brokers, and attorneys suggest using a completely separate agreement when additional personal

property is being left or sold with the home.

Title Company / Closing Attorney and Dates-

Be sure the Escrow Agent and settlement firm is clearly identified and accurate contact information is included. Initial and additional deposits are required to be sent within a specified number of days after your Effective Date, so be sure your buyers know where to wire funds.

In fact, a few different compliance dates are keyed to the

contract's Effective Date.

Make sure everyone knows when the contract clock starts

ticking, and when certain compliance points are scheduled.

Financing Contingency -

A good rule of thumb is to allow 30 days for buyers

to provide a binding Loan Commitment from their lenders.

We already know that everyone involved benefits when the buyer is PreApproved.

Keep in mind that although a real PreApproval is a thorough look at a buyer's credit, debts, income, and Ability To Repay, the full application must still go to the lender's underwriting department, where specific loan program guidelines are applied and certain conditions must be met.

Sometimes we have to change the loan program for which a buyer qualifies after an application is submitted to underwriting.

Being too specific with the terms of a Financing Contingency can unnecessarily restrict the deal, while being too broad or vague

can undermine the contingency's protection for the buyer.

See the Newsletter Archives for two detailed editions

on Financing Contingencies.

Fill In The Blanks -

The real estate contracts we use here have pages of "boilerplate" language along with blanks to be filled in with transaction specifics. Many of these blanks also have in parentheses "If left blank, then...".

Lenders like to see all contract blanks filled in,

even with the implied or default entry.

For example, when the Initial Deposit section says "If blank, then 3 days" - it's good practice to write in the 3 days if that's been agreed.

If the Financing Contingency says "30 days if left blank" - go ahead and write 30 in the appropriate space.

Doing this ensures that all parties to the contract are fully aware

of the actual dates and provisions that bind them to comply.

Keep in mind that the contract you fill in controls and guides the transaction all the way to the closing table, it's not just a form used to submit an offer to the seller.

As with much in real estate, we sometimes have to think a few steps ahead in order to look out for our clients' best interests.

Call me when you have buyers who want to use financing and would like to know their options. Along with good contract entries, well-informed buyers make for much smoother deals.

Let me reinforce the trust

your buyer has placed in you! sm