Communication among agents and the other parties involved in a real estate transaction is critical to facilitating the transaction for the clients involved. Real estate is one of the few, if not the only, business transactions where coordination among so many people is required to get to a clients’ final objective...generally a closing. Although your fiduciary duties are generally to one client, your cooperation with and communication style used with all people involved is what gets your client to his final objective. In a typical real estate transaction, depending upon who you represent, you owe your client the fiduciary duty of reasonable care and diligence which includes clear and timely communication with the other agent, the lender, the home inspector, the appraiser and others.

Everyone loves a smooth closing, but they don’t always work out as smoothly as we would prefer. There are some basic questions that you can ask during your listing appointment that will help to avoid delays later in the transaction.

Some subdivisions are managed by Homeowner Associations (HOAs) or Property Owner Associations (POAs). New property owners are sometimes not aware until after they move in that there are restrictive covenants, annual assessments, rules and regulations, and consequences for non-compliance. Covenants and rules can apply to pets, trash cans, car parking, landscaping, real estate signage, garages, fences, and rental property, among other things. When new property owners get crossways with an HOA/POA upon learning about the covenants and rules, the REALTOR® is sometimes blamed for not providing them the information prior to buying. In addition, some HOAs/POAs are managed by third-party Management Companies who charge transfer fees to the new homeowner at closing.

Before showing a property to prospects with whom you have had no prior contact (unvetted), you should make an effort to ensure you know the person’s true identity and that he/she has the ability to buy a property. Your time and your safety are valuable. Follow the principle: C.I.T.O. -- Come Into The Office -- where professional services begin. Start your relationship at the office where the person can be seen by others, where you can get a photocopy of his/her ID, and where you can open dialog about his financial ability to buy. A prospect who refuses or is offended by the requirements to meet first at your office, show ID, and discuss needs and financing may not be worth you risking your life. Further, sellers of listed properties expect REALTORS® to show their properties only to prospects who have been vetted to some degree and who have demonstrated the financial ability to buy.

Definition of Prequalify. Unqualified information only! The lender cannot require financial documents in order to issue a prequalification letter. Prequalification letters can be issued very quickly if the information meets guidelines; this is not a commitment.

Definition of Preapproval. The formal commitment. Customer needs to review the financial checklist and offer information on it voluntarily to the lender to review and approve. Must go to an underwriter and financial information must be vetted.

Definition of Application. Once the customer has voluntarily provided the following six pieces of information to the lender, an application has been initiated:

• your name,
• your income,
• your Social Security number,
• the property address,
• the estimated value of the property, and
• the mortgage amount being sought.

For a buyer and seller to have an agreement (contract), the terms must be in writing and signed by all parties. Conversation between agents about what their clients will do is not contractual. A text message between agents stating what their clients will do is not contractual. Until the agreement is signed by all parties, it is not contractual.

Many of the contracts today provide that the Seller will pay a lump sum amount for the closing costs. This is a great practice, but it does lend itself to interpretation as many people have a different idea of what “closing costs” include. The language used to convey the cost distribution should be explicitly clear so as not to be left up to interpretation. Contract law states that if contract language is ambiguous or open to interpretation, the provisions that specifically address the issue control the outcome. Therefore, if you do not write your contract as specified in the Best Practice below, it could mean your client would pay the lump sum amount specified plus the termite certificate and home warranty. Avoid this misunderstanding by using the suggested language. Further, avoid the following frequently used language that leaves costs unassigned and up to interpretation creating misunderstandings: “Buyer to pay $ ___ in closing costs. Seller to pay termite and home warranty.” Who pays Buyer’s closing costs in excess of $ ___?

Personal property is not part of the real estate being conveyed from the seller to the buyer, and real estate agents should not be part of any documents regarding personal property.

Possession can be tricky, creating enormous emotional and financial distress if handled without a full understanding of the parties. For one person to possess a property, the other person must move out. Possession by buyers immediately after closing requires the seller to be out prior to closing. This can put the seller at financial and emotional risk if the closing is delayed or canceled. If the sale falls through, the buyer might incur the expenses of moving again.

In addition to the buyer and seller, the lender and title agent or closing attorney must be able to read and understand the contract. When it is incomplete or illegible, time is wasted, and loan approval or closing can be delayed as a result.

Who is responsible for sending the contract and preliminary contact info regarding the parties/agents, etc. to the lender and the closing office?

Leasehold property and property on 16th section land are fairly common in Mississippi, and they can affect your timeline for closing.

How much time, on average, do lenders need to close? The lender’s timeline starts when all the income documentation from the borrower is signed, and disclosures are in the lender’s hand. Generally, lenders need between 30 to 45 days to close once all documents are received. The appraisal is generally not ordered until the home inspection contingencies, if any, have been removed. In some cases, appraisals can take a couple of weeks during which time lenders have no control over the process due to the Real Estate Settlement Procedures Act (RESPA) laws. If the contract is contingent upon a satisfactory home inspection, get the home inspection contingencies removed as quickly as possible, allowing for the appraisal to be ordered and completed in accordance with the contract terms.

Commercial inspection periods can vary in length depending on the type and size of the property being acquired. Lenders often require a minimum of 45 days to finance commercial properties upon completion of the buyer’s due diligence period, and contract extensions are to be expected when reasonable issues arise.

Who attends? Who gets the report?

It is a common misconception that buyers may attend the home inspection along with the inspector unaccompanied by the agent representing them. The only authority a buyer has to access a listed property is with an agent (MLS Participant or Subscriber) who is responsible for buyers’ activities while in the property. The only way buyers should be at the property unaccompanied by their agent is with the seller’s written permission. That request for permission should be made to the listing agent who will have that discussion with the seller.

What are the appropriate channels of communications related to a specific appraisal report? Although both buyer and seller have an interest in the outcome of the appraisal, the appraisal report itself belongs to the buyer’s lender. It is after the appraiser has turned in his/her report to the lender that issues sometimes crop up, resulting in someone in the transaction wanting information. It is critical for real estate practitioners to know the proper chain of communication so as not to cross a line and be accused of unduly influencing an appraiser. (For the sake of this Best Practice it is assumed that the buyer obtained financing from a lender who ordered the appraisal.)

Adequately counsel the Buyer or Seller about the requirements and benefits of having a WDIR completed.

Some areas have ordinances requiring residential properties to be inspected by Government Inspectors for safety, health, and other hazards prior to allowing a new homeowner to have utilities connected. The following best practices may reduce the likelihood of unexpected delays in closing:

There are state laws and county ordinances that apply to the ownership of properties with Individual On-site Wastewater Disposal Systems (IOWDS). Real estate agents, buyers, and sellers all need to understand these provisions as some may differ by county.

After the lender requests documentation from the buyer, the review of that documentation often requires follow-up documentation. It is important that everyone involved with the closing understands that the underwriting process/closing date is a “moving target.” Often documentation supplied by the borrower at the beginning is incomplete and/or review of that documentation leads to further questions requiring additional documentation and explanations by the borrower.

Anxiety can arise when it’s time to set up the closing. It is often the expectation of both the buyer and seller that they get to choose the closing attorney.

Delays are frequently caused when the lender or closing attorney/title agent has to track down the agents in the transaction to obtain information required for loan approval or closing. The more information provided upfront to the lender and to the closing attorney/title agent, the smoother and faster the closing can be scheduled.

The last step prior to closing is your client wiring their funds to the closing agent. BEWARE! There is a growing trend in the real estate industry where real estate agents, their clients, and closing attorneys have been a victim of wire fraud by nebulous third parties. Should agents not properly protect themselves and advise same to their clients in regard to the real estate transaction, they could find themselves not only in direct pecuniary loss due to theft but also expose themselves to liability for their inaction of not properly advising their client.