Three Things You Should Know To Eliminate Unqualified Buyers and Cancelled Escrows
1. How Do You Know if a Buyer is Qualified?
Whether it’s shopping for a house or buying a large screen TV, most sales people will tell you that many of the folks that come to see, test, or ask questions, are just “wishful window shoppers.” They read all the tantalizing details in the newspaper, or they were just driving by and saw the sign. But for what ever reason, and not necessarily because they are ready to buy, they have come to check out the product.
Some say that sales is a “numbers game.” In other words, the more people that “check out” the product, the better. It is a shotgun approach. It’s like throwing a net in the ocean and hoping to catch the kind of fish you are looking for, but knowing that most of them will be the wrong one. This method works…eventually. But at what cost? How much of your valuable time and will you spend on the masses to find just one buyer?
Most people don’t want to talk about their finances, even with their best friend. But finding out if someone is financially qualified to buy your house is the best way to know that if they make you an offer they can back it up, and that they are really in the market to buy now. A good real estate agent will get their buyers pre-qualified or pre-approved with a lender BEFORE they take them house shopping. Asking a potential buyer for a letter from their lender is a great way to verify that they are both ready and capable of buying your home, without asking personal and annoying financial questions. Don’t Waste Your Time On Unqualified Buyers!
2. What Is a FICO Score?
When people talk about “your score” they’re talking about your current FICO® score. “FICO scores” are calculated by software developed by Fair Isaac and Company. In order for a FICO® score to be calculated, the report must contain at least one account which has been open for at least six months. The report must also contain at least one account that has been updated in the past six months. This ensures that there is enough recent information on which to base a score. Equifax, Experian and TransUnion are the three major credit reporting agencies that lenders rely on to provide credit reports and FICO scores.
FICO scores are used as a guide to future risk and are taken into account with additional factors that each lender uses as part of their decision making process as to whether or not to loan money, and at what rate and terms. To further complicate matters, a FICO score may be different at each of the three main credit-reporting agencies. And, as data changes, the FICO score also changes. The score today may very well not be the same as the score last month.
A potential buyer that has a FICO score in the 700s is likely to have no problem getting a loan approved quickly. The lower the score, the longer it may take to obtain financing.
3. What is “Due Diligence?”
When a buyer walks through a property for sale it is not possible for them so see or anticipate all potential problems or defects in that short period of time. Usually the buyer is excited about one or many aspects of the home. Many times the furniture, furnishings and landscaping are “eye catching” and the buyer later finds themselves wondering about the more practical items like the age of the roof, the size of the space for the refrigerator, how old the heater is, etc. That is why most contracts used by real estate professionals include a “due diligence” period. What that means is that after a buyer and seller have a signed contract, the buyer is allowed to pay professionals to check various items of the property. It also means that they have time to review and approve all disclosures, reports and other applicable information that the seller gives them. These items include all matters affecting the property, not just the structures and the parcel. For example, the neighborhood, traffic patterns, school district, etc., may be things that add or detract from the buyer’s perceived value of the property. How much time the buyer has to perform their “due diligence” is one of the many items that is negotiated in the contract.
The negotiated due diligence time frame is often confused with whether or not a property is being purchased “as is.” Purchasing in the “present physical condition” does not usually mean that the buyer is not getting inspections. The contract created by the California Association of Realtors separates the ability for a buyer to inspect, from the obligation of the seller to correct items found to be deficient. Of the many options, here are 4 that are more often negotiated in the contract:
- The seller is obligated to correct all items discovered;
- The seller is not obligated to correct any items discovered;
- The buyer and seller will re-negotiate during the due diligence period;
- The buyer will legally cancel the escrow
by Judy Naimo, Realtor