RE: Real Estate Podcast

Ben Harang (00:35)
Good afternoon and welcome everybody. Clint, how you doing today?

Clint C. Galliano (00:40)
I'm doing wonderful, man. How you doing?

Ben Harang (00:42)
I'm doing terrific today. Sunshine and spring is here. It's not too hot. It's not too cold. ⁓ nice weather. Had a little rain yesterday, but things are, things are starting to grow. Property starting to move. So life is good.

Clint C. Galliano (00:59)
Yes, indeed. Yeah, I was traveling home from Natchitoches up and towards the northern part of the state. And I ran through a couple of different rounds of thunderstorms and I was thinking that I was going to come home to some flooding, but it looked like the rain passed through before I got home. So I was ⁓ happy.

Ben Harang (01:19)
Apparently there was a whole lot of rain yesterday where I was not. We got a little rain around, but looked like New Orleans took a good hit with some street flooding and stuff. So there was more than I realized when it was happening. So, okay, for today's episode, we're gonna talk about receiving an offer on property that's listed.

seller has their property listed for sale and we receive an offer. The first thing I do is review the offer and make some notes on the contingencies and the timelines.

the price and closing dates and inspection timeline, whether or not they have to sell the property, how well they're pre-approved, just trying to get an idea of how realistic it is that that particular offer may or may not actually reach the closing table. ⁓ One of the things I like to do is call the agent just to pick their brain and make sure.

I understand the offer that they made. And I also like to touch base with the lender to see if they were pre-qualified with a 30 second phone call or if they got documentation or exactly how deep the lender got into it with them. ⁓ And then from, from all of that information, I kind of develop a, I don't know what I want to call it, an opinion about

whether or not the property actually has a chance to close from the buyer side. ⁓ You know, things like a 30 day inspection period or a 75 day closing period or a contingency that they have to sell their house that's not on the market yet. ⁓

Things like that, it all goes into the gumbo pot to give us an idea of how legitimate of a chance we have to get to the closing for my client, the seller in this case. ⁓ then we sit down and talk about it, whether we do it virtually on the phone or in person. We talk about how, how important the price is.

because some people it's very important, some people it's secondary to the other conditions like moving on with their life and when the closing would occur. So we all get hung up on a price, but it's not always the driving factor.

in

Clint C. Galliano (04:13)
Yeah,

I like to, ⁓ you know, I kind of, and I know you're probably going to mention this also, I kind of go over the main components that affect the net proceeds to the seller ⁓ from a, you know, for the money point of view, ⁓ regardless of, you know, what their goals or the seller's goals are.

and give them, let them know what their expected bottom line can be. And with the understanding that it's just an estimate, that this isn't a guarantee that that's what they're gonna get because we don't know what else is gonna pop out during the transaction. But the main things I hit are the offer price, ⁓ how much, if any, ⁓ amount of funds that the buyer is asking.

Ben Harang (04:46)
Hmm

Mm-hmm.

Clint C. Galliano (05:10)
the seller to pay towards closing the inspection period. Again, if it's contingent or not. The other thing I'll look at too is ⁓ how much of a good faith deposit are they offering to put down? Because that's another indicator on whether, and that combined with the type of loan on whether they have a good chance of closing or not.

Ben Harang (05:41)
You know, we had a conversation yesterday when you were in Natchitoches. ⁓ Part of the purchase agreement talks about merchantable title and ⁓ what happens if there's a.

A title defect that's found while the buyer or the lender's attorney is doing a title search. ⁓ you know, and, and typically people, agents have their, their standard, they put in 30 or 60 days, ⁓ cause it typically never comes back to what, what, what goes into that blank. Cause if it doesn't have a title problem, that part of the purchase agreement doesn't apply.

Clint C. Galliano (06:01)
you

Ben Harang (06:26)
We closed one yesterday. We thought we had two title problems. We got those fixed. We came up with a third one that I didn't think we could fix and we ended up being able to enclosed. But the agent that wrote the offer wrote it with a 30 day automatic extension. If there was a title problem and the buyers wanted to renegotiate the accepted purchase agreement.

because they had to extend their rate lock to get the rate they wanted. And the, didn't have to extend the purchase agreement. It didn't expire because there was a 30 day automatic extension built in and we closed it on the 22nd day. So my point is that's, that's part of the purchase agreement that both buyers and sellers agents typically don't pay a lot of attention to, but

going forward, I'm going to pay a little more attention to it. you know, some people just say they put three, five or seven days in there, knowing that the title problem's not going to get resolved in a week. but that gives the buyer the opportunity as well as the seller to either agree not to extend it, to renegotiate the deal or

Extend it. gives both parties the option. So when, you know, part of the problem with just a 30 or 60 day blanket on there from the buyer side is if they moving out of a house or moving into town or from out of town and they have to be in a house by a certain date. And we close in at the end of April and we have a title problem. The agreement that they signed gives us till the end of May to fix the title problem.

And they don't have a place to live for the month of May. So in that situation, I'm, I'm a suggest from a buyer side. I know we talking about a seller, but from a buyer side, we need to have conversation with the buyers about what happens if we can't close on a closing date because of a title problem that really typically takes 30 days to clear up. ⁓ because I wouldn't want to have a conversation if

I included 30 days extension and a buyer said, well, if I can't close now, I need to go find another house I can move into this weekend. But they still committed to the first one. So that's just something that came up in a, in a meeting we had yesterday, ⁓ to pay a little more attention to the timeline that's automatically extends or doesn't extend the closing date based on a title problem.

Clint C. Galliano (09:19)
Yeah, and if you and the lender, well, and again, this is talking buying side, but as listing agents, we also contribute to that. But generally, the title companies appearing to work for the buyer. Generally, the lender should start that process immediately. ⁓

I know sometimes it takes a little while for them to review the abstract ⁓ and make a determination, but a lot of times those types of issues get found at the beginning of the purchase process. Unless you're trying to run an accelerated timeline on the closing, then you start to run into issues.

Ben Harang (10:03)
Mm-hmm.

Clint C. Galliano (10:06)
when you really run into those problems where, well, what I'm going to do because we don't have a place to stay while we're waiting for this to get cleared up, those are those blindside things that you can't predict, I would assume.

Ben Harang (10:22)
Right. Right. The, ⁓ the one we had, unfortunately, the, the buyer and the seller agreed to hang in there and neither one of them wanted to terminate the transaction. but it could be, it could get sticky if one of them wants to terminate it and they can't because they signed off on the automatic extension. ⁓ so my, my thought on a, on a listing side is

Some people have a title attorney run the abstract on the property when it's listed. ⁓ And they, some will do it ⁓ without a fee in the hopes that they get to close the transaction when it does sell, even though the buyer chooses the title company. But if title company A already ran the abstract and the people don't have a preference.

between title company A, or C, then it makes sense for title A to be used since they already did the work. ⁓ So that's just something I'm rethinking now to have the title run while the property is listed to kind of not have to go through what we just had to go through for the last month to get this deal closed.

Clint C. Galliano (11:46)
So yeah, that's kind of a shift change in how you conduct business, but it'll help to avoid problems going forward.

Ben Harang (11:55)
It is.

And what I do know, you've been in the business for five minutes. I've been in the business for 15 minutes. ⁓ the way, the way the prob when we had to melt down in 08, when people were trying to get things done quickly, ⁓ there were a whole lot of title problems that slipped through the cracks. So what I'm finding is.

The older, the older ones really have less of a problem with the title than some of the newer transactions, especially if it's outside of um, a recognized subdivision. So just kind of whenever the people bought the house, not all the time, but you can kind of tell, uh, we might, we might have a problem here because they bought this thing in 07, 08, 09, um, as opposed to 2015 or 1995.

Clint C. Galliano (12:51)
Alright.

Ben Harang (12:57)
So it's just something to be aware of that unless you live it and breathe it and go through the fire, ⁓ you don't even know what to look for.

And I still get blindsided on this one we closed yesterday. So, you know, we we've been doing it for awhile and things still come up. the title attorney, the title attorney said he had no idea the state statute we were dealing with about, ⁓ public property being sold that the, the seller or whoever donated the property to the public had the right of first refusal to buy the property back. And we talking about a transaction that happened over 50 years ago.

Clint C. Galliano (13:15)
Yeah.

That's crazy.

Ben Harang (13:42)
⁓ If we'd have to trace that down, I don't know if we could have. ⁓ So anyway, it's just that the things we do and learn in this business always stays interesting.

Clint C. Galliano (13:47)
Yeah.

So getting back to purchase agreements, some other things that are of interest to the sellers are movable items that are included in the sale but not considered of any value. So those are things like refrigerator, washer, dryer, ⁓ maybe a patio set, things that will entice the buyer.

to purchase a home that the seller really has no desire to retain. ⁓ We also have the option where they can say, well, we don't want this. So if something that maybe the seller was hoping to get rid of with the house that wasn't a fixture or part of the house or the grounds that the buyer absolutely does not want, know, a ridiculous example would be an antique fire truck that's sitting in the backyard.

Ben Harang (14:31)
Mm-hmm.

Clint C. Galliano (14:56)
Not that that's a real example, but I'm just pulling that out of the air. ⁓ And they say, get that off the property before we close. know, so that would be, you know, things like that. Or if the seller has requested to retain things like draperies and curtain rods and certain security cameras, things like that, that was spelled out in the listing, then they can exclude it from the purchase agreement.

Ben Harang (15:00)
Mm-hmm.

Clint C. Galliano (15:24)
by listing it in the offer. I think we kind of covered mineral rights ⁓ at least two or three times so far. So I'm not really going to talk about that a whole lot. Big thing, like I said, is price. ⁓ When we plan to close. ⁓ So we look at that see if that's compatible with the seller's schedule.

Ben Harang (15:26)
Yeah.

Clint C. Galliano (15:49)
⁓ Let's see, what's next? You mentioned contingent on them selling another property. I'm in a situation like that where I'm actually representing the buyer ⁓ and they're trying to get their home sold so that they could purchase this other home. it's, ⁓ you know, kind of calling into question the ability of their agent ⁓ at some point.

that they have listing the property because it's in another state. And I think they're starting to feel that they're not getting as good a service as they could be getting out of them. So that's something that we'll need to address going forward to get this deal closed. ⁓ Other things is the type of loan and how much ⁓ of a loan it is. Typically,

Ben Harang (16:30)
Yeah.

Clint C. Galliano (16:49)
Your standard GSE loans, FHA Rural Development VA, those are going to be 96.5 % or 100 % depending on the type of loan. If it's a conventional loan, can be anywhere from 3 % to, I'm sorry, from 97 to 80 % or less on a conventional loan. And those are your qualified loans. And again, we're not loan advisors or mortgage advisors, so.

Ben Harang (17:09)
Mm-hmm.

Clint C. Galliano (17:19)
We don't know all the details on that. ⁓ But that would be spelled out. ⁓ Financing conditions, that would be where the buyer asks the seller to pay closing costs on their behalf. ⁓ Also details how long they plan to wait before starting their loan application. And I've seen some come in with a request for 30 days. ⁓

And I've seen some come in with 10 days, some with 14 days. Personally, I put five days because if they're not starting that loan application within five days of getting the offer accepted, then how serious are they about buying the house?

Ben Harang (17:55)
Mm-hmm.

Right. I typically use seven days just because if, you know, if it's Sunday to a Saturday, you have the work week. If it's a Wednesday and you need to get some documents in the fifth day is on Sunday. So I just like to have five working days and by using seven days, have five, the buyers have five working days to get the loan application in. ⁓

Clint C. Galliano (18:13)
Right.

Ben Harang (18:31)
One of the things we did talk about yesterday, there's nothing in our purchase agreement that talks about, ⁓ when an appraisal is ordered. And, ⁓ I got burned on one several years ago where it was a cash deal. The guy absolutely had to make it continued on the appraisal. His buddy was an appraiser. There was no language in, in the, in the contract about how long it's going to take.

We waited six weeks for the appraisal for it to come in like $50,000 below the agreed upon price and then hurricane hit. So I suggested a change to the Louisiana real estate commission to have a timeline on when the appraisal is ordered. And in my mind, the appraisal should be ordered at the loan application as soon as the, or within days of the loan application. Lenders typically like to wait until

after the inspection comes in. And that's problematic because if there's an inspection issue and we renegotiate that, then the appraisal comes in and the appraisal comes in short, then all of a sudden we're renegotiating that, which causes us to maybe renegotiate what we talked about on the inspections. So why do it twice? Just get it all. can do that at one time, hopefully.

and not have to renegotiate the deal a second time. So there's wording in the purchase agreement about the timeline for the loan application, which includes paying for the appraisal, but there's no reference to when the appraisal is ordered ⁓ by the buyer or the lender, whatever the case may be.

Clint C. Galliano (20:23)
And I initially would hold off until we completed inspections and I was able to get the sellers to agree to repair or replace, you know, stuff from the inspection. And ultimately, I've kind of come around to your way of thinking and let's just get it done. The main thing, you never know when the buyer is going to lose their job.

Ben Harang (20:45)
Get it done.

Clint C. Galliano (20:49)
You never know when interest rates are going to change. This last couple of years have showed us how fast that could happen and that impacts the buyer's ability to purchase. On top of that, ⁓ you also mentioned hurricanes. If we get a storm that comes through and damages the home while you're under contract, that more or less kills the deal unless there was no damage or the seller.

Ben Harang (20:50)
Exactly.

Mm-hmm.

Clint C. Galliano (21:16)
seller hurries up and repairs the home. know, so, God, yeah, especially a direct hit. Yep.

Ben Harang (21:20)
which is difficult to do after the disaster, just getting people to do anything. ⁓

continuing on, we alluded to the price as not always the ⁓ driving force, but we do complete what we refer to as a seller net sheet. Clint talked about the closing costs and things, but we literally have a sheet where we use the...

Proposed sales price and then we deduct the closing costs that the buyer is asking for any buyer's agent compensation that they're asking for. Whether they ask for a wood destroying insect report commonly referred to as a termite certificate. If there's any any points to be paid that they're asking for the seller to pay to buy down an interest rate. All of those things and then we look at the bottom line. If the bottom line is acceptable to the

seller, then we can move forward. If the bottom line is not acceptable to the seller, I think it's a much better idea to keep all of those items in the deal and counter back at the gross sales price that would increase the net to what the seller can live with rather than saying, I'm not going pay the closing costs, so I'm not going pay the buyer's agent, or I'm not going to pay the WDIR. They're asking for that for a reason.

If they had the cash, they probably wouldn't be asking for it. So increase it, the sales price to include it, which is just a fancy way to saying that they're, they're able to finance their costs. really, the seller is really not paying for it because the seller is going to pay the, going to get paid the net. But all of those items are the costs of, are a cost of the transaction. ⁓ so counter back to the top number and not the bottom number.

And I think it will go a lot a lot smoother and have a much better chance of being Accepted rather than saying well, I need another $5,000. I'm gonna take the $5,000 out in the closing cost that makes no sense Increase the price by $5,000 and leave it in there

Clint C. Galliano (23:35)
Yeah.

I wrote an offer over the weekend. We wrote $4,000 above list price because I knew that the buyer needed closing costs paid. ⁓ And ultimately we lost that property, but they came back with a counter offer and a second position backup. ⁓

Ben Harang (23:48)
Mm-hmm.

Clint C. Galliano (24:08)
being offered to be the backup offer on the property. And the counter was that we include the backup offer and agree to be the backup offer. the price doesn't change, but the seller's only going to pay $5,000 in closing costs. So in other words, a net $1,000 in closing costs.

⁓ from him, you know, it's like, my buyer said, well, that's kind of insulting. ⁓ let's reject that.

Ben Harang (24:40)
Uh-huh.

Yeah, no.

Right. Right. And also, ⁓ I've been around a minute and I've seen backup deals blow up, ⁓ where that ended up in lawsuits because the backup deal ended up being better than the primary. And once the primary had a hiccup,

The seller pulled the plug, would not renegotiate, it went straight to the backup. And ⁓ it took a whole lot of lawyers and judges to decide what was going to happen to that first deal that did not close. So I'm always leery about being in a backup position. I don't like being a seller with a backup because it's like a right of first refusal and I really don't like rights of first refusal. ⁓

But if I'm on the buyer side, well, both of them, want the ability to terminate the agreement anytime prior to becoming primary. So just something to think about is the little nuances that it probably won't happen to you, but if it does, you don't want to be stuck in that position.

Clint C. Galliano (26:07)
Yeah, for sure, for sure. So a couple other, ⁓ I think, are fairly important things to point out about the purchase agreement, ⁓ again, or an offer that you receive is the additional terms and conditions. So this is kind of like a blank space for the buyer to offer or ask for additional.

terms and conditions to the transaction. Common thing we see are termite inspection or asking for a clear WDIR (Wood Destroying Insect Report) ⁓ Depending on the brokerage or the agent, at least in this, ⁓ over the last few months,

Ben Harang (26:44)
Mm-hmm.

Clint C. Galliano (27:01)
you'll see where the buyer will ask that the seller cover the buyer's agent compensation in this section. But it's critical to pay attention to this because this is also where if you're purchasing a property that has flood insurance, this is where the buyer, or sorry, if you're selling one and you're willing to transfer the flood insurance, this is where the buyer will ask for the flood insurance to be transferred.

So we pay special attention to this section and the financing conditions because depending on what you're used to looking at, you may miss something if you're not paying attention to it. So we try and pay close attention. The other thing that's fairly critical also is the attached addendum or addenda as the proper term. So correct. ⁓

Ben Harang (27:52)
multiple addendas.

Clint C. Galliano (27:57)
This is where if the buyer needs to sell their home first, a contingency addendum will be checked off saying, hey, we've got this. If it's private water or sewage, so if there's a water well on the property or private septic, so either a septic tank, a sewage treatment plant or whatever, as long as it's not municipal, then the buyer can attach that addendum and say, I want this inspected.

and blah, blah, blah, blah, blah. This is also where FHA and VA addendum are attached. ⁓ And also our practice is to when we're representing buyers, we put the compensation request for the buyers ⁓ on a separate addendum and attach it to the purchase agreement. So we'll note that in that section.

Ben Harang (28:29)
Mm-hmm.

Clint C. Galliano (28:55)
And so those are the main things that we look at. And ultimately, we try and give our best estimate on what you as the seller will wind up with, what your net proceeds will be. ⁓ I take it as far as to project the closing date and calculate out the taxes at the sales price and say, you you're going to wind up crediting them this much on taxes. So you should.

Ben Harang (29:12)
Mm-hmm.

Clint C. Galliano (29:26)
walk away with this many dollars. ⁓ If I've got an idea of what they owe on the mortgage, I'll try and include that also to give them a better picture of what they're going to get.

Ben Harang (29:28)
Yeah.

Yeah, the balance on the existing mortgage for the seller is a big deal. It's the biggest item that affects how much money they're to walk away with because the equity they have, all of the expenses are coming out of the equity part of the house. And then the balance is due whether they pay a dollar or pay $10,000 in closing costs or buyer agent compensation.

that mortgage company is still going to receive the same amount of money. So what you don't want is somebody to show up at the closing thinking that they're going to get a check for some amount. And when they show up, they need to have a check made payable to somebody else to be able to close their house because they've agreed to pay too much or the mortgage is higher than they thought it was. They forgot they refinanced it when they put the swimming pool in or whatever the case may be.

So the more realistic you can be on the actual costs involved in the transaction, the smoother the closing will go.

Clint C. Galliano (30:49)
And that is how we look at offers.

Ben Harang (30:53)
We covered it covered everything Clint. ⁓

Clint C. Galliano (30:55)
We covered

it from page one to page 11, which is our current Louisiana Purchase Agreement.

Ben Harang (30:58)
It looks like it.

Yeah. And the 15 minutes I've been in, was, it was a two page NCR form. They were fancy and didn't have carbon in it. There was the automatic copies, which was crazy about the time the fax machines came out. How it's changed. And here we are on a podcast. had no idea what a podcast was. We didn't know. I don't think podcasts had been turned, had been coined that far back.

Clint C. Galliano (31:19)
Yes indeed.

Ben Harang (31:31)
So we're just keeping up with technology to, to help people buy and sell and sell real estate. So if you get some value out of the podcast, you can like subscribe and comment. ⁓ and whether you like the audio version like Clint does or the video version, like I do, it's on YouTube, Spotify, I heart Apple. ⁓ what else Clint?

Clint C. Galliano (31:57)
Pandora, Podcast Addict, pretty much anywhere you can find a podcast, we're there.

And the best way to find it is to go to rerealestatepodcast.com. We've got a link in the top menu that will take you to the video version if you want. If not, there's a link for episodes and there's an individual page for each individual episode. You can listen to them right there if you don't want to subscribe or don't use an app. So we've got pretty much any way you can think of to consume it. It's there. So like, share, comment.

do all the things. ⁓

Ben Harang (32:37)
⁓ Email with questions. If you have any questions about

the process, we happy to answer questions that you have.

Clint C. Galliano (32:45)
And something we don't say,

yeah, so something we don't say also is that in the show notes for every episode, we've got both Ben and I's contact information, email, phone numbers, websites, all that stuff. So go check it out.

Ben Harang (33:02)
If you want to contact one of us, ⁓ it's all right there. We try to make it as easy as we can to start the conversation.

Clint C. Galliano (33:13)
All right, Ben, I think that's a wrap.

Ben Harang (33:16)
All right Clint, have a good one.

Clint C. Galliano (33:19)
You too,

Ben Harang (33:20)
See you next time.