The Real Deal
February, 2004

DON'T STAY SILENT ON CLOSING COSTS

By Esther Muller

New Brokers can be reticent about discussing closing costs with potential clients. That silence is a major mistake on their part.

Recently, I was brought in to help salvage a deal that hinged on the issue of closing costs. The broker, new to the industry, failed to alert his client, a very bright, professional New Yorker, about them.

To be fair, neither the client’s attorney nor his mortgage broker addressed the topic. When the amount – which was several thousand dollars – was finally revealed (less than one business day before closing, mind you), the buyer was shocked… and went ballistic. He didn’t have the money. He felt betrayed by his real estate team. And he was ready to withdraw from the
deal, one that had taken months to reach.

It didn’t stop there. Since it was less than 24 hours before closing, the buyer would have been responsible for the adjournment fees if cancelled the meeting. It was right before the holidays and many of the key players involved in the transaction were going on vacation. And a certified check was required and the banks had already closed for the day. Emergency calls were made to the buyer and to his attorney as everyone tried to come up with an eleventh hour solution.

Finally, I took the liberty of going directly to the buyer’s father. It was a
risk, but all viable options were exhausted. After a cordial conversation
that stressed his son’s joy in becoming a first-time homeowner, the father
put up the certified check needed and the deal was finalized as scheduled.

Unfortunately, this is not the first time I’ve encountered this situation, especially with brokers just starting out.

Closing costs are as important as pre-qualifying buyers; as important as the board package; as important as understanding building financials. Why? Because your client may not have the financial resources to cover the overall costs related to closing. And if the deal collapses because of all this, all of your hard work – and your client’s time, the attorney’s time, the bank’s time – has all gone down the drain, leaving behind a lot of angry and disappointed people, lost commissions and stained reputations.

Many new brokers remain silent for a variety of reasons. Some feel it isn’t within their job description to talk about closing costs, while others assume that their client’s attorney or mortgage broker had already addressed the matter. Some brokers, especially those who are still establishing themselves professionally, feel that being upfront about closing costs may cost them the deal. How? If the less-than-savvy client is looking at other brokers who do
not include closing costs in their pitches, the final dollar amount will be lower than the broker who does include this cost. And since closing costs average between four to six percent of the overall costs, this can add up to a significant amount of “additional” money. The client who selects the “cheaper” agent is still responsible for these charges – he or she is just unaware of it.

Ignorance isn’t bliss. Closing costs should be one of the first items that brokers address with their clients. Before meeting with your client, coordinate discussion points and confirm the estimate with his or her real estate attorney and mortgage broker. If your client hasn’t hired a lawyer or doesn’t have a mortgage agent yet, still go ahead with the discussion. Just make sure that you keep the other real estate professionals in the loop.

When you speak with your client, have on hand an estimate sheet and walk him or her through the information. Most realtors have a “Typical Estimated Closing Costs” worksheet that includes a range of items such as: recording fees, mortgage tax, municipal search, managing agent fee, common charge adjustment, mansion tax, short-term interest and fee title insurance. To protect yourself and to manage your client’s expectations, stress the fact
that this is a good-faith estimate and that final costs may vary.

So save yourself the angst. In the long run, your customer will appreciate your ethics and good business sense.

Ms. Muller is the master teacher at the Real Estate Academy.