The 7 Most Common Reasons Real Estate Transactions Fail
You’ve got the contract signed, the closing is approaching quickly, and the last thing you want to happen is for the real estate transaction to fall apart just before the closing date. Why do so many deals fall apart at the last minute? How can these fails be prevented?
Getting a real estate contract signed is just the first step in the transaction process. It’s when the real fun and work begins. This is where the best shine and gain an edge in their market, while the rest slink back off to oblivion.
Failed closings are tragic for a buyer, seller, and real estate agent or broker. They can be expensive, stressful and demoralizing as a buyer or seller. As a Realtor, they cannot only rob you of your paycheck you were so eagerly counting on but dent your reputation and make future business harder.
Depending on the market temperature and mortgage lending landscape anywhere from 3% to 30% of pending sales contracts can fall through. That number can be dramatically lowered, and completion metrics increased if all the parties involved are more knowledgeable about the frequent glitches and how to get out ahead of them.
Here are seven common reasons you deal could fall apart, and how to beat it.
This one should be no surprise. Appraisals are the notorious Achilles heel of real estate transactions. If it comes in too high, the seller can try to back out and relist for more money. More often, the appraisal comes in low. That can scare off buyers and wreak havoc with mortgage loan applications. As a Realtor, you’ve got to know your values and comps the way appraisers and lenders look at them. Know how to successful rebut bad appraisals. Have a plan for renegotiating or restructuring the deal with your clients in advance. Agents should probably consider taking the appraiser licensing course for their continuing education credits and master this part of the business.
- Mortgage Lenders
For as easy technology has made the rest of our lives, mortgage lending is still incredibly inefficient. From gaps between pre-qualification letters and underwriting to continually changing influences behind the scenes, disconnected underwriters and meticulous paperwork burdens. Many issues can come up. Often they show up right at the last minute, the day before closing. Typically in final reviews and appraisal reviews. Agents can help their clients ace this by knowing loan program qualifications and quirks. Be sure buyers are working with a loan officer who will help them preempt any last-minute conditions that will stall the transaction.
- The Buyer
Buyer’s remorse can be an issue. It’s easy to get a buyer to fall in love with a property and e-sign the purchase contract. The longer the closing takes, the more time they have to have second thoughts. If things start to go wrong, like significant repairs being uncovered, the market changes or their loan interest rate goes up. They can begin to drag their feet and sabotage the deal themselves. More commonly buyers accidentally undermine their home purchases by going shopping for furniture and racking up credit card and store debt during the loan process or quitting a job. Lenders will often do final re-verification right before closing and catch these items. Educate your clients, take time to explain these things and make sure they are sold on the deal upfront to avoid these problems.
Sellers can forget, be unaware of, or get hit with liens and new debts on their property during the process. This can deplete their anticipated sales proceeds or mean they have to bring money to the closing table to sell. That can cause many sellers to back out. These items can include past due property taxes, mechanics liens, HOA, and condo association special assessments, additional loans or lines of credit attached to the property and code violations. These surprises can be avoided by using an experienced Florida title insurance company who gets on the job to perform title and lien searches early and knows how to proactively tackle potential issues and keep the deal alive.
- Uninsurable Title
While the market has bounced back in a big way since 2008, the foreclosure crisis has also really messed up the titles and chain of titles on many properties. Between lender robo-signing fraud, overly creative attempts to stop foreclosure, auctions, and house flips, many properties are being advertised out there that buyers may not be able to get title insurance on. At least not to the level a new mortgage lender is going to expect. Pulling title early, or as a listing agent even ordering preliminary title searches and home inspections can save much stress, lost time and deal fails.
- Condo & HOA Approvals
Some associations can be a real drag on real estate deals. Lengthy and inefficient buyer approval times, stringent qualifications and even personal prejudices can burn precious time or crush contracts. It’s smart to know your associations before showing buyers property and to work with other professionals who have relationships with them and know how to get approvals expedited.
Many of the above items can cause delays. As can sellers and buyers realizing their ID is out of date or being slow to send funds for closing. Some sellers and listing agents are gracious about granting contract extensions. Others get greedy and see a chance to grab the buyer’s earnest money deposit. Give your contracts extra time so that issues can be worked out and educate clients on the reality of trying to sue over deposit funds.
Have more questions about making sure your next real estate transaction sails smoothly to a successful closing? You can make the process seamless and hassle-free by contacting Title Partners of Florida.