Real Estate transactions fall through for many reasons, and the same ones seem to happen frequently. We’ve identified the top 6 reasons that home sales get killed. To avoid making these mistakes, make sure you are using a true professional mortgage lender and/or Realtor. If you want personal advice on this topic, setup a consultation with my team by emailing DougHaldeman@gmail.com or you can text/call (314) 472-DOUG (3684).
1. Buyer Financing Falls Through
This is the most common reason that deals crash, and it starts with buyers not being properly pre-approved. Many lenders will give a buyer a Pre-Approval Letter without seeing their income or asset documents. Then once the buyer turns in their documents, it is found that they don’t qualify. If you are a seller, you MUST screen the lender that pre-approved your buyer. Verify with the lender that they’ve reviewed the income documents of the buyer. If you are represented by a Realtor then they should do this for you. Most good Realtors will know the reputation of the local lender.
Another common scenario that kills or delays financing is when a buyer uses one of the massive banks that doesn’t specialize in purchase loans. Often buyers will try their depository bank first for a loan, without realizing that their bank doesn’t specialize in mortgage loans. Then their loan is caught in underwriting hell for weeks. This is frequently true when buyers use an internet lender. The buyer turns into a “number” as they are herded through like cattle.
As a mortgage lender that specializes in purchase loans, I can’t stress enough to use a true professional! If you want advice in this area, reach out to me directly at (314)472-DOUG (3684).
2. Appraised Value Doesn’t Support the Purchase Price
This scenario doesn’t happen often, but when it does it creates headaches. When property values are increasing, there is a higher likelihood. If a property sells for a higher price than any comparable property, there many be nothing to compare.
Lenders will use the lesser of the Sales Price or Appraised value when determining your loan amount. You are left with four choices if this happens to you. First, as a buyer, you can make up the difference between the sales price and the appraised value by bringing extra money to closing. Second, you can negotiate with the seller to lower the price. Third, have your Realtor research for more comparable properties and use them to negotiate with the appraiser. Fourth, back out on the sale because you might be over-paying!
3. Title Insurance
The purpose of title insurance is to ensure the owner’s home is fully their own to sell. Lenders require title insurance to protect the asset — the home — that secures the loan.
If a homeowner defaults on the loan and a faulty title reveals that the home is not actually theirs, the bank has no way of recouping the money it lent. Sellers should already be aware of any liens on their property, but to stave-off surprise loan issues, don’t wait for the buyer’s title report. Get your own report in advance to make sure the property is fully in your possession with no threat of claims.
4. Home Inspection Surprises
Home inspections kill more home sales than anything else. It is highly recommended for sellers to get a home inspection before the house goes on the market. This will give you an opportunity to pre-empt any objections from a buyer. Don’t let this items surprise you and kill your sale!
As a buyer, a home inspection is a must! It is okay for a home to have flaws. You just want to be educated and prepared on the flaws before you make the sale final.
5. Buyer’s Remorse
Some buyers think they want to buy a home, and change their mind in the middle of the process. This can happen for a variety of reasons. A common reason is they underestimated when their payment was going to be on a home. They used an online calculator that gave them a pie-in-the-sky scenario that didn’t include their PMI and underestimated their interest rate or homeowners insurance.
We’ve also experienced buyers that were prepared to buy before their current house sells, thinking that their current home would sell quickly. Then when they don’t get an immediate offer, they rethink the whole thing and back out on the purchase. It is a good idea to ask for a larger earnest deposit from buyers in this scenario.
6. Buyer’s Writing a Contingent Offer or Having to Sell Their Current Home First
Buyers will often write a contract that is “contingent” on the sale of their current home. These offers are either “contingent, with kick-out” or “contingent, without kick-out”. A kick-out clause means that the your home can stay on the market until the contingency is released. Then if you get an offer, your existing buyer will have a short time period to remove their contingency. A contract without a kick-out clause will not let you sell the home to anyone else during the contract period. It is rarely advisable to accept a contingent contract without a kick-out clause. In a seller’s market, you would rarely have to accept a contingent contract. In a buyer’s market, you might have no choice but to accept a contingent offer.
Another common scenario is that a buyer needs to sell their current home first, and already has a buyer. They may plan to close on the sale of their current home the same day they are buying your house. These transactions can be chain reactions going multiple layers. Each buyer is selling a home that will provide the funds to close on the new house. As long as everything goes smoothly with each purchase, then everyone is happy. The best advice in this situation is to have a Plan B. If your transaction doesn’t close, what will you do?
To get professional advice in any of these areas, setup an appointment directly with me.
Doug Haldeman
(314) 472-DOUG(3684) – Voice/Text
Doug Haldeman Show/FM NewsTalk 97.1
Audio: Top 6 Reasons Real Estate Transactions Fall Through
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