Death of a real estate deal
Take a proactive approach to buying or selling a home. By anticipating what could go wrong with your real estate transaction, you can take care of potential problems before they derail the deal.
Years ago, inspection issues were the likely culprit if a home sale fell apart. Defects were uncovered during the buyers' inspections that weren't known to them before they went into contract to buy the property. Sellers can reduce their exposure to transaction failure by ordering presale inspections before the property goes on the market.
Many of today's buyers use FHA financing, backed by the Federal Housing Administration. If your home is in great shape, there is a lower probability that FHA will require that work be done before closing. In one case, the work required by FHA couldn't be done in time and the sale failed.
HOUSE HUNTING TIP: Financing has become the biggest headache in the current market. Lender tightening on buyers' qualifying criteria and on appraisals continues to stymie many deals. And, the tightening isn't over yet. FHA is popular with low-cash-down buyers. The default rate on these 3-5 percent cash downpayment loans is rising. It's almost certain that FHA will modify their qualifying requirements this year.
Buyers can save themselves a lot of grief by making sure they're qualified for the financing they need before making an offer. Have your credit checked. Credit reports often contain erroneous information. This can keep you from qualifying for the best mortgage at the lowest interest rate. Repair your blemished credit report before your application goes to underwriting.
Expect the unexpected. Recently, homebuyers received underwriting approval and were told their loan documents would be ready to sign in a few days. Next, they were told that one more piece of information was needed before their loan documents would be drawn. This is not uncommon.
You can reduce the chance of this happening by working with a good loan agent or mortgage broker who has a lot of experience working with today's mortgage lenders, and who can anticipate what underwriting will require. Make this documentation available as soon as possible.
An offer made contingent on the sale of the buyers' home is riskier than one that's not contingent. Before sellers accept a contingent-sale offer, they should make sure the buyers have a salable home that's priced right for the market. If the buyers' home doesn't sell, it could waste a lot of time for nothing.
Low appraisals are common in the current market and can make a transaction unworkable. Lenders want to make sure there's enough equity in the property in case home prices drop further. Buyers and sellers should be aware of the fact that the appraisal on the property may come in low, even if there are multiple offers at a higher price. It doesn't mean the property isn't worth the higher number.
In this market, market value won't necessarily match the appraised value due to lender's cautiousness about lending. Buyers and sellers should be prepared to renegotiate if the appraisal comes in low and the lender won't lend the buyers the amount they need to close. This could involve the seller accepting a lower price and the buyers putting additional cash down. If they can't come to agreement, the deal is off.
About one in three short-sale transactions don't close. These are sales where the lenders agree to accept less than the balance owed. The sales are subject to lender approval and lenders may reject the buyer's purchase contract.
THE CLOSING: It's a good idea for buyers and sellers involved in a short sale to keep a cash reserve that can be offered to the lender as a last-ditch effort to obtain lender approval.