I’ve been told that 29% of all contracts signed never make it to the closing table, that nearly 3 in 10 transactions where a buyer and seller have come to terms (which is no easy feat in this market) fall apart. In a more normal market, I would say 90% of deals close. I figured I could point out some of the reasons [I see] deals are crumbling…
- Short Sales – In theory, they sound terrific because the buyer can low-ball an offer. They get little resistance from the seller (because the seller isn’t getting any money out of the deal anyway). However, the existing lender isn’t just accepting any offer. Appraisals are done and scrutinized. Lenders are not agreeing to deep discounts. Additionally, the lenders are still, in many cases, taking months to make decisions and many buyers are losing patience, withdrawing offers and finding another house.
- Appraisal Issues – It seems that there are more appraisals coming in short than has been the case historically. Conceptually the value of a home has been loosely defined as “what a reasonable buyer would pay to a reasonable seller.” With the market including so many “unreasonable” sellers (short sales, foreclosures, distressed situations, etc.), many of the comparables used for an appraisal are dragging the numbers lower than they should be.
- Title Challenges - The analysis of Permits and Certificates of Occupancy are at an all time high. Judgments and liens are more prevalent amongst buyers and sellers. The complications on title are messing up and delaying deals.
- Poor Pre-Qualifications – Many deals were never really deals to begin with. Loan officers need to take more care in reviewing tax returns, pay stubs, bank statements, contracts, and such before issuing pre-approvals and taking in applications. Simply not seeing unreimbursed expenses on the tax returns can kill a loan.
- Unforeseen Circumstances – It seems there is an inordinate amount of unusual stuff coming up: [a] buyer losing a job, credit challenges arising as a loan is in process, property damage, [and] buyer’s remorse. Everyday seems to bring a new one.
[While] many issues are visible up front if people really look at them, some are not. Those that can be seen usually are seen by the top professional real estate agents, loan officers and attorneys. Many, when addressed in the beginning, can have happy resolutions.
What experiences have you had where deals have fallen through, or been saved because you were aware of these potential issues up front?
Written by Dean Hartman, Regional Vice President of Benchmark Lending
Reprinted with permission from The KCM Blog -
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