Sales activity is anything but lagging in the real estate market, but there are still plenty of deals that are either delayed or terminated completely because of some sort of snag in the process.
There are a number of hindrances that can ruin real estate deals that otherwise should have closed. Here are 5 things that can leave a deal dead in the water before escrow has had the chance to expire.
One of the biggest hurdles to closing a real estate transaction is an appraisal that doesn’t accurately reflect the true market value of the home being purchased and financed. If an appraisal undervalues a property, this can risk home loan approval. Lenders will likely not extend the loan amount required if the value of the property appraised comes in short. In addition, an undervalued appraisal can even convince buyers that they’ve paid too much for the home and may head back to the negotiating table, which can delay the entire process.
The best way to ensure an appraisal comes out with an accurate value is for the appraiser to be given as much information about the subject property as possible. They also need plenty of data about recent comparable sales in the area, as well as current listings. Obviously, appraisers need to verify all information provided to ensure complete accuracy. The more information the appraiser obtains well in advance, the lower the odds of any delays as a result of an inaccurate appraisal.
Inability of the Buyer to Obtain Financing
If a buyer’s mortgage application is rejected, there will be no way for the property to be financed. This scenario happens quite often and is a sure-fire way to kill a real estate transaction. In fact, nearly half of all delays or terminations are the result of financial issues on the part of the buyer.
Buyers should ideally go into a real estate deal pre-approved for a mortgage. While that doesn’t necessarily guarantee that a mortgage will be approved, it’s certainly a step in the right direction. Buyers should also get their finances in order, avoid making any major purchases on credit, and hold off on changing jobs while financing is underway to minimize the chances of falling through on financing.
If a buyer is considering purchasing a property that’s zoned for one type of use with intentions of using it as another, there could be issues. For instance, a buyer might put in an offer on a property that was being used as a residence by the seller, yet after an agreement is signed by both buyer and seller, a title search might indicate that the property was once used as an office space and was never actually zoned as a residential property.
If the buyer wants to use the property as a main residence, proper approvals from the local jurisdiction will be required. A situation like this can easily stop a deal in its tracks. In over to avoid such a scenario, buyers might want to verify the zoning on a property’s certificate of occupancy prior to agreeing to buy it. Of course, if the seller was upfront about the situation in the first place, such a scenario wouldn’t occur.
Once a purchase agreement is signed by both buyer and seller, the deal isn’t done yet. There are a number of other issues that may come up that will require further negotiating. For instance, it’s not uncommon for home inspections to turn up minor issues that the buyer may want the seller to either fix or pay for before the buyer takes possession. In some cases, the buyers may have legitimate requests, but in others, the demands can be nit-picky.
Buyers and sellers alike should understand that it’s typical for requests to be made, but there’s no reason why both parties can’t come to an agreement on how they should be settled. If all parties involved come into a transaction with an open mind and a realistic attitude, such issues shouldn’t have to trash a real estate transaction.
Delays with the Lender
Even if the buyer is highly qualified for a mortgage and an appraisal comes in accurately, there could still be delays with the lender. Deals can fall through if the bank isn’t able to approve the mortgage on time. These days, it can take a lot longer for a mortgage to go through compared to yesteryear, considering all of the more stringent underwriting standards and additional pieces of information that are required. With more home loan contingencies in place nowadays, buyers would be forced to back out of a deal if their banks are unable to approve financing within the specified time frame.
Buyers can help avoid this situation by ensuring that every detailed piece of information and document is submitted to the lender right away. In addition, the expiry date of the financing contingency can be extended in order to give buyers more time to secure a home loan.
The Bottom Line
Anything can happen from the time of offer acceptance to closing of escrow that can put a halt on the deal altogether. While there are obviously certain things that you have no control over, there is still plenty that you can do on your part to boost the odds of a successful transaction. Work closely with your real estate agent to obtain the necessary advice needed to make all the right moves throughout this process.