If you don’t have a lot of experience buying or selling homes, then you probably aren’t aware of the many moving parts. Not to be pessimistic, but there’s a lot that can go wrong in between the time an offer is accepted and when documents are signed at the closing table. Whether you’re a buyer or seller, the more you know about these issues, the better you’ll be able to prevent them.
No two real estate transactions are the same. They may look identical from your perspective, but there are plenty of unique factors behind the scenes. Here are some of the biggest surprises that can cause a home sale to fall through before it reaches the closing table.
One of the more common issues involved in a real estate transaction is a low appraisal from the lender. If the lender’s appraiser comes back and says the house is worth substantially less than the purchase price, then they may back out.
According to the REALTOR Confidence Index Survey for home sales between November 2016 and January 2017, 22 percent of respondents faced appraisal issues during that period. The good news is that there are a number of solutions for overcoming a low appraisal. Options include having the buyer make up the difference in cash, getting the seller to lower the price, or ordering a second appraisal (among other things).
Lenders take an individual’s debt-to-income ratio very seriously. It’s usually one of the biggest determining factors in how big of a loan someone gets approved for. And when someone gets pre-approved for a loan but fails to get fully approved before closing, it’s often because their debt ratio has changed.
When a debt ratio changes dramatically, one of two things has usually happened. Either the individual’s income has gone down or new debt has entered the picture. Buyers need to understand how important it is not to take on more debt in between pre-approval and closing.
According to the National Association of Realtors, sales to first-time homebuyers increased to 35 percent last year. That was the highest since 2013. And while that’s great news for the market, it means there’s a lot of inexperienced buyers involved in real estate transactions.
First-time buyers are much more likely to experience a failed sale than someone who has previous home ownership experience and equity. These loan applicants are also much more likely to use FHA loans, which are often heavily scrutinized and finicky.
The competitive nature of the real estate market right now means some buyers have to put in five, ten, or even fifteen offers before finally getting one accepted. As a result, there’s often a long period of time between when a buyer gets pre-approved and when they actually get an offer accepted.
If it’s been a while since a buyer was pre-approved, it’s smart to check back in with the lender to make sure everything is good to proceed.
A lot of buyers aren’t prepared for the closing costs that come with buying a house. They may get pre-approved and have the small amount they need for the down payment, but forget about the other fees. (For reference, closing costs are typically 2 to 5 percent of the purchase price.)
It’s important that buyers are provided with an accurate estimate of what closing costs will be as soon as a closing date is set so they can get the money together.
When a buyer puts in an offer for a house, they’re simply saying: “From what I can tell, I would like to buy this house.” However, virtually every offer has an inspection contingency that allows the buyer to back out if major problems are discovered.
If inspection issues come back and the seller isn’t willing to remedy the problem (or the buyer no longer has interest because of the issue), then the deal will fall through. Not all inspection issues are known, but it’s important for the seller to be honest about everything up front.
It may seem strange, but homeowner’s insurance isn’t a guarantee. Just like a mortgage, there’s a verification process that a buyer must go through in order to get approved. If the numbers don’t line up, then they won’t get coverage.
The good news is that there are lots of different insurance providers, and they each use their own approval algorithms and formulas. Trying to get insurance squared away well in advance of closing should make this a non-issue.
In most cases, the walk through on the morning of closing is nothing more than a formality. The buyer makes sure all repair work was done properly (if applicable) and that the seller hasn’t left the place a wreck. However, there are very rare instances where the house is destroyed or something has been taken that shouldn’t have been. In these cases, things get delayed.
Here’s a weird one for you. It’s possible that, even though everything lines up and all parties are in agreement, the deal won’t go through because the “seller” doesn’t actually have the right to sell the home. For example, there could be liens on the property that prevent its conveyance, or there could even be confusion about who owns the property.
Whether you’re buying or selling a home, it’s absolutely imperative that you surround yourself with the right team of professionals to ensure the process goes as smoothly as possible. At Green Residential, we have more than 30 years of experience in the Houston real estate industry and are happy to offer our clients personal and responsive service every step of the way.
From Katy to Sugar Land to The Woodlands, and everywhere in between, we’re here to service your needs. Get in touch with us today and we’ll be happy to get the process rolling.
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