The Top 4 Reasons Real Estate Transactions “Blow Up”…and how you can avoid them!
If there is one truism about real estate, it is that it is always changing. I wish I could say that all real estate transactions end in success, but that is just not the case. What is interesting is that the reasons transactions fail change with the market, with regulations, with the lending environment, and even the weather! Here are four reasons I am seeing real estate transactions fail in the current market:
Buyer Cold Feet – Current market conditions including interest rates that fell coupled with a severe lack of inventory have caused prices to escalate. Some buyers are, once again, finding themselves in multiple-offer situations and feeling pressure to offer to buy at a price and with conditions that they ultimately may not be comfortable with. They realize that they have gotten caught up in the frenzy and find a way to back out. BUYERS: Do your homework so you know all the ins and outs of your offer and what will be the corresponding payment. Have a strong bottom line, stick to it, and get swept up in the buying frenzy!
Low Appraisal – If a buyer is getting a loan, the bank will order an appraisal. The appraisal will result in a value that the bank will regard as the amount by which lending for that property revolves around. For example, let’s say the appraisal amount for a property is $100,000, but the amount the buyer and seller had agreed on is $110,000 – 10% more than the appraised amount. If the lender has agreed to lend up to 80% for that property, they will only lend a maximum of $80,000, not 80% of $110,000 which is $88,000. The buyer and seller have a new negotiation they will have to settle in order to move forward with the property transaction. Unfortunately, that doesn’t always work out. This is not uncommon in our market with increasing prices to have an appraisal come in low as it may be difficult for appraisers to find enough comparable properties to support the current offer price. BUYERS AND SELLERS: Know that this issue exists and have a contingency plan for handling it.
Home Conditions - Lenders have minimum requirements that a property must meet in order to be approved for lending. There are items that are getting “called out” more – kitchen standards, flooring, windows, and more. SELLERS: You can sell your home in almost any condition, but the asking price should reflect that. Also understand that the more updates needed, the fewer buyers will be able to qualify. BUYERS: Ask your lender for a list of the dealbreakers for your loan type if you are looking for a property that will allow you to build sweat equity.
Insurance Issues - You might have heard the insurance industry has been struggling. Wildfires, floods, and rising building costs have made the insurance industry tighten their belts. If you had purchased a property in the past, it may not have been an issue to get homeowners insurance. However, some insurance companies are pulling out of certain areas entirely (areas of California and Florida have made the news) and other companies have increased their rates considerably which can result in sticker shock. BUYERS: Contact your insurance company before buying and see if there are challenges with your preferred buying location or type of property.
Transaction challenges are not new, but working with an agent who is proactive and can coach you through particular challenges before they happen is the key to transaction success!