When you get that signed agreement of sale, save the celebration until after closing. So much can go wrong between the signing of the contract and the settlement date. Approximately 25% of contracts signed today do not make it to the closing table. It's not easy for a buyer and seller to agree on terms today and to have the transaction fall apart in the process can be very aggravating. Here are 7 common reasons why approximately 1 in 4 transactions fall apart:
Mortgage Pre-approval Issues - Contracts are put together only with a mortgage pre-approval from a loan officer. Unfortunately, some loan officers are so eager to get a deal that they pre-approve buyers based on very little information. Many loan officers need to take more care in reviewing tax returns, pay stubs, bank statements, and such before issuing pre-approvals. A simple mistake like assuming the buyer is an employee when he/she is really an independent contractor can really change the dynamics of the loan.
Mortgage Processing Issues - This year we are seeing issues with the processing department of many mortgage companies; many times they are behind in asking for the necessary paperwork and sometimes they ask for the same paperwork twice. With the changing market, many mortgage processors were eliminated due to lack of work. This year, with rates dropping to record lows, their workload has increased and mortgage companies are reluctant to hire additional staff.
Appraisal Issues - Appraisers today are not finding the sold comparables needed to effectively do their job. For the most part, appraisers try to find 3 similar sold comparables within a 3 mile radius while remaining in the same school district. This can be a difficult task in a market where not many sales are occurring. Inclusions like a washer and dryer now need to be deducted from the value. In addition, banks can no longer choose their appraiser and many appraisers are working unfamiliar areas.
Short Sales - A short sale is where a seller would accept an offer less than the mortgage and the deal is contingent upon the mortgage company agreeing to the loss. Unfortunately, more than half of short sale deals never make it to the settlement table. This is largely based on the banks taking too long to approve a deal. In fact, due to the growing number of short sales, some banks have outsourced this part of their business to a third party.
Inspection Issues - With the uncertainty of the market, sometimes all it takes is an inspection report revealing a few small defects for a buyer to cancel the deal. Sellers feel they are giving away the home at the sold price and buyers sometimes look at the inspection as another option to negotiate. Inspection issues can be frustrating for both the seller and the buyer.
Title Issues - A seller must clear title to close on their home. Judgments and liens are more prevalent today and removing them prior to settlement can be a challenge and in some cases impossible.
Unexpected Issues - Most issues are visible up front, but today you can also expect more from unforeseen issues. They include many thing like: loss of job, marital / relationship status changes, buyer or seller remorse, and pre-settlement walk-thru inspection issues.
The best way to avoid these pitfalls is to seek out an experienced Real Estate professional in conjunction with an experienced Loan officer. Make sure you ask questions like how long have you been in business and ask for references. Remember, a good interest rate means nothing if you can't get the deal to the closing table!
Article written by: Daniel J. Smith
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