Why Some Real Estate Deals Slip Through the Cracks
After a purchase contract is drawn up between a buyer and seller, it may seem to be the appropriate time to bring out the champagne. However, a long road is still ahead filled with bumps that could derail the sale. It used to be that 90 percent of all purchase contracts went to closing, but that number has slipped to two-thirds of all deals, reported in a Forbes article, “Top 3 Reasons Real Estate Deals Fall Apart For A Seller.” From the inspection to the buyer’s financing to the professional appraisal, there are a lot of areas where a deal could slip through the cracks. By being informed of these possible problems, a seller or buyer will be more prepared to handle a setback and potentially save the deal.
The inspection is one of the first potential deal killers that buyers and sellers can encounter. “Looking under the hood” reveals structural, mechanical and aesthetic issues. According to the Chicago Tribune’s “When good deals go bad”, in today’s market, sellers are expected to adhere to home purchasers’ laundry list of items that they want fixed when the home is in less-than-perfect condition.
“Say a buyer notices some missing caulk around a vent and wants it fixed,” said Dean Moss of Keller Williams Realty Partners in the article. “In a stronger market, a seller would say, ‘Caulk your own vent.’”
A surefire way to create tension between the two parties and kill a deal is becoming fixated on these minor home repairs. Both parties should be engaged in a “give-and-take” method to avoid alienating the seller and to continue encouraging the buyer.
Prior to 2008, some lenders were approving loans to many unqualified borrowers. Today, securing financing is much more difficult and daunting. To avoid wasting time with an unqualified buyer, sellers should only be in discussion with buyers who have a pre-approval letter from their lender. However, the letter is only a preliminary glance at a buyer’s portfolio; nothing is set in stone yet. After a lender scrutinizes the loan application, a buyer could lose their financing and the deal.
Prior to closing day, the home undergoes an appraisal by a certified professional, unless the transaction is a cash buyer. The appraisal is one of the final steps where the deal can crumble as it is a source of financing problems and buyers can still legally exit a deal.
A lower appraisal brings problems for sellers and buyers, because a lender will not loan a buyer more money than what the home is appraised for. After a lower-than-expected appraisal, a seller could refuse to lower their price to the appraised value in which case the buyer may be unwilling or may not have enough funds to pay the difference. A seller could also try to renegotiate with the buyer, which may result in an unattractive deal for the seller who may just abandon the deal.