Nothing is more disappointing than thinking your home sale, or purchase, is a done deal, only to have it crumble in the final stages of the process.
Numerous triggers can collapse a closing, including title-insurance surprises, buyer-financing rejections, inspection failures, and low-ball appraisals. Even buyer’s remorse can sour a deal. Luckily, buyers and sellers who are aware of the more common deal-breakers can prepare ahead of time to either avoid major issues or work around them.
Once a buyer and seller agree on the general purchase terms, like price and timing, they must still settle a slew of details and confirm key stipulations. This is the time to remember home-selling’s most important caveat: Anything can happen in escrow.
1. Avoid Buyer Financing Woes
During the housing market boom, buyers rarely struggled with getting loans. Mortgages were free-flowing and buyer financing had rarely been a concern. But times have definitely changed.
Lenders significantly tightened their standards since the housing market bubble burst, and they’re intensely scrutinizing a borrower’s ability to repay. Loan applications are rejected much more often than in years gone by. Today, buyer-financing trouble is among the biggest sale-killers.
Sellers can brace for this setback in several ways. First, look for buyers who already have pre-approval. (And buyers, get pre-approved!) Those buyers can still get rejected in the mortgage-approval process, but they’re more likely to land a loan than those without the initial credit screening. You can also favor cash-only buyers who don’t need financing, but beware that cash buyers often demand a lower price.
Second, check in with agents while the approval process is underway to make sure the loan is on track; that way, you’re aware of financing concerns earlier.
Finally, sellers who are really intent on closing the deal can work with the borrower toward a more affordable contract price within their financial means.
2. Prepare to Negotiate After Low Appraisals
Like buyer financing, low appraisals once were rarely a a concern in the closing. Now, with home values having proven they can indeed decline, more and more appraisals are lower than the contract price — causing the deals to fall through.
A buyer’s lender will only lend up to the value of the property. So if an appraisal places the value of the home lower than the agreed amount, then the buyer cannot secure the full mortgage. While borrowers can pony up the difference from their personal finances, a lower-than-expected appraisal is usually a deal-breaker.
In these cases, sellers must be ready to negotiate and be willing to lower their price if they want to close immediately.
Or, sellers can suggest that the buyer secure a second appraisal, which could be higher and help the buyer qualify for the full mortgage. Sellers can help the buyer supply the appraiser with evidence of a similar home sold at a similar price to make the case for a higher value.
3. Title Insurance and Home Inspection Surprises
The purpose of title insurance is to ensure the owner’s home is fully their own to sell. Lenders require title insurance to protect the asset — the home — that secures the loan.
If a homeowner defaults on the loan and a faulty title reveals that the home is not actually theirs, the bank has no way of recouping the money it lent. Sellers should already be aware of any liens on their property, but to stave-off surprise loan issues, don’t wait for the buyer’s title report. Get your own report in advance to make sure the property is fully in your possession with no threat of claims.
The same goes for home inspections. Many home sales fail to make it to closing if the buyer’s inspection reveals serious physical faults with the property. Sellers should be aware in advance — before the buyer’s inspection — of any significant flaws in their home that would jeopardize a closing.
4. Watch For Signs of Buyer’s Remorse
For buyers, the entire home purchase process can be very emotional. They’re investing a substantial amount of money in what they hope is their dream home. They have to live with the house and the community every day. And sometimes, they just get cold feet.
Unfortunately, there is little sellers can do to eliminate buyer’s remorse but they can be on guard for buyers who seem especially anxious about negotiating a deal. When you have the option, favor more enthusiastic, confident buyers.
5. Don’t Hinge a Deal on Buyer’s Home Sale
Finally, home sales also can fail when a buyer’s own home fails to sell. Many buyers need the equity in their current home to purchase a new one. While the housing market has gained momentum, buyers’ home sales are not guaranteed.
Avoiding this deal-breaker is easy: Don’t allow the sale of a buyer’s home as a contract contingency. Instead, target buyers who have already sold their home, or who aren’t relying on the equity in their current home to help them buy yours.
For more information, contact The Mazza Team