According to a recent article in Forbes Magazine, there are 3 common reasons why real estate sales contracts fall through, and we are going to tell you about them.
Buying or selling a home can be a monumental task considering all the time and effort that is involved.
Buyers invest time researching neighborhoods, defining must-haves for their home, getting financial data together for their lender, and figuring out their budget. Then comes the biggest time commitment of all: looking at homes.
Sellers invest time and effort preparing their home for the market, including staging, de-cluttering, and de-personalizing. In addition, there is time spent preparing for each showing and keeping occupied outside the house when showings are taking place.
The Matheson Team has helped buyers and sellers navigate the buying and selling process countless times. Make us your “go-to” resource for buying or selling a home in the Scottsdale area. We can help you avoid the common pitfalls and get you to a successful close of escrow.
According to Forbes, nearly 90% of signed offers made it to closing a few years ago. Today, that number has declined significantly, and only 2/3rds of all contracts result in a successful close of escrow. Here are the 3 most common reasons why:
1. Buyer’s Financing – The times have definitely changed since the economy shifted. Prior to the economic crisis, it seemed as if just about anyone could get a loan. Today, with tougher lending standards, it is much more difficult for even the most qualified buyers to secure financing.
As a result, buyers should research loan options and costs, and obtain a letter of pre-approval from a lender prior to searching for a new home. In addition, buyers should gather the financial documentation that their lender will require (such as account statements and tax return copies) so that when they’ve found a new home and have sealed the deal, the loan underwriter can quickly turn the application into an approval.
On the other hand, Sellers should accept offers from buyers only when they include a pre-approval of loan letter with their offer. (While the pre-approval is limited in that it only requires the lender take a preliminary look at the Buyer’s financial state, it’s a good start.)
If you are looking for a great lender in the Scottsdale area, contact The Matheson Team. We’d be happy to recommend several to you.
2. Appraisal – A seller may get lucky and find a cash buyer who doesn’t require an appraisal. However, any financed offer will require an appraisal (and some cash offers, too.)
As a result of the financial crisis of 2008, appraisal guidelines today are more stringent than ever – to protect the financial institutions. It’s not uncommon for appraisals to come in lower than sales prices.
In the event that the appraisal comes in below the purchase price, the buyer may cancel the contract. (They also have the option of trying to renegotiate with the seller, or proceed at the original sales price and come up with a higher down-payment, since lenders will only lend based on the appraised value.)
Appraisals typically look at comparable sales (sales of similar properties) in the last 6 months in a given market area. As market values are rising, the values of the homes that sold in the past 6 months may naturally be lower than the prices of homes that are selling today, therefore causing a disconnect in the appraisal value versus the market value (the market value being the purchase price – the value that a buyer is willing to pay and seller is willing to take.)
In addition, appraisal values can be negatively influenced by distressed properties, such as foreclosures and short sales in the immediate market area.
As a buyer, you can reduce the likelihood of the appraisal coming in low by carefully analyzing the recent sales in the neighborhood with your Realtor when making an offer. If the recent sales don’t support the price you are agreeing to pay, you may have a problem with the appraisal.
At the same time, sellers can avoid a low appraisal that can “sewer the deal” by hiring an experienced Realtor who can guide them in the pricing of their home to make sure that it is realistic while optimizing their value in the current market. In addition, during the appraisal inspection, your Realtor should be there to meet the appraiser, make sure the appraiser understands all the upgrades and amenities of the home, and bring to the appraiser’s attention the comparable sales that were used to price the property.
Reach out to us for more information on what The Matheson Team does to ensure that their listings have the best chance of appraising for the sales price.
3. Delays – Prolonged periods between offer acceptance and close of escrow, Forbes reports, are also a more common cause of a deal not closing. Delays can come in several forms: waiting on a bank to accept a short sale offer, which can take months; or it may be the result of a home inspection report requiring repairs that will delay the buyers from moving in.
Another typical delay occurs when the buyer or seller requires a closing date far into the future because of the school year or any other reason. Regardless of the situation, if there are delays or obstacles, the buyer is more likely to back out and find another home.
Requiring the buyer to have some “skin in the game”, in the form of a non-refundable earnest deposit after certain buyer contingencies are removed, or when the buyer requests an extension to the closing date, is a great way for seller’s to protect against their property failing to close.
With 146 homes sold in 2013, your Scottsdale Real Estate experts at The Matheson Team know how to make sure that their transactions close escrow.
Reach out to us if we can serve you in the Scottsdale area.
Realtor | Founder
The Matheson Team – RE/MAX Fine Properties
21000 N. Pima Rd., #100, Scottsdale, AZ 85255