Last week my column focused on walk-away buyers. A new survey by the National Association of Realtors discovered a surprising number of buyers were failing to close their escrows. Some deals fell through because of low ball appraisals, some because qualifying for a mortgage is increasingly difficult ,but many Realtors reported buyers are simply having second thoughts about closing their escrows.
It’s not surprising that buyers once in escrow are feeling a little uneasy. Consumer confidence is at historic low levels with two-thirds of Americans thinking our country is on the wrong track. Economic indicators are not looking good with unemployment persistently high, a volatile stock market and it appears the federal government has wasted billions of taxpayer dollars on failed attempts to revive the housing market. During normal times, closings escrows can be challenging, but when our current economic and political climate seems to be getting worse, more buyers are having second thoughts about their commitment to buying a home.
So what’s happening?
In a seller’s market there is greater demand than product. Sellers have the upper hand in pricing their homes and in the negotiation process. Sellers naturally develop an attitude. After all, it’s their home and if someone wants it, then they will “darn well meet my price.” If issues are discovered during property inspections, often a seller’s attitude has been “take it or leave it.”
In a buyer’s market, weak demand and too much inventory puts the sellers at a negotiating disadvantage. Now buyers develop an attitude. They expect to buy a near perfect home at the lowest price possible. If issues are discovered during the inspection period, buyers expect the sellers to fix the problem. When sellers are financially unable or unwilling to correct the issue, some buyers are canceling escrow. Here’s why.
Once in escrow it’s natural for buyers to start questioning their decision to purchase. Are they paying too much? Can they afford the payments? How secure is their job? Is the home well built? These questions can continue even after closing. Eventually, buyers take mental ownership and accept the fact they own the home.
However, during escrow, buyers are very susceptible to a symptom called “buyer’s remorse.” They begin to feel they may have made too hasty a decision. During times of economic prosperity when the economy is expanding and home values appreciating, these feelings are marginalized. But during economic turmoil, buyer’s remorse is magnified. Every bit of bad economic news reinforces the buyer’s suspicion that now may not be the time to buy. When unexpected surprises arise during the escrow, stress levels are elevated, sometimes pushing the buyer over the edge. This is often reflected in their unwillingness to compromise, open hostility and sometimes walking away from the deal.
Sellers can assist their agent in holding on to their buyer until closing by utilizing a few simple human engineering techniques.
If the occasion should arise, sellers should meet the buyers. Perhaps there is some commonality between them. Buyers often have questions about the home’s history, neighbors and schools that can only be answered by the seller. If an issue develops during the escrow, it’s more easily resolved when the parties know each other or have mutual interest.
Several years ago I was representing a retired butcher who was selling his older home. The whole house inspection wasn’t going well. The inspector was pointing out more issues than the buyer was prepared to accept. The buyer appeared anxious and upset. Then unexpectedly the buyer asked my seller, “Are you going to leave your large potted Sego palms?”
The potted palms were not included in the purchase. I was about to speak up; defending the seller’s right to remove his prized Segos when my client touched my arm to silence me. He asked the buyer if he would like to have a Sego or two. Then the buyer and seller began walking around the yard talking of Sego palms. Later, I question my client as to why he was giving away his Segos. “Always give the buyer something a little extra. It makes them feel good and they come back.” The buyer did and the escrow closed.
Many sellers mistakenly believe a large earnest money deposit is a guarantee of holding onto a buyer during escrow. Deposits, regardless of their amount are largely for display. Standard contracts have a number of contingencies favoring buyers, allowing them to pull the plug at most any time up until their loan is funded. Lacking a clear default by the buyer, they seldom lose their deposit. It’s better for sellers to have shorter time frames for the buyer to remove their inspection and loan contingencies.
The more money the buyer invests during the escrow period, the less likely they will walk away. If the contract calls for the buyer to pay for the appraisal or any inspections, the seller should insist they are completed as early as possible.
Buyers have a greater sense of commitment to closing the escrow if they know the neighborhood. Often the location can compensate for a home’s deficiencies. When buyers are made aware of all the benefits the community has to offer, they begin to focus less on the specific house and more on the area.
Educating buyers as to the benefits of homeownership and advantages of a particular property don’t stop once escrow is opened. Skittish buyers require positive reinforcement as to their decision up to and sometimes after closing.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his web site www.kencalhoon.com.