Once an offer is accepted and escrow is opened, everyone involved works really hard to ensure that the sale closes. Buyers are put through the financing wringer to qualify for a loan and sellers start physically packing their belongings, looking forward to their next journey. When a sale unravels, everyone involved walks away with nothing to show for all the time and emotional energy they have invested into the transaction.
All agents lose a deal every now and then. The California Association of Realtors estimates that one out of every 10 opened escrows won’t close for a variety of reasons. There are just too many variables in a real estate transaction that are often beyond the control of the agents representing buyers or sellers.
Short sales have been a major source of deal killers. According to CAR, only about half of all short sale accepted offers closed escrow between 2008 and 2010. That percentage has gotten better the past two years but opening escrow on a short sale is still a big uncertainty. Last year, housing agencies Fannie Mae and Freddie Mac adopted a policy of automatically counter-offering every short sale request; regardless of how fairly priced the listing or short sale offer. The policy sent buyers walking away and outraged Realtors.
CAR President Dan Faught, addressed the issue in a recent letter to Realtors. “I, along with other CAR leadership, met with Fannie Mae in Washington, D.C., to address problems our members are having with Fannie Mae short sales. Many Realtors have reported that since this practice went into effect, the counter offers issued by Fannie Mae are above market value and are preventing short sales from closing.”
Despite the standard pre-approval letters that accompany offers, qualifying for a loan is still an uncertain arduous process. First-time buyers have an especially difficult time. President Obama addressed the issue in his State of the Union address, saying: “Too many families who want to buy a home and have solid credit are being rejected. Overlapping regulations are keeping responsible young families from buying their first home.”
Well hello! Where do you think these overlapping regulations originated from? The Dodd-Frank Bill was signed by President Obama in 2010. It is a sprawling piece of legislation, numbering more than 2,300 pages of new regulations, oversight and penalties that are strangling the lending process. The drafters of Dodd-Frank held out the promise that by increasing government control over the economy, it would promote financial stability, improve accountability and transparency in the financial system. What it has done is decrease entrepreneurial activity, increase the cost to borrowers and eliminated 200,000 private sector jobs.
Every home has issues. Fortunately, most property issues are cosmetic and don’t kill a deal. Some examples are dry rot on the garage door or window trim, a failed dual pane window seal and water damage to the bathroom floor. These common issues are easily corrected. The deal killers are the repair or replacement of expensive key components of the house like a leaking roof, heating and air conditioning systems and a failed well or septic. Unfortunately, most major deal-killer issues are not discovered until the inspection period after escrow is opened.
With a limited number of homes to choose from, multiple offers and increasing prices, buyers often feel under pressure to make a quick buying decision. Once escrow is opened they may begin to have second thoughts about their hasty decision. Did they offer too much? Can they afford to make all the repairs? How secure is their job? Buyer’s remorse is a natural phenomenon that occurs after we make a major decision. Most of us get over it and move forward but an increasing number of buyers are having serious second thoughts about completing their purchase. Most purchase contracts provide buyers with opportunities to exit the contract without the loss of their deposit.
You wouldn’t think that a seller would kill their own sale but it’s happening more frequently. For six long years, sellers have been at a negotiating disadvantage. Buyers could pretty much dictate their price and terms. When issues arose during the escrow, sellers were expected to resolve them to the buyer’s satisfaction. That’s changed. Sellers today are less accommodating. They have a new attitude that’s often “Take it or leave it.”
I nearly lost a deal because the seller didn’t have a $35 CO detector installed. The lender required one as a condition of the buyer’s loan. The seller refused to install one complaining he had underpriced his home and if the buyer’s lender wouldn’t make the loan, tough luck.
Appraisals continue to put deals in jeopardy. Lenders base their loan amount on the appraised value or purchase price, whichever is less. When appraisals are below the agreed upon purchase price, buyers must pay the difference in cash, renegotiate the purchase price with the seller or walk away.
Some sales unravel when the unexpected happens. Years ago, I lost a sale when an elderly seller had a heart attack and died two weeks prior to closing escrow. Another time, just prior to closing, the IRS filed a tax lien against the seller and his house, preventing the sale. More recently, my buyer client who worked for Intel was notified, while in escrow, that she was being transferred out of state. Although Intel reimbursed her for all her out-of-pocket expenses and forfeited earnest money deposit, I was out of another deal.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his Website at kencalhoon.com.