A signed contract by both parties to buy or sell a home within a specific time frame is not the Holy Grail in the real estate world. Buyers can flat out back out of the deal (7% of them did just that in March of this year according to the recent Realtors Confidence Index Survey) and buyers can delay the closing process of the transaction (23% such delayed closings occurred in March, 2016, again according to the Realtor Confidence Index Survey).
So what are the biggest issues that get in the way of closing real estate transactions and what, if anything, can be done to resolve those issues from ever arising?
At the top of the roadblocks to real estate closings list is the buyer’s problem of obtaining adequate financing to cover all the expenses involved with homeownership. Of the 2,500 realtors nationwide who responded to the Realtors Confident Index Survey, 23% of them reported that they faced closing delays due to buyers’ financing issues and 7% of the realtors reported that signed contracts were simply terminated due to the buyer’s inability to obtain proper financing. Other reasons for closing delays and terminations include
Home inspection and/or environmental issues – 15%
Title and/or deed issues – 13%
Contingencies in the contract – 8%
Issues involved with buying/selling distressed properties – 6%
No problems at all – 6%
Home/hazard/flood insurance – 1%
Buyer lost job – 0%
Other factors (buyer/seller backed out, price disagreement, non-price disagreement, association fees, builder delays, etc.) – 21%
There are solutions to these issues, however, and central to them is knowledge. You want your client to be prepared for, not surprised and caught off guard by, unknown closing costs. Make sure your client is aware of and understands the reasons for all closing costs such as the down payment, the loan estimate of the escrow, homeowner’s insurance, property taxes, title fees, mortgage fees, attorney’s fees, inspection fees, etc. Some of these costs may be negotiated and/or picked up by the seller however, it is crucial that the real estate agent fully educates the buyer about all possible transactional costs.
Real estate agents are well served to partner with trusted lenders and/or mortgage loan officers (MLO) prior to showing a potential buyer the very first house you’ll show them. MLOs are excellent guides in helping potential buyers get a true handle on financing costs and in helping them create realistic budgets for their housing needs/wants. By doing this before a client falls in love with a home out of their price range, you and the MLO will be doing your client a favor by narrowing down the house targets based upon “real” affordability.
Lastly, buyers need to know two things in today’s highly competitive housing market…one, a pre-qualifying letter from a lender does not automatically make their dream house their house and two, the days of a mandatory 20% down payment on a house are over. There are reputable low down payment mortgage options and closing cost credits out there for all buyers. The only way your potential buyers will know about such options is when you, their real estate agent, tells them.