What are the biggest threats to real estate closings today? Perhaps even more importantly, what can be done to mitigate any threats that could be aimed in your direction?
Buyers, sellers, renters, agents and other vendors and professionals involved in the process can all be seriously impacted when real estate deals fall apart. It can hurt the companies involved and ultimately harm the industry, as fewer affordable options are available to consumers. The buyers, sellers and any tenants that live in these properties can also be hit hard financially when deals disintegrate. So how can the fall out rate be reduced to secure more successful real estate closings?
The Biggest Threat To Real Estate Deals
By far, the most significant threat to real estate transactions is access to mortgage loan credit. Ben Bernanke, who was head of the nation’s banking system until a few months ago, just admitted even he has been turned down for a refinance on his home. This is a guy that can make $250,000 an hour for speaking, and ought to have some pretty good connections.
The National Association of Home Builders just reported that U.S. builders lost almost 19,000 transactions in just 6 months due to mortgage credit being too tight.
According to a new survey by the National Association of Realtors (NAR), its members who failed close a single sale in August named home buyers being unable to obtain financing as their top reason. Eleven percent of respondents said buyers not only couldn’t get a home loan, but gave up on the home search. This follows 6 months of similar reports in which close to 10% of home buyer clients left the market due to inability to get a home mortgage.
In fact, totaling all of the reasons for deals not closing, 35% of failed real estate closings in August 2014 could be attributed to tight credit and financing issues.
Appraisal Issues Still Plaguing the Market
Four percent of real estate deals fell through due do “appraisal issues” and problems. When 4 out of 10 deals are cut short, mid-process, due to appraisals it presents a substantial issue. Far more offers and deals need to go into the pipeline than need to be counted on closing in order not to come up 40% short on income. It also presents a substantial risk to buyers and sellers that won’t know if this is a deal killer until half way through.
Price Negotiations
Eleven percent of deals were reportedly lost due to inability to agree on price. This may be surprising to many considering how badly many need to sell. It could highlight further issues with wildly inaccurate online home valuation tools, as well misconceptions about how high prices have actually risen, or not.
Lost Bidding Wars
Eight percent of those involved in the report acknowledged that bidding wars were the reason they lost a deal. Depending on the competition, some investors were just priced out of the deal – it is as simple as that.
Home Inspections
According to the report, 3% of deals failed to close because of home inspections. This can be a result of homes not being up to par once viewed, or often that lenders refused to make loans are becoming aware of property issues.
57 Other Reasons!
The report also suggests that 57% of most transactions fail to close because of “other” reasons. This highlights just how much of the transaction can depend on what happens after contracts are signed. Far too many hone in on the goal of just getting a contract inked. This is where the process really just begins, not ends in the majority of scenarios.
Overcoming the Threats to a Successful Real Estate Sale
Clearly, getting educated about the process, and being aware of the potential hiccups and roadblocks is the first step towards successfully structuring and navigating the buying and selling of real estate.
With financing being such a sticking point for regular home buyers, many may want to turn to alternative methods of funding. This could be seller financing, crowdfunding or other forms of borrowing. However, it is important to note that mortgage financing appears to be significantly easier to come by and close with for real estate investors. From 100% transactional funding, to hard money loans and new buy to rent lenders, investors have far more choices and less struggles than regular home buyers and owners.
Getting a better handle on the mortgage financing process in advance can help save many too. Buyers need to know how little a pre-approval letter means, and all of the things they should and shouldn’t do between applying and closing in order to make a pre-qualification stick.
Title and lien issues can also be major challenges today. Often these won’t come up until the last moment.
For now, many homeowners are better off simply selling to a qualified real estate investor who can offer cash and a fast closing.
