The high reported cancellation rate (31 percent) doesn’t mean that nearly one of every three of all signed contracts is falling apart, according to the association, but rather that more than triple the number of agents and their clients are running into deal-endangering problems compared with 2011. If you are a potential buyer or seller in an otherwise improving marketplace, you need to be aware of the issues that are hampering sales, and be prepared in advance to deal with some of the most prominent.
Tops on the list:
●Appraisals below contract. You may assume that the true market value of a house is what a seller and buyer agree to in a binding contract, but it’s not. The appraiser hired by the bank may come up with a different opinion of value — significantly below what was agreed between the parties — and this is occurring with far greater frequency today than in previous years. Part of the problem is the excessive use of price-depressed foreclosure sales chosen as “comparables” to value non-distressed houses under pending contracts.
In addition, some appraisers are inexperienced and unfamiliar with local pricing trends, and they go far beyond their normal duties.
For example, Risa Bell, an agent in Boston for national broker Redfin, recently represented purchasers of a bank-owned property being sold “as is.” An appraiser for the lender not only detailed a long list of needed repairs to the house but also said the deal could proceed only if the prospective buyers spent thousands of dollars fixing up the house before — not after — closing. Along the way, frozen pipes in the unheated house broke and a contractor hired to do repairs filed a mechanic’s lien requiring payment before the title could be transferred. All of this combined to kill the financing and torpedo the closing, but the buyers ultimately were approved by a second lender using a different appraiser, who made no such demands for repairs in advance.
●Ultraconservative underwriting and documentation requirements. It’s no longer just towering credit score minimums, hefty down payments and mind-bending paperwork submissions that get mortgage applicants turned down. “It’s a lot of other stuff, too,” said Melissa Zavala, broker and owner of Broadpoint Properties in Escondido, Calif. Increasingly she’s been running into regulatory snags and restrictive underwriting rules at FHA, Fannie Mae and Freddie Mac that knock signed contracts off the tracks or at least delay them for months.
For instance, FHA’s toughened rules on condominium sales — limits on the percentage of residents in the entire project who are delinquent on their condo dues, plus controversial requirements for “recertifications” of condominium developments that many condo boards find costly and burdensome in terms of legal liability — are making units in those communities difficult to get financed, no matter how well qualified the purchasers. Little-publicized recent changes in FHA rules on loan applicants who have outstanding collection accounts buried away in their credit files “can force you to take three to four months to clean up” through mandatory repayment plans, Zavala said in an interview. By that point the contract may well have gone bust.
●Poor service by lender staff. Agents in the survey identified “lack of customer service” and “generally bad attitudes” as contributing factors to delays and some contract failures. But Zavala said realty agents themselves need to be on the ball when loan processing deadlines begin to slip or communication breaks down with lenders. “Agents can be part of the problems” — and the solutions — in moving the financing along, she said.
Bottom line: If you seriously want to go to closing on a house you’re buying or selling, make sure you know all the key rules and requirements upfront, then stay on top of the lending, escrow, title and real estate professionals assigned to your transaction.
And don’t give up if your deal runs into complications. There are more of them out there than usual.
Ken Harney’s e-mail address is email@example.com.