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Where Real Estate Deals Go Wrong
Being an agent, I see many odd things happen. Even the best-structured deals sometimes fall apart for a buyer or seller client. I think most people have no idea of the chain reaction that has to occur in order for a deal to more or less close on time. In this post, I will try to help potential buyers and sellers understand where most of the hitches occur. The following is a very quick rundown of all the items and people involved in just a normal sale. (This is a “regular sale” process.)
1) Seller lists property with listing brokerage/agent. Disclosures are made (hopefully correctly) to explain known issues regarding the property.
2) Meanwhile, there are buyers who should be PRE-APPROVED before real estate agents even begin showing them properties. Isn’t pre-qualification is enough? No, a pre-approval should be completed prior to showing. It’s pointless to show a home otherwise. Many buyers do not realize this and will not get pre-approved until they find “the perfect house.” At that point, they may discover that they cannot afford the home after all. There is a fleet of rookie and/or less skilled real estate agents who will drive buyers around all day, trying to work sellers over, thinking they’re “representing clients.” They often have no clue how to structure a deal that will allow their buyers to get the home even if they can qualify for it. This is a big problem, and I see and hear the stories every day. When I represent a buyer, I determine how much the client will need in closing costs, how much they have for a down payment, and which items will need special attention when structuring the offer. I can go on, but I think you get the idea.
3) Assuming the buyers are pre-approved, they then submit an offer. After some negotiations, a deal is struck, and the buyer will have escrow opened with earnest money that was negotiated at point of accepted offer.
Now is when many additional parties get involved.
4) A title company will start to pull what’s called “prelims,” which is the initial research done by an escrow officer to determine if there are any liens on the property to be transferred and to see if there are any other barriers that might prevent a deal from going through. If there are any liens, they must be satisfied prior to a sale.
5) Assuming the title is clean, the buyers will, at the same time, initiate an inspection period — typically 10 days. The disclosures that the seller completed at time of listing will be researched, and at a minimum, a home inspector and a termite inspector will inspect the home for issues. It’s virtually guaranteed that the home inspector will find issues with every house. It’s their job to do so, and they take on a lot of liability. Anything that seems to be wrong with the property will be flagged. This is where most FSBO’s — if they get this far — realize they are in over their heads. They will not know which items should be repaired versus those that the buyer is trying to get the seller to fix but are above and beyond what the market is allowing at the time. Sellers should consult with their listing agent to figure out the options and costs associated with these repairs.
6) After all this (if you get this far), an appraisal will be ordered by your lending institution. This is to verify that the info that was given to the bank is correct regarding the home size and price. This independent appraiser will also verify that the property truly is worth the loan amount requested. Banks want to make sure that all the info they were given on paper is accurate, and this appraisal process is how it is done.
7) Once through the appraisal process, the file for the borrower will go into what’s called “underwriting.” Here again, an independent person will review the file to make sure everything that was described to the bank regarding the structure of the loan is correct. If anything is wrong (I mean anything), it is rejected and the problem must be fixed before it will get the bank’s final approval. The loan documents are then sent back to the title company for the buyers to sign and obtain the loan. Now, even if all this happens, it does not guarantee the buyer will be getting the loan. Banks reserve the right to pull back the funding at any point until they actually wire the money to the title company, which then disperses it to the sellers.
Now assuming all this happens the right way, the buyers will be able to sign the deed and loan documents, the financing will come, and the home will be transferred to their name. Once this happens, the deed is personally couriered to the County Recorder’s office. But, even if the loan has been funded and everything is done, what if it’s completed a little too late on a Friday afternoon? What if the courier couldn’t make it to the Recorder’s office in time for physical recordation into the County Recorder’s book? If that occurs, the buyers will not get the keys to their brand new house until Monday morning (if it’s not a holiday). This is a very real problem with Friday closings, so I always try to keep buyers from closing on a Friday. It’s just too stressful.
So, there you go. This has been a really quick rundown of how things go from beginning to end. And this is the “no issues, no problem” transaction, which, in my experience, occurs in 1 out of 10 transactions. Most will require an extra step or two to get to the finish line. Many of the problems that arise in a transaction occur because a real estate agent has a limited understanding of all that needs to take place to close a deal. Many set the deal up incorrectly and harm their client inadvertently because of their inexperience. Personally, it took me over 50-75 closed transactions before I felt I had mastered (or at least come as close as anyone can to “mastering”) the real estate sale process. I cannot see how anyone without at least this much experience can be able to assist clients correctly. Now, maybe I’m just a slow learner, but in my opinion, a potential client should be sure to ask their potential agent, “How many deals have you closed?” Just because they haven’t closed hundreds of deals doesn’t mean they don’t understand things or are not a great choice for representation. However, I believe it is truly hard to learn the real estate sales process from front to back and be able to understand how all the components work together. Hopefully, this post has helped shed some light on all the events that transpire when buying or selling a house .