You’ve decided to buy or sell a home. While most transactions go fairly smoothly, there are some things that can go wrong in a Real Estate transaction. Here are 5 things that can go wrong in a Real Estate transaction and what you can do to avoid them.
1. One of the parties is inflexible in negotiations.
When dealing with negotiations, it’s always best to work with your Real Estate professional. They are skilled in knowing how to negotiate. Be as close to the other party’s price or offer as you comfortably can be. Sellers, avoid wasting time with Buyers who make lowball offers just to get a bargain. Buyers, ensure that you are making a fair offer. If the Seller is pricing their home well above market value and refuses to budge on price, move on.
2. The appraisal comes back significantly under value.
When an appraisal comes back much lower than you anticipated, it can create a situation in which the lender will not approve the loan. While lenders cannot directly communicate with an appraiser, your Real Estate agent, the Buyer, and/or the Seller can.
Appraisers compare the value of a home with the comparable properties in the surrounding area, so it’s always a good idea for a Real Estate agent to provide the appraiser with information on comparable sales. Most Real Estate agents have access to Comparative Market Analysis reports.
To protect yourself, ensure that your sale contract contains an appraisal contingency that allows Buyers and Sellers to cancel the contract if the appraisal comes in too low. Sometimes, Buyers can negotiate to purchase the home for less money but only if the seller is willing to accept the lower price.
If the appraisal comes in too low, the Buyer can request a second appraisal from another appraiser. Either the Buyer or Seller can challenge an appraisal, but the challenge should be based on specific, measurable errors.
3. Closing is delayed due to missing documents, contingencies, or errors.
There are a number of issues that can cause a closing to be delayed, but most of them are preventable. Errors on documents can be as simple as misspellings or numbers that were entered incorrectly. However, even small mistakes can cost hours or even days of delays.
Ask to review all paperwork prior to the closing. Pay attention to the loan documents and double check all amounts, spellings, and personal information. Don’t be afraid to ask questions when you have them.
A few days before you close on the home, talk to your closing agent. Arrange to receive your own copy of the preliminary title report before you close on the home to prevent any title surprises.
4. Someone neglects to disclose important information regarding the transaction.
It can be holes in the walls, foundation issues, problems with obtaining documents, or other unexpected information, but if the Buyer’s agent and the Seller’s agent are working together to solve problems, there won’t be surprises during closing.
If there are issues, determine what is acceptable to you, how much it might cost, and if the other party is willing to compromise. Never wait until closing to bring up any issues. Resolve them beforehand, but if you can’t, postpone the closing until they’re resolved.
5. The Buyer or Seller decides to back out of the transaction.
Homebuyers have the option to withdraw an offer at any time until the offer is accepted by the Seller. After that, the Seller may owe a commission to the broker, and may have grounds to sue the buyer for breach of contract to recover those commission costs.
Once the offer is accepted, the contract usually binds both parties so neither can change their mind without consent from the other.
In a situation where the Buyer enters into a contract and waives all contingencies but then decides not to close on the property, the seller can agree to cancel the contract without obligating the Buyer to close.
If the Seller is under contract with the Buyer and the Seller chooses to back out, the Buyer can either agree to voluntarily cancel the contract or may have grounds to sue the Seller to obligate the seller to sell the property to the buyer at the agreed upon price in the contract.
Before the contract is created, and long before closing, make sure you work closely with your Real Estate professional and lender to verify that this transaction is right for you.