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Last updated on February 22nd, 2021 at 02:01 pm
In the eyes of Realtor Deborah Baisden’s client, a 65-year-old retired banker, the renovated waterfront range in Virginia Beach for slightly below $700,000 checked all the boxes.
But Baisden, a veteran land pro whose job is to gauge properties with logic, not longing, saw issues with the house. So, after negotiating a deal a few months ago with the vendor, who also happened to be a flipper, Baisden did some detection.
While reviewing old photos of the property, she noticed that a part of the 200-foot bulkhead was eroded. The damaged area, now replaced with pressure-treated wood, looked new, she said. But a red flag went up. “I wish to dig deep,” Baisden said. So, as a part of the house inspection process, she brought in yet one more set of eyes. “My inspector went into the water at dead low water,” she recalled.
He delivered bad news. The prior fix was a band-aid. The bulkhead was rotting out below the waterline. “It has got to be completely redone,” the inspector told her—the cost: an estimated $110,000, which her client would need to pay.
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When the high cost of the fix was added to the acquisition price, the deal didn’t add up anymore. Baisden advised her client to steer faraway from the deal. The client agreed. “I had to delicately deduct her dream,” Baisden said. “Sometimes, no deal is better than a nasty deal.”
In the emotion-fueled world of home buying, there are times it makes financial sense to let a true estate deal fall flat.
Not all deals get done. One among every 16 (6%) of land deals don’t close, research from the National Association of Realtors (NAR) found.
Inspections and lack of financing were the “primary culprits.” Many deals went south because appraisals came in too low, causing either the bank or buyer to balk.
“There’s always an out when there’s a legitimate reason,” said Jay Rinehart, Jr., owner of Rinehart Realty in Rock Hill, South Carolina.
A few weeks back, Rinehart advised a client to back out of a $600,000 purchase after an inspection showed a more modern roof had been installed wrong.
While the roof wasn’t leaking, the buyer’s legal team said the improper installation voided the roof’s warranty.
Said Rinehart: “We advised them that the roof was only four years old, but the matter is you’ve got to measure with it for an additional 26 years. If it does leak, it’s on you.” His client walked.
Often, the rationale a buyer walks away is thanks to circumstances beyond their control, like having a bank withdraw funding thanks to employment loss, furlough, or divorce that interrupts an income stream to form mortgage payments.
“Recently, one among my buyers called to mention his wife has just been furloughed and that we have to stop our look for a home until she is re-employed,” Baisden said.
Another deal killer is an agreement to shop for a replacement hose that’s contingent on selling an existing home, which doesn’t happen.
The bank may additionally obtain information that puts the buyer’s debt-to-income ratio in a less flattering light. “There’s always the likelihood of something unforeseen once a lender starts to dig in and verify,” said Baisden. But, more often, buyers walk off because they’re being prudent.
Common deal breakers include:
Inspection Issues
Often, it’s detection during the due-diligence period that either makes or breaks a deal, Rinehart says.
One common reason to tear up a true estate contract is that if the house inspection uncovers bad things, like a crumbling foundation, mold and water-related issues, or shoddy workmanship. Or if the vendor won’t comply with buy pricey repairs or needed fixes.
“The buyer has got to decide if the condition of the home is something they’re willing to accept simply,” says Rinehart. If not, they will ask the vendor to buy repairs or lower the worth.
If the vendor refuses, the customer must decide if the added cost is sensible. “The buyer,” said Rinehart, “should not feel that they’re completely locked in.”
Sometimes, repairs might exceed what buyers are willing to accept or afford. “The air-con and heating unit could be 20 years old and at the top of its lifespan,” Rinehart said.
“And they could not have $8,000 to exchange it. If that’s the case, it’d be in their best interest to step back and advance to a different property.”
Low Appraisals
Buyers borrowing money from a bank to shop for a home often see deals killed by appraisals that are available much less than the acquisition price.
For example, let’s say the agreed-upon sales price is $500,000, which suggests a loan of $400,000 with a 20% deposit of $100,000. If the appraisal comes in at $475,000, the bank will only lend the customer $380,000, or $20,000 less.
If the vendor doesn’t comply with selling the house at the lower appraised price, or the parties can’t meet halfway, or the customer can’t come up with a much bigger deposit, the deal will die.
“The amount that homes under appraised often will determine whether an effect falls flat or not,” Kyle Hiscock of Re/Max Realty Group in Pittsford, New York, explained during a blog post.
“If it’s only a few thousand dollars, normally a buyer and seller can come to terms. If a home is under appraised by $10,000, the probabilities that the deal falls through will go up exponentially.” Of the deals that fell through within the NAR survey, 16% were thanks to appraisal issues.
Rinehart saw an appraisal problem recently. Despite an agreed-upon sales price of $620,000, the appraisal came in $80,000 lower.
The customer wanted the house for $540,000. The vendor said no. It seems the appraisal had some glaring errors. The deal remains pending after the customer visited a replacement bank to urge financing and a replacement appraisal.
“I don’t know the top of the story,” Rinehart said. He’s hoping the new appraisal is going to be on track; therefore, the deal can get done.
Paperwork Snafus
Buyers should consider walking faraway from a deal if document preparation for closing highlights potential problems. Some deal-breakers include title issues that put into question the true owner of the property.
Or outstanding liens, or money the vendor still owes on the property. Or missing heirs who might own a bit of the property the homebuyer wants to get.
Rinehart walked away from a deal thanks to title-related issues involving children that had ownership during a home through an estate, but couldn’t be located. There can’t be a deal “if the vendor can’t deliver title,” Rinehart said
Reference Source: USA Today
