· The home inspection reveals some nasty surprises.
Unexpected termite damage is bad, relative to your threshold for doing repairs, but you can still save the deal.
Though most inspections are not technically pass-fail, when your pest, property and roof inspections collectively come out either squeaky clean or tragically terrible, the decision to move forward or back out is easy. Similarly, when you get the place at a discount because it “needs TLC,” negative inspection findings are much easier to swallow.
But, when you get surprising inspection results that are not automatic deal-killers, but still bad — relative to the price and age of the property and to your threshold for doing repairs — things are not quite so simple. So you end up with a $30,000 pest repair bid in your hand plus a day or two to remove your contingencies on your absolute dream home. Panic sets in. Add the disappointment that you might lose your dream home with a little dash of desperation to find solutions. Can the sellers come up with that cash? If you buy it, where will you come up with the repair money? Lots of questions, fewer immediate answers and even less time to figure it all out.
Don’t panic. Instead, get systematic and take the following steps to gather all the information you’ll need to make a reasoned, deliberate decision whether to buy or back out when you get bad inspection results.
Have your Realtor request an extension of your contingency or objection period to take some of the pressure off while you collect more information.
1. Immediately assess, in your own head, how much work you are willing to complete after close of escrow, considering both cost and inconvenience.
2. Collect at least three contractors’ bids for the repair(s) at issue — for your own information and to increase your credibility in your renegotiations with the seller. If the pest company bid on wood or plumbing repairs, get competitive bids from a general contractor or plumber. Cutting out the middle man will almost always cut down the costs. Ask your property inspector whether any of the repairs can be done over time or legally completed by an unlicensed handyman. You can reduce the costs of repair bids by sometimes 30 percent or 40 percent this way.
3. Through your Realtor, approach the sellers with a request for them to pay a closing cost credit to free up some of your cash for post-closing repairs, to complete some repairs or to reduce the price — in that order. Prioritize the strategies that would result in the repairs actually being completed, saving a price reduction as a last-ditch effort.
4. Once your renegotiation with the seller is done, assess whether you are satisfied with the condition of the property given the final terms of the purchase, including any credits, repairs or price reduction agreed to by the seller. This will direct your decision on whether to move forward with the deal, assuming all the other elements of your decision are in favor of removing contingencies.
Often these days, t
he seller simply isn’t in an equity position to budge at all. If this is the case, you may or may not still be willing to move ahead, having gotten reduced bids or a better understanding of how you can schedule the repairs over a long period of time. Whether you move forward or decide to find another dream home, you will be able to rest easy knowing that you maturely and rationally worked your way through the bad inspection results.
· Your home loan falls through during escrow.
This can happen, especially in today’s market with lending guidelines constantly changing. Take a breath, focus and act quickly.
You worked for years to improve your credit score. You saved every penny you made and then moved in with your parents to save a few more. You surfed real estate listing sites. After all that, you were finally awarded the distinction of being pre-approved for a mortgage. Fast forward through the house hunt, and past inspections, disclosures and all that jazz. The end is in sight. Then, the unthinkable happens — your loan doesn’t get final approval.
How could this happen? Loans “fall out” occasionally, when lenders go out of business, lending guidelines change abruptly, the buyer’s credit score or income changes between pre-approval and escrow, or the property doesn’t appraise at the purchase price. This however, doesn’t mean that you just lost out on your dream house.
You have a very short period of time to regroup and reposition yourself to close the deal. We’ll assume that you have not removed contingencies or allowed your objection period to expire just yet. So the issue is not that your deposit is at risk so much as that you need to secure a mortgage if you want to buy this home!
It’s time to flip the switch from panic mode to project mode, to determine whether — and where — you’ll be able to find the funds you need.
First, ask your mortgage professional why your loan fell apart. Then,
1. If the issue was the appraisal, work with your Realtor to ask the seller to reduce the purchase price.
2. If the issue was a change in lender guidelines, ask your mortgage broker whether she can submit your application to other lenders or whether another loan option is available that her company doesn’t offer, but might be able to refer you to.
3. If more down payment funds are required, either because your debt-to-income ratio is too high or your lender’s guidelines have changed, investigate whether you might qualify for any Down Payment Assistance Programs (DAPs) offered by your city or state. Ask your Realtor and mortgage broker to help you identify any DAP funds you might be eligible for.
4. If you’re still searching for down payment funds, explore whether it’s possible for you to borrow from your retirement accounts or ask family members for gift money.
5. If your credit score has dropped, review the report to ensure that no erroneous or fraudulent entries are dragging your score down. If so, ask your mortgage professional how best to go about quickly correcting the report.
You may also ask your Realtor, mortgage pro and even your personal banker if they can think of any other financing alternatives.
If all that fails, it might just mean this home is not meant to be yours. As hard as that might be to hear, it’s all a matter of perspective. You are fortunate to have encountered this snag while you could still bail from the deal by exercising your loan contingency. Then, you can go back to the drawing board, either house hunting at a reduced price range or taking care of the items necessary to put you back in position as a qualified buyer.
It’s usually best to work with a mortgage broker, rather than with a mortgage representative who works for a single bank. Mortgage brokers work with multiple banks and have the widest range of loan programs to offer as backups in case Plan A implodes.
· You get outbid for the house you want.
Well-maintained, competitively priced homes in desirable neighborhoods will spark bidding wars. Be prepared.
The headlines all scream, “no one’s buying,” “homes are sitting on the market,” “great buyer’s market.” So you take a deep breath, embrace your inner contrarian and decide to buy when everyone else is selling. You make an offer on an entry-level home and realize that, apparently, someone else read the paper and decided to buy now too, because there are 14 other offers, and you get outbid. Thinking that’s a fluke, you try again, and get outbid again. And then again.
Losing one or two homes to multiple, competitive offers is just par for the homebuying course and can happen to anyone in either a buyer’s or a seller’s market. Lose more than that and panic starts to set in. Have you already been priced out of the best buying opportunity ever?
While some areas have already bottomed out, there are many good deals to be had almost everywhere. In most areas, the buyer’s market has moved the entry level price point significantly lower. For this reason, there is a lot of activity in that price range, and increasingly, multiple offers on homes in nice neighborhoods and good condition.
Ditch the panic and fear that you’ve missed out. That’s the quickest way to become a desperate house hunter, which can cause you to make impulsive and just plain wrong decisions — unwise compromises, settling for the wrong place or even throwing money at a home that’s not really worth it.
If you have been outbid several times, take the following steps to break the cycle:
· Stop making lowball offers. You have good taste, right? Okay, then if you like a house, it’s not that bizarre that someone else will too! If you are making offers on a very desirable property or one that has just come on the market, you might need to make an offer at or even above (gasp!) the asking price! When you compare even an over-asking offer to what you might have had to pay for the same property several years ago, you’ll see that the value is still there.
; Rethink what your “market” is and rely on your Realtor’s local market knowledge. Real estate markets are super local. That just means that market dynamics, like overbidding and multiple offers, vary from state to state, city to city, and even by neighborhood within the same city. Don’t use the national news to direct your offer strategies. Look to your Realtor to see what is going on in the neighborhoods that you like. Before you make the next offer blind, ask your Realtor to find out from the listing agent if there are multiple offers, how many there are and what offer points are particularly attractive to the seller.
· Reevaluate your house hunting strategy. Analyze the recent sales that you lost out on, with your Realtor’s help. How many days were those homes on the market? How high over asking did they go for? Look at homes in a lower price range or be willing to offer more in your current range to be competitive in a multiple offer situation.
· Redefine success. Recently, buyers started defining successful homebuying by saving thousands of dollars off the asking price — an asking price which was totally abstract and set by the seller in the first place! Recently, sellers have gotten more realistic about pricing and buyer demand has started to creep up. So, get — and stay — clear on what success would mean to you. Do you have to pay less than asking to be successful? Or do you just want to obtain a property that suits your family at an affordable price and with a mortgage that you can sustain over the long term?
· Your Realtor quits and leaves you hanging.
Real estate agents often juggle several clients at a time, and some do a better job than others. Know what to do if you get dumped during a deal.
Plummeting home prices, the slowdown in sales and their own adjusting mortgage payments have made making a living as a Realtor tougher than it has been in years. Many Realtors are being forced out of the profession.
So what happens if your Realtor quits the business during your deal? Or just quits you? Well, that depends on where you are in your homebuying process. (As an aside, most Realtors who decide to leave the business will have a trusted Realtor colleague step in to work with their existing clients.)
The most common time frame for Realtor flight is during the house hunt. Once you’re in contract, the average Realtor will see your deal through, as they have already done the hardest part of earning their commission. On occasion, though, Realtors have been known to quit the biz or their buyer during an interminable short sale escrow, while waiting on the sellers’ lender’s response to your offer.
So what’s a smart homebuyer to do in the event you get ditched by your Realtor?
About the worst thing that could happen to you as a buyer would be to have a Realtor you don’t like, don’t trust or continually butt heads with. So instead of feeling rejected, feel gratitude that your Realtor opted out of your homebuying experience before any damage was done.
Do try, though, to get clear on why you got fired in the first place. If your Realtor just left the business, that’s certainly no fault of yours. But if you were unable to successfully buy a home for a very long period of time and you were constantly disregarding the well-founded advice of your Real
tor, you may want to consider whether you had any responsibility in driving the Realtor to quit. Responsibility is the ability to respond. Owning up to your role in your Realtor’s defection empowers you to do things differently on the next go round.
If it happens during a deal, approach the Realtor’s managing broker for representation through closing. If the broker demurs for any reason, you have the option of hiring a real estate attorney to represent you for the rest of your transaction and to negotiate with the broker to pay the attorney’s fee out of the buyer’s broker’s commission.
If your Realtor drops you before you go into contract, or even if you simply don’t feel your Realtor has your best interests at heart, hire another one — and quickly! Don’t lose momentum. If you have signed an exclusive buyer’s broker agreement, make sure you get it canceled — in writing. Don’t talk to their broker or beg them to stay. You really don’t want to work with a Realtor who has less than their whole heart in it. In fact, you need to know with certainty that your Realtor has your back in a big way and lets you know how delighted they are to work for you.
When you first select your Realtor, do so very carefully. Prioritize professionals who you learn about by referral and who work as full-time Realtors. These folks treasure their professional reputations and are much less likely to quit without proper notice.