From the very first step – getting preapproved for a mortgage – to choosing a real estate agent to the close of escrow, the process is full of pitfalls.
If you’re considering the purchase or sale of a home, it’s a good idea to know what could go wrong during the process. While some problems are hard to anticipate, others happen with enough frequency that they offer lessons, allowing you to become informed and, hopefully, help you to avoid some of the biggest problems.
Choosing a Real Estate Agent
Your real estate agent is the driver of the transaction. As such, he or she will steer the transaction around common roadblocks and avoid certain pitfalls. That is, if you choose the right agent.
What happens if you don’t? Several things:
- Your house may not be priced properly.
- Your house may sit on the market longer than it should.
- If you’re buying, you may end up paying more than you should.
- A complicated transaction, such as a short sale, may have details that are allowed to fall through the cracks.
Avoid these potential problems by hiring an experienced real estate agent. When selling your home, your first concern is getting the most money for the home. An agent familiar with the area is much better able to determine market value than one from outside the area.
An agent with proven marketing capabilities will get your house in front of more buyers than an agent who hasn’t a clue about marketing. If you own a specialized home, such as a luxury home or beachfront property, or you are performing a short sale, you need an agent experienced in these types of sales.
When purchasing a home, you need a savvy negotiator in your corner – an agent who can go to bat for you and get you the best possible price on the home.
The offer to purchase is a document full of potential pitfalls. Some of these include:
- Insufficient earnest money.
- Inappropriate closing date.
- Requests for personal property.
- The buyer isn’t preapproved for a mortgage.
- Requests for repairs or allowances.
Of course, there are many, many more, but these are some of the most common. These problems are typically addressed via a counteroffer. This document says to the other party, “I accept the offer as long as the following conditions are met.” This is the nuts and bolts of negotiating, and it’s fraught with perils.
If you’ve done a good job of carefully selecting your real estate agent, this is the time to rely on him or her for advice. The decisions are ultimately yours to make, but expert advice should be considered.
The home inspection presents another opportunity for a deal to fall apart. Home repairs can be costly. Some can make you want to walk away from the deal. If you decide to remain engaged in the process, you’ll need your old friend the counteroffer to request repairs or a reduction in the price of the home to allow for the cost of repairs.
When markets change rapidly, appraisals become more challenging. When home prices began to stabilize after the latest recession, for instance, appraisers had nothing to base home values on but the depressed recession prices. Foreclosures particularly drag down values, and many homes aren’t appraising for as much as homeowners and their agents expect them to.
If you’re the seller or buyer of a home that doesn’t appraise for the purchase price, your options include:
- Reducing the price.
- Raising the amount of the down payment.
- Challenging the appraisal.
- Walking away from the deal.
Lots of things can go wrong at closing. Some of the most common events are:
- The lender pulls a soft credit report and finds that the buyer has made some large purchases, changing his income-to-debt ratio to the point where he no longer qualifies for the mortgage.
- Your paperwork is delayed by the lender and your attorney pushes the closing to another day.
- The funds don’t arrive.
- One of the parties is unhappy with the information on the HUD-1.
Not every real estate transaction has problems. In fact, most sail along smoothly. While it’s hard to hold your excitement in check, the best time to let it loose is when your agent hands you the keys to your new home.