Why Real Estate Transactions Fall Apart & What You Can Do To Prevent It

There are thousands of reasons why real estate transactions fall apart and describing all of them could fill up a 2,000+ page book. I will focus on the key players, problems and solutions for the just the major reasons why transaction fall apart. Please read this so you understand the complexities and so that you can be part of the solution, not the problem.

Who are the 22 key players in a real estate transaction?

As you can see, there are a lot of key players that have an influence over the entire real estate transaction. So the question you have to ask yourself is: “Of these key players, who is responsible for making sure s/he understands how all the parts really work together?”.

Ultimately, you are responsible for understanding how all the parts fit together. Therefore, it is vital that you take the time to get educated so that you can make informed decisions. The most important decision you will make is which real estate agent will represent you. The real estate agent, not the company s/he works for, is the person with whom you have to rely on to provide you the information regarding how all the other parts really work together to have a successful real estate transaction.

The rest of this document will outline the problems and the solutions.

8 Problems That Can Be Solved By Using Common Sense

1. Buyer(s) and Seller(s) taking advice from people who don’t understand how the entire real estate process works in the specific area that the property is located. How can you seriously take advice from a “friend” who just read an article in the newspaper about all buyers or sellers should do “this” or “that” in order to negotiate the best price. Any general statements may not account for the specific situation in the marketplace. For example, if the market is hot and the value of the property is there or if a “hot property” comes on the market, there may be multiple offers on that property. Many times a buyer will have to pay the asking price or even more than the asking price in order to get the property that s/he wants in those situations. Also, I’ve seen more “professionals” such as mortgage brokers or insurance agents telling consumers that they also have a real estate license so they can “help” you buy or sell a house. Give me a break! How can they possibly keep up with all the changes in the law? How can they possible keep up-to-date with the inventory on the market? Will they have time to explain the critical details of the contract to you? Ask them to explain paragraphs 8, 28, 33, 34 and 36 of the eight-page C.A.R. contract to you. If they don’t remember what they are “right off the top of their head”, they are not doing enough transactions to represent you properly. By the way, this would also be a good way to check to see if the real estate agent is “on top of his or her game” as well.
   
2. Buyer(s) and/or Seller(s) not taking the time to educate themselves regarding the entire process. Usually, one or both of the principals in the transaction don’t understand certain parts of the process. Then, when the agent says that something should be done a certain way, the principal (buyer/seller) says, “that’s not the way I heard it should be done” or “when I sold my house in Virginia 20 years ago, I didn’t have to let the buyer inspect the property this way” or “I shouldn’t have to do this or pay for this”. The laws and real estate customary practices ARE CHANGING CONSTANTLY. In the last 10 to 12 years, real estate practices and laws have changed from “let the buyer beware” laws/customs to “buyer consumer protection” laws/customs. More and more, the seller(s) are having to disclose more and become responsible for more. When you hire a real estate agent, you must learn to trust that the agent knows what s/he is doing and that the agent will act in your best interests. If you don’t understand the reasons why things are being done, you must either have the agent explain the process to you or take the time to learn about it yourself.
   
3. Buyers or Sellers having eccentricities that affect the other people involved in the transaction. Everyone has their own idiosyncrasies that impact their own lives. However, in a real estate transaction, these restrictive idiosyncrasies may have to be modified so that the transaction can be completed. For example, I’ve had situations where the seller will authorize the agent to put the lockbox on the property and then, LOCK the deadbolt lock from the inside. This was done even while the owner was in the house and not answering their phone. Agents were trying desperately to get into the property with their clients to sell it. Yet, the seller kept locking the deadbolt whenever the seller felt like it. Then, when I called the seller to ask what was happening, the seller would say something like, “I just didn’t feel like having people coming through the property so I just locked the deadbolt from the inside”. Remember, when you put your house on the market, please don’t let your own personal idiosyncrasies get in the way of selling the property or having it inspected. I’ve had the same thing happen where the seller would prevent the home inspector from inspecting the property and then, only after hours of “pleading and begging” was the inspector allowed to do his job.
   
   
4. The other real estate agent in the transaction is a part-time agent, out-of-town agent or a “full-time” agent who does very little business and they ACT LIKE THEY KNOW WHAT THEY ARE DOING, WHEN THEY DON’T KNOW! Generally, I’m forced to “stroke these agents egos” so that they don’t mess up the transaction and protect my clients rights at the same time. It is a difficult balance to maintain because there are usually tough points in the transaction where I have to try to figure out the best way keep the transaction together accounting for the fact that the agent is either ignorant or incompetent. Usually, this problem is compounded by the fact that everyone is becoming emotionally frustrated. The best advice I can give when this occurs is to remember that primary objective is to move on with your life and get this transaction closed. Therefore, keep calm and just understand that we can’t change an incompetent agent. Let’s just be flexible and deal with the problems as they come up. I’ll get it closed.
   
5. The other agent in the transaction is either lazy or unorganized. Generally, this means that I will have to pick up the slack and force the process to become as organized as possible without letting the other agent know that I’m compensating for his or her lack of professionalism or laziness. No one likes to be told that s/he is unorganized or lazy. So I have to “dance around” these fragile egos so that the transaction can keep moving forward with as few problems as possible.
   
6. The seller does not get Pre-Inspection Reports from both the home inspection and termite companies. The primary reason that the seller’s don’t get these reports is because they don’t want to spend the $200 to $300 to get their home inspected. Most sellers don’t understand that the money spent on Pre-Inspection Reports will SAVE them money (perhaps thousands of dollars). The other reasons sellers give for not wanting to do the pre-inspections are things such as the buyer can get any reports that s/he wants and they can pay for it, I don’t want to spend any more than I have to pay just in case the property does not sell or my house is in great shape so I don’t need to do any inspections. When you have all the reports done up front, the seller can benefit in the following ways:
   
   A. Price the property based on “actual knowledge” of the true condition of house.
   
   B. Get repairs done more economically because you have the option to downgrade the materials used from the most expensive grade to an acceptable standard grade of materials. For example, if the termite report indicates the bathroom floor needs to be repaired and you have “coved” linoleum installation with the top of the line linoleum, you could save money by doing the repairs and then, use a standard method of installation and an acceptable standard grade of linoleum. This must be done BEFORE THE BUYER SEES YOUR PROPERTY. The buyer will see the completed repairs and not expect you to reinstall upgraded materials.
   
   C. Obtain cost estimates of the major items indicated in the report that the seller will not be able to or is unwilling to repair. This would go a long way in helping a buyer to understand exactly what will be the estimated costs of maintaining these maintenance items or repairing the deferred maintenance items.
   
   D. Strengthen your negotiating position by providing the reports to the buyer before the buyer writes the offer. Therefore, a buyer is less likely to ask you to repair any items if you indicate that you are pricing the property based on estimated repairs that are indicated in the pre-inspection reports.
   
   E. You are less likely to be surprised by the fact that the furnace is cracked, chimney is broken at the roof line, fireplace box needs to be re-built, or electrical box has been improperly wired. Also, you can deal with these problems more economically if you have time to deal with them before a buyer makes an offer.
   
   F. From a legal standpoint, protect yourself when selling your home because you are disclosing everything that you know about the property. With your own real estate transfer disclosure plus the other inspection reports, you are less likely to be found liable for hiding facts which could material effect the desirability or value of the property from a buyer’s standpoint. Even though the first five points stated above are important and can save the seller thousands of dollars, protecting yourself and your family are probably the most important reasons why a seller should get pre-inspections done up front.
   
   When you analyze the reasons why a seller should have up front pre-inspections, they outweigh and reason why a seller should not have them. It is in the seller’s best interest to get up front pre-inspections. Hopefully, all sellers reading this understand exactly the reason why. For a few hundred dollars, you can save thousands and protect yourself and family at the same time.
   
7. Any of the parties that are involved who have a “hidden agenda”, low ethical standards or who just plain LIE. Usually, the person who has low self-esteem, a poor self-image or an unwillingness to accept total responsibility for their actions will LIE. The major reasons why people lie are things such as to save face, to prevent paying money for a mistake that they made, selfishness, greed, to cover up their mistakes and to place blame on others. In every transaction, at least one of the parties, will lie about something or some process in the transaction. Usually, it has to do with trying to cover up their mistakes. This is a big problem because those people are not willing to work extremely hard to get the transaction completed in the most efficient and expedient manner. One of the primary skills involved in a real estate transaction is how to get the job done with people who have hidden agendas, poor work habits and attitudes.
   
8. The buyer and/or seller get greedy, selfish and/or lack understanding of the other party’s needs. The main objective is to get the house sold and bought so that each party can move on with their life’s plans and start achieving their dreams in life and building new memories and dreams. I’ve seen cases where someone, who was looking for her dream house for over 15 months, didn’t get the house that was priced in the $290,000 range because they were not willing to pay $5,000 more for the home (and the home was priced very well). If you amortize $5,000 spread out over 30 years at 8.5% interest rate, that’s only an extra $38 per month or just about $1.25 per day. The buyer was extremely disappointed that she didn’t get the house.
   
   I’ve also seen situations where the seller would lose a buyer that has made a fair market value offer for the property for just $2,000. Why would a seller want to keep making mortgage payments on a property that they no longer want to own? In the example I’m referring to, the property was vacant. So even if we sold the property at a price that is $2,000 higher 4 or 5 weeks later, the mortgage payment would offset the gain in price (if you can even sell it at the higher price). Regardless of whether you are a buyer or a seller, when you are negotiating make sure you evaluate your primary goals and dreams in life first, then look at your cash flow position and your cash on hand to see if it makes sense to make the transaction go together. For example, I had a seller who was 52 days away from losing her house to foreclosure and she didn’t want to take an offer that she felt was $3,500 to low. If she accepted the offer (which she did), she would come out with about $17,000 in cash when the transaction closed.

At this point, I would like to briefly discuss with you the 10 Biggest Deal Killers after a contract has been negotiated and ratified. Then, talk about the solutions to those problems. Approximately 35% of the transactions that open escrow FAIL to close. That means 1 out of 3 transactions fall apart after an offer is accepted. Thereby, disrupting the lives of both the sellers and buyers. Fortunately, most of these issues can be prevented or minimized with proper planning.

The 8 Biggest Deal Killers and How To Prevent Them From Happening To You!

1. Buyer cancels the transaction because of the property’s condition - Let’s face the facts. A seller is going to have to pay for the problems or defects one way or the other. A seller will either have to make the repairs or adjust the price of the property to reflect the property’s true condition. Also, a seller remains liable for undisclosed defects or problems after the escrow closes. There are three vital points in time where a seller has the option to deal with these issues:
   
   A. Before The Property Is Placed On The Market For Sale Seller has total control.
   
   B. When The Property Is In Escrow Traditional way and it costs seller more money.
   
   C. After The Close Of Escrow Seller finds out that legal action may be taken.
   
   The worst place to find out about the problems are After The Close Of Escrow. Most people wait until the property is in escrow to deal with the problems. Unfortunately, this option costs the seller significantly more money. The best way to deal with these issues is Before The Property Is Placed On The Market For Sale.
   
2. Buyer demands repairs that are NOT stated in the contract - Most contracts have a seller warranty/maintenance clause. The problem is that most agents never really explain to their buyers what is agreed to in the contract and what should not be expected. The best way to deal with this problem is to give all information and disclosures to the buyer up front. Then, either through a counter offer or addendum or some other means of communication, we have make sure the buyer understands what the contract says.
   
   At the same time, the seller should be aware that the least you will have to fix will be the items in the seller warranty/maintenance clause. Mentally, a seller should set aside several thousand dollars to repair problems or defects discovered during escrow. Once again, the best way to control these issues is for the seller to have all the property inspections completed before the property is placed on the market. Sellers refuse to make repairs - Sometimes sellers don’t understand what was agreed to in the contract regarding what repairs they are required to make per the contract. The problem usually stems from the seller and/or agent not taking the time to go over the contract in detail.
   
3. Remodeling or repairs done by seller without permits - I strongly advise all sellers use the company Property I.D. to research the permit history of the property. By law, a seller must disclose ALL material facts that affect the value and/or desirability of the property. When making repairs required by the contract, the contract says that you have to do the work with permits and supply a written completion notice to the buyer. Property I.D. can be contacted by calling 1-800-626-0106 and the fee for researching permits is less than $75.
   
   There are three separate issues that must be understood when making any repairs:
   
   A. Is the work/repairs being done up to the existing federal, state and/or local codes?
   
   B. Was a permit pulled when the initial work/repairs was started?
   
   C. Was the permit finalized or signed off by the building inspector after completion?
   
   I always recommend that a buyer not only get the final permits, but also have a professional such as a licensed home inspector to interpret these permits for the buyer. Obviously, the issue of concern for a buyer is that any required repairs agreed in the contract be up to existing current health, safety and building codes and the only way to guarantee that is to have the permit finalized or signed off by the building inspector after completion. The reason the permit history is so important is to protect the seller from “non-disclosure”. Almost all properties have had something done where the permits either were not pulled to begin with or the work was not signed off or finalized by the building inspector. A buyer can bring legal action against the seller for NOT disclosing ALL material facts simply by saying that the seller must have known that a certain item, repair, remodel or conversion was done improperly.
   
4. Buyers NOT qualifying for their loan - The best way to prevent this is to have the buyer talk to a lender that the listing agent respects in order to determine if their credit and income history will allow the buyer to purchase the property. This can be done when the initial offer is presented to the seller. The seller can not require the buyer to use a certain lender. However, the seller can request that the buyer get prequalified and credit reviewed by a lender that the listing agent knows and respects.
   
5. Seller CANNOT provide a clear title - There are so many things that “pop up” during the preliminary title search that create a “cloud” on the title. Many times things show up such as mechanics liens, unrecorded easements and judgments that can prevent the property from being transferred. Even if you didn’t have a problem when you purchased the property, I’ve seen problems surface because of new technology that was not available in previous years. The only way to solve these issues is to open up escrow when the listing is taken and obtain a preliminary title report. Then, do all the things necessary to be able to provide a clear title before a buyer makes an offer.
   
6. Property does not appraise at the sale price - Generally, this happens during a “hot market” or a “sellers market” and when a “hot property” is placed on the market and there are multiple offers where the property sells for more than the asking price. The lenders use “comparable sales” from the last six months to determine the value of a property. If the history does not justify the sales price, the appraiser’s estimate of value will come in lower than the sale price. This will affect the amount the lender will lend to the borrower. If the buyer does not have additional cash, the seller will have to lower the sales price or carry a junior note (if the lender allows it and the buyer is willing) in order the complete the sale. Part of the listing agent’s job is to help the appraiser by providing them with as much information as possible to help them appraise the property.
   
7. Buyers have “Buyer’s Remorse” - Buyers will always have some “well meaning” friend, relative or associate who will create doubt in the buyers’ minds. Sometimes they will “buckle” under the pressure and back out of a transaction. When this occurs, there is nothing you can do about it. Hopefully, it doesn’t happen to you. But, if it does, you will just have to put the property back on the market and find a new buyer.
   
8. Other agent does not have problem solving skills - Agents have a tendency to take sides rather than determine if there is a real problem. The first thing that must be determined is whether the problem is a real problem or not. Then, do what is right! Yes! It is easier said than done. A lot of money is at stake and that usually causes people to want to “bend” the truth “just a little bit”. Keep an open mind and we will be able to solve the problems that surface.

This Report has been brought to you by

Joe Virnig, Broker Associate
RE/MAX Gold Coast REALTORS
Office: (805)644-5005
E-mail: joe@vcres.com
Web Site: http://www.VenturaCountyRelo.com