keeping home sale contracts togetherThere was a time when a home seller’s biggest challenge was getting a buyer to step up and make an offer with terms that the seller was willing to accept. In today’s market, however, getting an agreed upon purchase contract puts you only halfway toward your goal of selling your home. The process of getting from contract to closing is fraught with more challenges than ever, resulting in more sales falling apart long before the homeowner gets to the closing table. In Illinois, buyers can cancel their purchase contract during attorney and inspection review without providing a reason, meaning sellers sometimes never learn why their sale fell apart.

There are many factors that may cause a contract to unravel. Understanding what they are and how some can be avoided can help prevent disappointment down the road.

Change in Buyer’s Circumstances

Unfortunately, in this economy, people are taking pay cuts and losing their jobs on a regular basis. A thoroughly researched pre-approval letter cannot anticipate this possibility. A change in job status can disrupt a buyer’s desire to buy and their ability to obtain a loan. The stress of the economy has taken its toll in other ways, including causing marital problems and exacerbating mental health issues, which our team has seen firsthand can prompt buyers to back out of their purchases.

Inspection Issues

Buyers in today’s market are more skittish than ever, and with more properties on the market, they have no reason to “settle.” Therefore it is critical that sellers make sure their home is in top condition before their buyer brings their home inspector through. It is much more difficult to get a buyer back to the negotiating table after they have lost confidence in the home they are buying. In the case of a problematic inspection, buyers are as likely to cancel their contract and keep looking as they are to negotiate. For that reason, sellers should consider investing in a pre-listing home inspection. The cost of the inspector’s fee (and making necessary repairs in advance) is minor relative to the cost of losing your buyer and needing to start over again.

Condo Association Issues

If you are selling a condo or a co-op apartment, it pays to work with your property manager or association president to obtain all the documentation your buyer and their lender will require in advance of putting your home on the market. This includes more detailed information than ever, and sometimes it can take weeks to put together. If you wait to collect this information until after you are under contract, there is a good chance you will delay your ability to satisfy your contingencies and get your buyer’s loan approved. Delays can be toxic as they may cause buyers to lose confidence in the building and the quality of its management. Worse yet, you and your buyer may find a surprise weeks after you are under contract that kills your deal but could have been managed with notice.

Below is a list of information you should provide to your agent:

-        Condo declaration and by-laws (and any amendments)

-        Association Rules and Regulations

-        Move-in and move-out protocol (if separate from Rules and Regulations)

-        Buyer’s Sales Package (application, transfer fees, etc.)

-        2 years of association budgets

-        12 months of board meeting minutes

-        Reserve fund balance. Lenders are looking for at least six months of operating costs in your association’s reserve account.

-        Statement of recent and planned capital projects and/or special assessments

-        Statement describing litigation, if any. If there is a lawsuit pending, the association must have reserves or insurance coverage available to manage the damages being requested. If the association is suing someone (e.g. the builder) and it involves repairs/improvements, the work must have been completed or the association must have the funds in reserves to cover the cost of the repairs.

-        % of units that are leased. Lenders don’t want to see more than 25-30% owned by investors.

-        % of units owned by a single entity. No individual can own more than 10% in any association unless the association is new construction/a new conversion where the developer has yet to sell the remaining units (in which case you should call your lender directly). The concern is that if the individual owning the units has financial difficulties, it will translate into difficulties for the association.

-        % of units that are delinquent in their monthly assessments. This should not exceed 15% of the total.

Even after providing this information to your potential buyer, you should expect that the buyer’s attorney will request an official “22.1 Disclosure” and that the buyer’s lender will have a separate questionnaire. Both forms will need to be completed by your building manager or condo association president.

By receiving and reviewing all the association information in advance, you can anticipate and potentially solve objections. For example, if more than 15% of the homeowners in your association are delinquent in paying their monthly assessments, your buyer may have trouble getting a mortgage. It would be in your best interest to work with your association to try to get more people current. It is in everyone’s best interest to cure this problem because if a buyer cannot finance their purchase, then it will narrow the pool of qualified prospects and reduce property values.

Communication Issues

In Illinois, buyers and sellers are represented by attorneys. Their job is to negotiate modifications to the contract as well as inspection items, to obtain and review title, reconcile closing costs, and handle other legal matters. It is very important that you use a local attorney who has expertise in residential real estate closings. We have seen sales fall apart because the buyer or seller’s relative who is a lawyer but who specializes in some other area of the law is handling the transaction “as a favor” and instead costs them the sale.

It is also critical that your attorney communicate regularly with your real estate agent.  I have a small number of attorneys who handle the majority of my team’s sales each year. The reason we highly recommend these attorneys is because we know we can rely on them to represent our client’s best interests in an intelligent and timely manner. We also have confidence that they will keep us “in the loop” so we can work together to solve potential problems before they escalate and cause a sale to fall apart.  In this day and age, that means an attorney who regularly uses email in his practice and knows how to quickly transmit documents.  As an agent, my worst nightmare is when my client engages an attorney who is not a team player, and I find out after the fact that the attorney has either dropped the ball and failed to communicate with the other side or communicated in a manner that caused the sale to break down.

Appraisal Issues

Gone are the days when appraisals automatically come in at the sale price. It is critically important that sellers and their real estate agents work together to make sure that the appraiser has as much information as possible to support the contract price.

Your real estate agent should meet your appraiser at your home and bring along property listings for recent closed sales and active competition that support your sales price.  In addition, they should have a written list of the improvements and features that distinguish your home, as well as a copy of your survey, floor plan, and any other recent appraisals (less than six months old) assuming they support your price. As the seller, you should prepare your home as you would for a showing so it looks its best. The goal is to provide all the evidence needed to “sell” your home to the buyer’s lender’s appraiser.

I have a friend who recently sold their apartment to a neighbor without a real estate agent. The seller did not understand the importance of the appraisal and did not prepare. They gave the appraiser access but did not provide any additional information about their home, their improvements, or the building.  Unfortunately the appraiser (who was not familiar with the city real estate market) valued the property at more than 10% below the contract price, the buyer lost confidence and the sale was called off.

Buyer’s Sale Blowing Up

Given all the ways that your sale can run into trouble, it is logical that your buyer (if they are already under contract to sell their current residence) may face the same challenges with their own sale. Should their sale contract blow up, it may spike the chances of your sale holding together. In this way, it’s possible for one blown up contract to undo one or more others in a chain reaction.

Conclusion

Pitfalls aside, buyers still need homes, and therefore sales continue to happen. The trick is simply doing what you can to keep your home sale’s odds stacked in your favor. Unfortunately, the journey has only become far more treacherous and complex. For that reason, it is more important than ever before that sellers are represented by an experienced real estate agent and residential attorney.

Thank you to real estate attorney Leo G. Aubel and mortgage broker Leslie Struthers of Guaranteed Rate for their assistance with this article. Feel free to contact any of us if you have follow up questions or require further assistance.


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Comments

  • afterwop

    It's so difficult to sell a house these days, it used to be much easier: 20 years ago if you wanted to sell one all you had to do was post a message on the local daily. These days it takes real estate agencies selling them, lawyers talking into signing a Consulting Agreement or freelance real estate agents.

  • afterwop

    It's so difficult to sell a house these days, it used to be much easier: 20 years ago if you wanted to sell one all you had to do was post a message on the local daily. These days it takes real estate agencies selling them, lawyers talking into signing a Consulting Agreement or freelance real estate agents.

  • CYNTHIA

    IF I GET A HOUSE AND PUT IT ON CONTRACT FROM A SELLER AND SHOW THE CONTRACT TO THE BUYER AND THE BUYER AGREES TO BUY IT.  WHAT ELSE AM I SUPPOSE TO DO? WOULD I HAVE TO DO ANY OF THE CLOSING COST SINCE IM NOT THE ACTUAL OWNER?  NEED HELP PLEASE……