This article will discuss Right at Home Realty’s latest Real Time video. If you are new to the Real Time series, we created this series to help agents improve their knowledge of commonly faced compliance issues they might experience in the industry. This video focuses on why a buyer may fail to close on buying a home. This video is hosted by our very own Manager of Legal & Compliance Rima Sterrett. Rima has over 20 years of legal expertise in corporate and real estate.
In this video, we break down the four main reasons why this problem happens in real estate and what happens when they walk away from the deal entirely. Along with helpful tips and suggestions to take with you throughout your real estate career.
Reason 1: Financing Falls Through
Buyers sometimes may not get the money they need to buy the home, which is usually caused by relying on the pre-qualification process instead of asking for a formal “pre-approved” letter. Another common reason is when the buyer fails to get financing because they let the letter expire.
Pre-qualification is when the lender gives the borrower an estimate of how much they can borrow.
Pre-approval: This is when the lender takes a more in-depth review of the borrower’s financial situation and credit score to decide if they will approve their mortgage application. If approved, the lender will provide a written loan offer for a determined borrowing amount, at an agreed locked-in rate for a certain period.
Reason 2: Buyer’s current home is still up for sale.
Sometimes buyers might need more funds or credit to get another mortgage. This is usually caused by the potential buyer needing to sell their current home, so their funds are still tied up with another property. Even in a red-hot housing market, it is a gamble on when or if the buyer’s home will sell.
Reason 3: Major purchases or life events
When making an investment of this magnitude, it can cause significant changes in people’s lives. It can trigger other reactions or even second thoughts about completing the investment. It is always possible for the potential buyer to back out of the deal or have financial concerns about meeting it.
Reason 4: The offer is too rich.
The mortgage lenders may decline a mortgage if the home appraisal comes in lower than what the buyer offered. It is important to remember that what the home was worth before the interest rate hikes may not be its current market value.
Here are some suggestions to offer your client so they can know how to avoid the pitfalls of buying a property:
- As a REALTOR® it’s always a good idea to ask to see the buyer’s bank pre-approval letter before preparing an offer.
- Discuss the risks of buying a new property before selling or closing the existing one.
- Suggest clients simplify their finances, reduce debts, and speak to their financial advisor to invest their down payment until closing.
- Prepare a comparative market analysis to inform clients of the home’s fair market value.
What happens when the buyer walks away from the deal?
An agreement of purchase and sale is binding. Your contract is firm once a valid offer is accepted and conditions have been waived.
If the buyer walks away from the deal, it can have serious financial consequences for the seller. They may be expected to forfeit the deposit and pay legal fees, mortgage carrying costs, relisting, and recovering losses, if possible, or other damages.
Be sure to educate your clients that they can’t walk away from a firm deal just by not providing the deposit on time or using the “subject to” Conditions as “escape clauses” Buyers must ensure they are entering into the agreement to purchase the property in good faith.
It is always important to recommend that your clients seek legal advice to make informed decisions and understand the repercussions of not closing the deal.
What to do if you have more questions as a Right at Home Agent
If you ever find yourself dealing with a compliance or legal-related issue, don’t stress about it because we are here to help you every step of the way. Our Branch Managers have years of real estate experience and have dealt with almost about every common compliance issue imaginable. We also have Rima available to offer expert legal advice for real estate matters. ‘
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