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Fallouts on the Rise

_*With Contracts Collapsing at Record Rates, We Offer Some ‘Closed-Minded’ Tips for Transaction Success*_
In today’s market, it is difficult enough for many sellers to get a buyer under contract, but getting the transaction to close can be an even bigger challenge. In fact, real estate firms report a 15 to 26 percent uptick in fallouts, which occur when the buyer backs out of an executed contract on a home. The upside of this closing-related conundrumx Although several issues are spurring the phenomenon, with a little planning and foresight, all of them can be surmounted. Here, we show you how.
*Money Matters*
Since most buyers need some type of financing, this is usually the first part of the challenge. A seller cannot control the buyer’s credit, assets, or income but they can verify these items before accepting an offer and make sure the buyer has been pre-approved. The listing agent should always require the buyer to get a pre-qualification letter from a reputable loan agent, who has a proven track record with the lender that owns the REO, or who has been successful at closing REO transactions. More and more REO sellers are requesting a pre-qualification letter from their designated lender representative as well.
*Do Some Dialoguing
Communication between the lender representing the buyer and the listing agent also is critical. Listing agents should take five minutes to call the lender that provided the pre-qualification letter to discover any red flags before the seller accepts the offer. Also contributing to the upsurge in fallouts: These days, more mortgage brokers also are acting as buyers’ agents. Non-owner-occupied buyers are also facing more demands from the lenders as well, and the terms may change while in escrow. Twice-weekly communications with the buyer’s lender will help reveal those changes sooner than later. The more time we allow these transactions to continue, the lower the values will be once the deal formally falls out.
*FHA Financing a Factor*
FHA loans also have been a culprit. Many lenders are selling their REO properties in as-is condition, and the buyers may not be able to obtain FHA financing due to the property condition. REO listing agents should identify whether or not an asset can get FHA financing. Some REO assets can’t qualify for typical FHA financing from the get-go, and the 203(k) loan should be introduced to the buyer. In other instances, the agent might not be able to confirm if the asset will be able to pass an FHA appraisal. One possible solution: DDN Services is a new company that can provide a full FHA renovation assessment inspection. This service can pre-qualify the asset before an offer is accepted, and you will know within three to five days what repairs are needed to meet FHA minimum standards. If an FHA appraisal does not approve the asset once it’s in escrow, sellers need to be willing to fix the minimum required items to get the loan approved. A few hundred dollars can eliminate the stalemate between the asset manager’s and the buyer’s loan approval.
*Desperate Times, Desperate Measures*
Another reason for the growing fallout rate is that buyers are becoming a bit scared in light of the news coming out of Wall Street. The word ""recession"" is being thrown around liberally, and buyers are seeing their 401(k)s and other stock portfolios dropping 20 percent to 40 percent—or more. A lot of these buyers no longer have the reserves or assets to purchase or are just hanging on to see what happens. Laden with uncertainty, this waiting period has caused many buyers to back out, and some are not able to qualify for the loan for which they were originally approved.
*Plummeting Price Tags
Home values are dropping and that weighs on many buyers’ minds. Most people surveyed do not believe we have hit the bottom yet. The short sales are getting out of hand because listing agents are starting to throw ridiculously low prices on the market just to get offers on these properties. These lowball listings can drastically reduce the values of resale competitive listings in the immediate area. Many potential buyers are dropping out of escrow when they see these slashed prices in the neighborhood. Feeling like they overpaid, these buyers then try to get the short-sale house. This can be prevented if the REO seller knows there is a property in escrow in the same complex for a higher price. Shorter escrow periods can really make a difference in preventing fallouts for the previous reason as well.
*Appraisals Also a Problem
You would think that in a market like this, an appraised value would not be an issue, but that is not the case. Even some approved short-sale appraisals are not coming in at accepted sales values. A year or two ago, most appraisals put the majority of the value on the recent comparable sales. In today’s environment, however, they are putting it on the recent comparable listings. Again, because of the ridiculous short-sale pricing going on, there is fear in determining what the real future value is for the banks trying to make these new loans. And with banks being as conservative as ever, some appraisals are not coming in at sales prices. The upshotx Buyers and sellers try to renegotiate to a reduced rate. Communication between the buyer’s and seller’s agents is key to keeping the sale together. If the appraisal price is renegotiated, the seller will usually come out ahead in the long run.
Closing these transactions as quickly as possible, getting pre-approvals from a lender of the seller’s choice, and knowing the property and its issues for FHA financing are a few ways to help ensure deals are sealed. And if everyone works together to take these extra steps, the fallout rate should finally take a tumble.

About Author: Staci Saunders


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