While real estate certainly has its ups and downs (one of the reasons I love it), some of the hardest minutes are those right before I have to call my seller to tell them that their buyer has terminated their contract. Whether it be on the last day of their Option Period* or the day prior to our closing date, it is still a very hard pill to swallow. And for the sellers, it can be devastating.
In this very interesting (read, volatile) real estate and economic climate, this is occurring all too frequently. Why? First and foremost, buyer confidence has certainly been impacted by the economy, worries about tax increases, health care reform costs, job security (or lack thereof) and locally, the issue of the BP gusher in the Gulf. When you come to think of it, with all of those worries, it is a wonder buyers can get out of bed each day, much less commit to purchase the largest financial investment of their lives.
Second, we in the Katy, TX (and much of Houston) markets have to deal with the issue of abundant, reasonably priced inventory (much of it new construction). Buyers will commit to one property, write an offer, agree to a contract price, even go through inspections only to find that their dream home has now come onto the market and all bets are off. Goodbye, Buyer…
Third, I have seen recently quite a few buyers cancel a contract over inspection items that in the past would not have been of great concern. It seems like today’s buyers want a resale home to be perfect in every way – and frankly, even the new homes rarely pass inspection with flying colors. Most if not all inspection deficiencies can be repaired but there have been instances where seller agrees to repair everything and the buyer is still not satisfied. Why is that? I think in some cases it has to do with cultural misunderstandings of how our inspections work here and the grandfather clause for many changes in codes through the years. Another factor may be the lack of an experienced and professional Realtor representing the buyer (who should prepare their buyer for what to expect upon inspection and what may be reasonable or not reasonable to expect a seller to repair). I have actually seen agents send over an inspection list and say to the seller, “Buyer wants you to repair all items”. If the agent had done their work in counseling their client, they would have told them that inspectors are required to inspect with today’s code in mind but sellers are not mandated to bring their homes to today’s standards. This can go a long way in helping keep buyer’s expectations reasonable and could alleviate a lot of frustration on the part of all parties when and if repair items are requested.
So, how do we help our sellers understand that a contract is only as strong as the buyer behind it (or as strong as the buyer’s Realtor and Lender, but that is another story indeed). First, we must truly analyze the offer as to all terms, not just price. Even with multiple offers in hand, remember that the buyer you let go may be the one you wish for 2 weeks down the road.
All parties need to have a back-up plan if the transaction fails. One thing I tell my seller is DO NOT start packing until the inspection is completed and all repair negotiations, if any, are worked out to the satisfaction of all parties. In Texas we have a Termination Option* that allows the buyer a given amount of days after the execution of contract to terminate for any reason, whatsoever, and still retain his earnest money. This is usually the time period that inspections are completed and any repairs negotiated.
Once that period expires, then the buyer is contractually committed to close. Does that mean it is a sure thing? No way! There is also a time frame within which the final loan approval process must be complete and this allows the buyer to be released from the contract with his earnest money in tact if for some reason the loan cannot move forward – loss of job is a great example here.
So what is a seller to learn from this?
- Please be aware that a contract is no guarantee of a closing.
- Have a back-up plan so that you do not find yourself homeless if the deal falls out at the end.
- Be informed: Stay in touch with your Realtor and make sure he/she is constantly in touch with all the parties involved: buyer’s agent, title escrow officer, buyer’s lender, etc.
- Allow a flexible timeframe between your next purchase and the closing of your current home, even if it means asking for a temporary lease from your buyer or moving your family to a hotel and your household items to temporary storage to allow for closing delays – which unfortunately is more frequent that we would all like. I have seen transactions built on multiple back-to-back closings crumble like a deck of cards which could have been prevented if all parties had left wiggle room in between the closing dates.
- And if by chance your buyer terminates, it is not the end of the world. Pick yourself back up, dust yourself off, repair needed items presented on inspection and proudly put yourself back out on the market … You will find that your next buyer was really the best buyer for you and everything eventually always works out for the best.
Good luck and happy selling!