Why has our Buyer Cancelled the Deal? Today’s Home Seller Dilemma…

by christiborden

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!

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The American Recovery and Reinvestment Act of 2009, H.R. 1 – How does it affect you, the home buyer?

The Economic Stimulus Bill (The American Recovery and Reinvestment Act of 2009, H.R. 1.) has been reconciled by the House and Senate. The details of the legislation have not been finalized but we expect the legislation to include a number of important housing provisions, including the remedies for the housing crisis that NAR prescribed at the annual meeting in Orlando, Florida.

• Homebuyer Tax Credit – a $7500 tax credit that will be available for qualified purchase of a principal residence by a first time homebuyer between January 1, 2009 and September 1, 2009.  The credit does not require repayment. Individuals who purchase in 2009 using financing assistance from state and local mortgage bonds will be permitted to use the credit, as well.
• FHA, Fannie and Freddie Loan Limits – Revised loan limits for FHA, Freddie Mac, and Fannie Mae.  Specifics have not been released but reports indicate that the 2008 limits have been reinstated for 2009 except in those communities where the 2009 limits are higher. Additional increases in individual communities may also be available at the discretion of the HUD Secretary.
• Foreclosure Mitigation & Neighborhood Stabilization – Funding for states and local communities to be used for neighborhood stabilization activities for the redevelopment of abandoned and foreclosed homes are authorized.

These elements of the American Recovery and Reinvestment Act of 2009 are the pillars of the NAR Housing Stimulus Plan presented to the 111^th Congress.  Additionally we continue to work closely with the Department of Treasury and Secretary Timothy Geithner to implement a mortgage buy-down program. NAR also recommended that the Treasury Department expand the Term Asset-Backed Loan Facility (TALF) to include commercial mortgage-backed securities as eligible collateral.  The Treasury has approved this recommendation and this will encourage investment in the commercial real estate market.

The Economic Stimulus Bill (The American Recovery and Reinvestment Act of 2009, H.R. 1)
Additional Housing and Other Provisions of Interest to NAR

• Rural Housing Service – Increased funding for the Rural Housing Service direct and guaranteed loan programs.
• Low Income Housing Grants – Allow states to trade in a portion of their 2009 low-income housing tax credits for Treasury grants to finance the construction or acquisition and rehabilitation of low-income housing, including those with or without tax credit allocations.
• Tax Exempt Housing Bonds – Tax-exempt interest earned on specified state and local bonds issued during 2009 and 2010 will not be subject to the Alternative Minimum Tax (AMT).  In addition, financial institutions will have greater capacity to purchase tax-exempt state and local bonds.
• Energy Efficient Housing – Grants for energy retrofits for federally assisted housing (section 8), funding for Energy Efficiency & Conservation Block Grants to states, and Increases in the residential tax credit through 2010 for certain energy efficient upgrades.
• Transportation –   Spending for upgrades and repairs of road, bridges and transit facilities.  
• Broadband Deployment – Grants to make broadband available in unserved communities

As the leading advocate for homeowners and the real estate industry, the National Association of REALTORS will continue to address the issues facing Americans who are trying to purchase a new home, protect their current home or preserve investment opportunities in residential and commercial properties.

NAR recognizes the efforts of the members of Congress and the Senate who understand that without a housing recovery, an overall economic recovery is impossible.

 

United Title Closing Updates from TDI

United Title of Texas (United Title) ceased all operations in the business of title insurance in Texas late Tuesday, July 29, 2008, without notice to consumers or regulators. The Texas Department of Insurance (TDI) has placed United Title of Texas under an Adminstrative Order by Consent. TDI is providing consumers with answers to Frequently Asked Questions and other information about the actions taken in Texas.

Go to the Texas Department of Insurance  website for answers to questions you may have. I will be happy to help you learn more about Title companies, what they do, what they should do and how best to protect yourself through the real estate transaction.

Understanding the American Housing Rescue and Foreclosure Prevention Act of 2008

The U.S. House of Representatives passed H.R. 3221, the American Housing Rescue and Foreclosure Prevention Act of 2008. The bill includes a temporary, $7,500 first-time home buyer tax credit which many believe will jump start the housing market and bring buyers off the sidelines. President Bush has since signed this bill into law.

Kieran P. Quinn, CMB, Chairman of the Mortgage Bankers Association (MBA) hailed the House of Representatives passage of the omnibus housing bill. The bill, which passed the House by a vote of 272-152, will now go to the Senate – where leaders have indicated it will pass – and then to President Bush, who has stated he will sign it.

Among the provisions in the bill:

FHA Modernization: Authorizes a $25 million appropriation to improve technology, processes, program performance, eliminate fraud and provide appropriate staffing. Effective January 1, 2009, it also increases the FHA loan limit to the lesser of 115 percent of the local median home price or $625,500 with a floor for lower priced markets of $271,000, establishes a 12-month stay on FHA’s proposal for risk-based premiums, sets the down payment requirement at 3.5 percent and prohibits seller-funded down payment assistance (both direct or through a third party). In my opinion: This means today’s buyer will have to have his “skin in the game” and not rely solely on outside sources for his/her downpayment. This is how purchasing a home used to be and should always be as buyers who actually have their hard-earned money invested in their home will be more likely to pay their mortages and stay in their home than just walk away and leave the property to foreclosure.

GSE Oversight Reform: Creates a new regulator (five-year term, appointed by the President, confirmed by the Senate) with oversight authority similar bank regulators, establishes a new affordable housing fund and capital magnet fund to be funded by a 4.2 basis point fee on all new loans, significantly changes the affordable housing goals and raises the conforming loan limit to the higher of $417,000 or 115 percent of the local median home price, not to exceed $625,500 (the stimulus limits remain in effect until January 1, 2009). In my opinion: This will allow buyers in very expensive markets to find competitive loans as many Jumbo Loans (non-conforming loans over the loan limit) come with higher interest rates and are an unfair punishment for purchasing in a high dollar area).

FHA Rescue: Creates a voluntary program for lenders to write down the loan balance in exchange for an FHA guaranteed loan not to exceed 90 percent of the newly appraised value of home. The lender would pay a 3 percent FHA loan origination fee. To qualify, the borrower must have a debt-to-income ratio above 31 percent on the original loan. The program is capped at $300 billion. In my opinion: This will help keep many homes off the foreclosure chopping block and will have a positive affect on surrounding properties and homeowners.

Tax Incentives: Creates a $7,500 refundable tax credit for first-time home buyers, expands the volume cap for the low income housing tax credit, allows for tax-exempt treatment of bonds guaranteed by the Federal Home Loan Banks and exempts the low income housing tax credit from the alternative minimum tax. In my opinion: This is a fairly low cost incentive to help first time home owners enter the market.

Low Income and Affordable Housing: Encourages the development of low-income and affordable housing by harmonizing multi-family FHA mortgage insurance programs with the low income housing tax credit. Allowing these two programs to work together will result in more effective uses of both programs. In my opinion: Again, another low cost incentive for affordable housing.

GSE Backstop: Authorizes the Treasury Secretary to temporarily increase the GSEs’ line of credit and to, if necessary, buy equity in the GSEs in order to provide confidence to credit markets. Also provides a role for Treasury and the Federal Reserve in GSE oversight to ensure safety and soundness. In my opinion: Yes, another bail out but one that is necessary to our Nation – much like the airline industry bailout of years’ past.

TILA Reform: Requires TILA disclosures to be delivered seven days prior to loan origination, requires that disclosures include examples of how payments would change based on rate adjustments in addition to disclosing the maximum possible payment under the loan terms and mandates that the consumer receive early disclosures before paying anything more than a nominal fee that covers the cost of a credit report. In my opinion: Disclosures that should have already been required so that the lending vehicle is transparent to the prospective buyer. I have seen too many buyers that were blindsided by the costs of rising interest rates during the transaction as well as dealing with punitive pre-payment penalties after the sale. Education is never a bad thing and this mandated disclosure will be helpful to the general public.

Empowering States: Raises the cap by $11 billion on tax-free bonds that state housing finance agencies may use to help at-risk homeowners by refinancing troubled loans and appropriates $4 billion for states to purchase and renovate abandoned and foreclosed properties. In my opinion: Again, a good way to help keep homes out of foreclosure.

Licensing: Encourages state officials to create a national licensing system for residential loan originators, allows HUD to create a licensing system for those states that fail to enact their own, establishes minimum qualifications for all loan originators and requires federal regulators to create a registry for banks and thrift employees who originate loans. In my opinion: loan originators are poorly regulated and are certainly part of the problem that should be addressed. By mandating a minium qualification standard and licensing, perhaps this can be resolved. I personally am not allowed by my brokerage firm to originate loans for my clients. This could certainly be a source of conflict of interest and we choose to eliminate that from the transaction. I would suggest that buyers may wish to deal with a loan originator who does this full time rather than someone trying to handle all aspects of the real estate transaction.

All in all, this bill has good, strong point that should positively affect the current housing market and the economy as a whole. While I agree that no private industry should be “bailed out” when their bad practices have lead to ruin, this is an issue that goes beyond private industry. The secondary mortgage market is necessary to us all and we need to make sure we do everything we can to keep it healthy.

South Katy, TX Market Update for June 2008

South Katy, Area 36 – Defined as Katy market south of Interstate 10

 

The Katy/Cinco Ranch Area was Number 2 on the Houston Hotness Index for June 2008 because 16.9% of all active listings went under contract during that one month.

 

The area has experienced 1,326 homes sales YTD or a 6.75% decline over June YTD 2007.

           

There has been a 3.94% increase in average sales price, which currently stands at $250,461.  The median sales price where half the homes sold above and half sold below is $215,000 and that is 4.88% greater than this time last year.

 

The Katy / Cinco Ranch area has experienced a 10.83% decline in pending sales for a total of 980 YTD. 

 

There has been an increase in homes on the market as the area experienced 32.39% more listings. There are currently 1,026 homes on the market and last year there were 775.

 

The market has 4.7 months supply of inventory, which indicates an appreciating market and although supply of inventory has increased, the buyer demand has absorbed enough inventory to keep the market as a sellers’ advantage.