The Top 3 Real Estate Deal-Killers – and How Buyers Can Avoid Them

 

Posted Under: Home Buying, Home Selling, Financing |

Once upon a time, homebuying was a much less dramatic affair then it is today. The house hunt was fun, if suspenseful, and then there was another exciting whirlwind of inspections, closing and moving in. Today, though, as soon as buyers get the gumption to jump off the rent vs. buy fence, they find themselves on another edge – the edge of their seats, through the entire escrow process waiting to see what obstacle will emerge next, and whether their transaction will survive it.

Deals get killed all the time, and buyers can’t relax until they have keys actually in hand. Here are three of the most common real estate deal-killers, and some steps buyers can take to deactivate them.
1. Appraisal too low. Some buyers incorrectly believe that the best thing that could happen to them is for the property to appraise below the agreed-upon purchase price, expecting that a low appraisal forces the seller to bring the price down. In fact, so many of today’s sellers are barely breaking even, that a low appraisal is probably the most common deal-killer around. If an appraisal comes in just a tad bit lower than the contract price, usually the seller will come down if they can, or the buyer will kick in a few extra bucks. But when it comes in 5, 10 or even 20 percent low, most sellers can’t – and most buyers won’t .
Low appraisals also seem like the most difficult deal-killer to avoid, as this process is entirely out of both buyer’s and seller’s control. But there are two things buyers can do to minimize the risk. First, check the comps – i.e., recent comparable homes that have sold in the area – before making an offer; your agent will help you do this. Then, don’t make an offer bizarrely above the average range of the comparables, even if the property has multiple offers, unless you’re prepared to deal with a low appraisal a couple of weeks out.

Also, consider working with a local mortgage broker who also originates loans through its own bank (vs. walking into a large bank’s branch off the street); these lenders have the ability to choose from a smaller pool of appraisers that they know are qualified and knowledgeable about your area.

2. Property condition dramas. When the market melted down, lenders found themselves with a lot of decrepit homes on their hands. This explains two things: (1) why lenders are more concerned about property condition now than ever, and (2) the raggedy condition of so many of the "distressed’ homes on the market. Homes that have extensive wood rot, dangerous decks or electrical systems, or peeling paint and missing systems (sinks, stoves and the like) are highly unlikely to pass muster when the appraiser walks through, even if they do qualify as being worth the purchase price. And while an individual seller might be willing to do some work, many just can’t afford to; short sale and REO sellers simply refuse to make fixes, 9 times out of 10.

Prevention is the best medicine for curing this transaction ailment. If you are buying a short sale or REO property, be aware that when the selling bank says as-is, it really means as-is. Ask your mortgage broker and agent to brief you on what sort of shape your lender will require your home to be in, at minimum, and keep that standard in mind during your house hunt. Your agent can help manage your expectations about which properties will and won’t likely pass muster.

3. Loan approval takes too long. Every buyer knows they must get preapproved for a mortgage before they start house hunting, but many don’t know that preapproval is just the first in a long list of steps that have to happen before the loan becomes a sure thing. In fact, it’s common now for buyers to get their loan preapproval many months before they end up in contract, and lots can change in the interim – further extending the time it may take for their loan approval to come in.

It’s common for contracts to include a standard loan contingency period of 17 days, give or take a few. But the appraisal might take longer than that to come in, or the underwriter might have lots of questions and seemingly random nitpicks about the appraisal, or about you: they want to see your driver’s license, then your marriage license, then your divorce decree, and after that, a letter from your employer agreeing that you’ll be keeping your job even though you’re moving an hour away. It never seems like they ask for everything at once, thus it can take longer than 17 days to obtain all the requested items, turn them in and get the underwriter to sign off on them.

Until you get that green light, it’s foolhardy to remove your loan contingency, as that step renders your earnest money deposit non-refundable, under most contracts. Many a buyer is forced to either secure an extension from the seller or to let the transaction die, rather than forfeiting their deposit funds. And again, some sellers understand and will play ball, but bank sellers can be particularly resistant to loan contingency extensions, especially if there are backup offers on the table.

Best practice for buyers to minimize the chances of an overtime loan approval process killing the deal? Be ready: be ready for lots of bizarre documentation requests, be ready to provide things you’ve already been asked for, and be ready to do so quick-like – without pushing back. The faster you can turn around the things the underwriter wants, the better.

Also, it can be very helpful to work with a mortgage broker and agent that have worked together before and have close communications, so that your agent can stay abreast of any and all loan process glitches and keep the listing agent apprised of the legitimate reasons you may need an extension throughout the contingency period, rather than assuring them everything’s speeding along then having to ask for a last-minute extension.

Agents: what other deal-killers are you commonly seeing? How do you help buyers correct for them?

3 reasons not to overprice your home

 

Setting the bar too high may leave you with an unsold house.

By Jeff Brown of MainStreet

A new study by property website Zillow.com shows that many home sellers are unrealistically optimistic, asking considerably more than they’re likely to get. As a result, they risk long delays in finding buyers, which means a lot of lost revenue while the house sits idle on the market.

What’s more, homeowners who bought after the housing bubble peaked in 2007 were even more unrealistic than those who bought before or during the bubble, perhaps because post-bubble buyers thought they got better bargains than they actually did.

"We found sellers who bought after the housing bubble burst, in 2007 or later, price their homes 14% above market value," said Zillow, which used sales of comparable homes to figure market value. "Those who bought before the housing run-up, prior to 2002, overprice by nearly 12%. Somewhat surprisingly, sellers who bought during the run-up, from 2002-2006, seem to be the most realistic, pricing their homes 9% over market value."

Market value is a tricky number, because comparable-sales data do not always provide a good guide to a home’s value. Nearby homes that have sold in the past six months or so may be quite different from yours in appearance or condition, and there may be too few recent sales to get a proper valuation. That being said, you won’t have much chance of getting a premium price on a cookie-cutter condo if identical units have sold for less.

As a seller, you have a right to ask for whatever price you want, which you can drop if no one bites. You may get lucky, but asking too much involves a number of risks, even if you’re just "testing the market" for a few weeks or months.

On the pro side, you might get your high asking price. Selling a house is not like a dealer selling cars or McDonald’s selling Big Macs, because the home seller needs only one buyer. It’s possible that someone will find your home so perfect that it justifies a premium price. For example, a home with a garage converted into a shop may be a turnoff to most buyers because most of them have cars, but a nondriving tinkerer may love the extra work space.

More often, though, pricing your home too high works against you in some important ways. Here are three of them:

1. Agents react. Real-estate agents — yours and the buyers’ — may not want to waste time with a home that’s unlikely to sell. Though a higher price means a bigger commission, agents might figure they can move two or three homes in the time it would take to sell yours, earning more even if each offers a smaller commission than your property does.

2. Buyers react. Buyers who like your house but pass on your property because of the price may find something else and close a deal before you drop your asking price to a level they’d accept.

3. You need that money. Even if you get your full asking price, the time it takes to get it may cause you to miss out on the house you want to buy. You may have to settle for something that’s not as suitable. Even worse, you may end up spending more than you had planned, offsetting the premium you got on your sale.

Setting a proper sale price is both an art and a science. A key step is to shop carefully for an agent who can help you, looking for one who is very familiar with your community and comes with good references. Steer clear of dabblers who sell only a few homes a year. You want a pro who is on top of the market and will value a good reference from you.

Drive around to look at the "comparable" homes used to set your asking price, and look for others if necessary. If you’re on a hill, don’t use a comparison from a home down in the less desirable floodplain. Make sure the house’s curb appeal matches yours. Keep in mind that a computer that spits out comparable sales isn’t likely to know that your home has a new kitchen and the others don’t.

Finally, keep an eye on the "traffic" – the number of potential buyers who come through your property. A good agent will have a sense of how many buyers are looking. If you are not getting your share, it’s a sign you are reaching on price. If dropping your price is inevitable, it’s better to do it sooner than later.

Fix Now, Save (A Lot) Later

 

By: Laura Fisher Kaiser

"From small things, Mama, big things one day come," as the song goes. It’s especially true when it comes to your house. Left unchecked, seemingly minor things—a gutter pitched the wrong way, a bit of crumbly grout—can lead to bigger and expensive issues. The good news is that, in many cases, all it takes to head off catastrophe is a little preventive maintenance or an inexpensive repair. "Don’t wait until it’s an emergency," says TOH master carpenter Norm Abram. "Spot-check areas around your house, preferably twice a year, in the fall and spring. And when you do fix something, do it right so that you don’t end up making the problem worse."

Mildew on Foundation Walls

Potential problem: Overgrown foundation plantings can channel water down exterior walls, leading to mold and sill rot. What’s more, roots can work their way into foundation walls and pipes.
Fix it now: Trim shrubs yourself. Better yet, replace them with dwarf varieties that won’t be a perpetual pruning headache. In many parts of the country, planting in early fall gives shrubs a head start at establishing roots in the season’s cool, moist soil. Save money by shopping end-of-season sales at garden centers or hosting a neighborhood plant swap. "Just be sure that any new shrubs are at least 3 feet from the foundation," says TOH land-scape contractor Roger Cook. "Otherwise they’ll keep the siding from being able to breathe."

What you’ll save: Between $400 and $2,500 to fix a water-damaged foundation and sill.

Worn Wood Floors

Potential problem: Failing to maintain the boards’ protective top coat of polyurethane can lead to ground-in dirt and discoloration, and cause wood to dry out and splinter.
Fix it now: At the first sign of wear, sand only the floor’s surface and apply a fresh coat of polyurethane. Pros charge about $1.25 per square foot for this "screen and poly" job, or you can rent a floor-polishing machine and do it yourself for less. Just bring the machine back on time or the cost of additional days’ rental could whittle away at your savings.
What you’ll save: Up to $5 per square foot for a full-fledged refinishing, which requires sanding down to the bare wood. The overall cost depends on how old the floors are, the number of top coats needed, and if you are using stain. Replacing sections where dried-out wood has splintered or cracked starts at $125 and can go up substantially based on the scope of the damage and the floor type.

Weather-beaten Deck Boards

Potential problem: If not kept in check, soft boards and loose outer rails can lead to deck collapse. Probe cracks with a flathead screwdriver; if you can insert it more than ¼ inch or if the wood feels spongy or breaks off without splintering, you may have rot. See if the rails have any give by firmly wiggling them.
Fix it now: Pry off damaged boards. Cut replacements to length and secure them to the supporting joists below using stainless deck screws. Leave a 1/8-inch gap between any new boards for proper drainage. To hide the repairs, stain or preserve the boards to match the rest of the deck. Remedy loose rails and balusters by updating old fasteners with new screws, adding construction adhesive for extra strength. Tighten any loose bolts that secure the rails’ posts to the deck framing. Besides a few hours of your time with a saw, drill/driver, and wrench, expect to spend about 60 cents per linear foot for pressure-treated decking and $14 for a box of stainless screws, both vailable at home centers.
What you’ll save: From $500 to $10,000 for a professional to fix or replace the deck, depending on how widespread the damage is.

Peeling Exterior Paint

Potential problem: Blistering, cracking, or peeling of the protective finish can cause woodwork to rot. Particularly vulnerable are protruding surfaces where water sits, such as windowsills, which may need to be replaced if the damage is extensive.
Fix it now: Scrape, sand, prime, and repaint all trim that has a worn finish. For houses built before 1978, take special care during the paint removal phases to protect yourself, your family, and the environment from lead dust, which is toxic. The easiest way to fix any minor rot damage to the wood surface is to dig it out until you get down to a solid section, then fill the void with an epoxy before refinishing.
What you’ll save: About $135 per window for a pro to replace a sill that’s rotted beyond repair.

Split or Bowed Clapboard

Potential problem: Damaged wood can allow rainwater to make its way into the wall, leading to decay and insect damage. Rot may also spread to surrounding boards.
Fix it now: Replace the board for $100 or less, depending on the wood type. "Don’t just caulk the crack," says Norm. "That’ll get loose and invite more water to get behind the siding." For a tight fit on the first try, mark the old board’s length directly on the new one. Score the cutline using a utility knife, and slice off the overage with a handsaw.
What you’ll save: Up to $3,000 to re-side and rebuild a rotted wall, including new clapboards, sheathing, framing, and drywall inside, plus $2,000 or so for termite or carpenter ant control.

Overhanging Tree Limb

Potential problem: A storm could send large branches crashing down on the roof, and wet leaves against the siding can cause algae to grow, leading to rot. "These branches also act as a superhighway for any kind of varmint wanting to enter your house: squirrels, raccoons, and even rats," says Roger Cook.
Fix it now: Trim a small tree yourself using a pole saw, taking care to leave the branch collar to prevent disease. For bigger jobs hire a professional arborist, who’ll typically quote you a flat rate—figure $75 to $95 an hour, depending on the height of the tree and the number of branches involved. To remove algae from siding, power-wash with a solution of 1 part nontoxic oxygen bleach to 10 parts water; power washers rent for $50 to $75 a day.
What you’ll save: From $50 (for asphalt) to $395 (for slate) per 10-by-10-foot square of replacement roof shingles, plus $150 an hour for labor. Expect to pay $800 to $1,250 to replace 150 square feet of rotted yellow pine, spruce, or fir clapboards, including labor. And to trap those pesky rodents, tack on $300 more.

Gunked-up Gutters

Potential problem: "A clogged, rusted, or tilted gutter can’t do its job of keeping water from splashing back on the roof or cascading down the sides of your house," says TOH general contractor Tom Silva. This can lead to fascia and soffit rot, leaks inside the wall cavity, and framing damage.
Fix it now: Make gutter cleaning and repair part of your annual DIY fall maintenance routine. Scoop out debris. Secure any loose hanger straps, and use a level to ensure that gutters are properly slanted toward the downspouts, about ¼ inch for every 5- to 10-foot section. Then run water from a garden hose to check for leaks. Patch any holes or narrow gaps at the seams with gutter sealant; $5 for a 10-ounce tube at hardware stores.
TOH Tip: Don’t have a trowel handy? Make a gutter scoop out of a plastic milk jug. Just slice off the bottom at an angle.
What you’ll save: Easily $5,000 or more to repair rotted fascia and soffit boards, framing, and drywall. If gutters are left to rust, new seamless aluminum replacements will run you $750 to $1,000 for 150 to 200 linear feet, enough to outfit most homes.

Wobbly Stair Railing

Potential problem: A shaky newel, the vertical post that anchors the rail, is the likely culprit. One weak link like this can put undue stress on the entire balustrade and lead to an accident.
Fix it now: Insert a lag screw through the base of the post and into the staircase framing. One screw will steady most posts, but if it’s still a little wobbly, drive in a second screw. Countersink the fasteners and hide the heads with plugs cut from a 1-inch-diameter dowel. To make this repair, all you need are a few basic tools: a drill/driver, 1-inch spade bit, ratchet wrench, and handsaw.
What you’ll save: About $65 an hour for a carpenter to steady the newel and repair—or replace—snapped spindles. Then there’s what you’d save on hospital bills if anyone took a tumble.

Tired Tub Caulk and Grout

Potential problem: Puckered, missing, or shrunken caulk can allow water to seep into a wall cavity, leading to mold or even wall failure. Likewise, a chunk of missing grout in a tub surround can cause serious water damage behind the tiles.
Fix it now: Recaulking a bathtub is one of the simplest DIY projects. All you need is a $6 tube of mildew-resistant silicone. While you’re at it, touch up the grout using a premixed compound, which runs about $10 per quart. For bigger jobs, mix your own using a $12 bag of polymer-fortified grout powder. Follow the maker’s instructions to mix in just the right amount of water—too little makes grout crumbly, too much will make it cure improperly.
What you’ll save: Up to $2,500 to retile a small section, including partial demolition of the wall and new backer board. Long-neglected leaks could necessitate a $200 to $900 mold inspection, plus $2,000 to $6,000 for remediation if toxic mold is found.