Are you thinking, I need to sell my house in Long Island? If you are, you probably know that selling a home in Long Island is typically one of the most worrisome and stressful experiences a family will go through. Nothing is more frustrating and disappointing than thinking you have your house sold, only to have it fall apart in the late stages of the process.
Read more to learn the main reasons why house sales fall through on Long Island.
A house closing may fall through in Long Island for many reasons, including title-insurance surprises, buyers who do not qualifying for funding, poor home inspection reports, buyers whose personal or financial situation unexpectedly change and low appraisals numbers to name a few.
Luckily, buyers and sellers who are aware of the more common deal breakers can prepare early to either avoid major issues or work around them. Once a buyer and seller agree on the general purchase terms such as price and timing, they still need to settle a bunch of details and confirm key details of the contract. Of course, in Long Island, this will be handled by attorneys on both the seller and buyers’ side. In Long Island, and most of New York, it can typically take almost two weeks just to have a fully executed contract completed to start the process. The truth is, this is usually not even the hardest part of getting to closing.
Here are the five reasons most home sales fall apart.
1. Buyer financing falls through
During the housing market boom over a decade ago, buyers rarely struggled with getting mortgage loans and sellers didn’t have to worry as much about a home sale falling through because of buyer financing. But today, buyers who are unable to secure a mortgage loan, is among the biggest deal killers. Lending restrictions have tightened as a result of the “housing bubble” and banks are no longer throwing money at anyone with a pulse, who wants to buy a house. It’s important to prepare for this setback in several ways.
First, look for buyers who are pre-approved for a loan, not just pre-qualified. There is a difference between these designations, depending on the individual lender. Typically, a pre-qualification does not include a credit check of the borrower and therefore is making a preliminary determination on what the borrower can afford, based on limited information. Although they can still get rejected in the mortgage approval process, pre-approved buyers are more likely to land a loan than those without the initial credit screening. Its important to understand that these classifications are preliminary underwriting designations made by a bank and not a guarantee that a loan will be issued.
Second, you can also favor cash-only buyers who don’t need financing, but you should understand that cash buyers often expect a lower price. This is expected, because they are signing a contract for all cash and without a mortgage contingency, which eliminates an escape clause that some homeowners could exploit if they have buyer’s remorse.
Cash buyers don’t need mortgages as they are buying the property with 100% of the cash that they have on hand. No mortgage loan means that no bank or other lender are involved. This should make for a much faster closing as the mortgage approval process and therefore closing time can typically be reduced by 6-8 weeks. Cash sales has an extremely high probability of closing as the sale is not contingent on loan approval by a third-party lender or bank. For this same reason, appraisals are not needed and are irrelevant.
Third, your attorney and realtor (if you are using one), should be in frequent contact with the buyer’s attorney while the mortgage approval process is underway to ensure the loan is on track. That way, you’re aware of any issues and delays so you can plan. Finally, sellers who are really intent on closing the deal can work with the borrower to agree on a more affordable contract price within their financing means if the buyer’s situation is tight.
2. Appraisal that come in too low
Appraisals that come in lower than the contract price can cause a deal to fall through. A buyer’s lender will only lend up to the value of the property, so if the home value appraises lower than the agreed amount, the buyer cannot secure the full mortgage.
If buyers can’t pony up the difference from their savings, a lower-than-expected appraisal can be a deal breaker. In these cases, sellers must be ready to negotiate and be willing to lower their price if they want to close immediately with the buyer. Unfortunately, with the long processing times for mortgages in Long Island, by the time this is discovered the buyer and seller are usually 8-10 weeks into the sale process.
Sellers can suggest that the buyer secure a second appraisal, which could be higher and help the buyer qualify for the full mortgage. However, there is an additional cost to the buyers to do this, that typically runs from $600-$800 in the Long Island area and the buyers may ask that the seller help cover this cost. The lender will of course get copies of both appraisals and there is a risk that the second appraisal can come in even lower than the first, as appraisals are subject to the individual appraiser’s opinion.
Another negative that can arise with a low appraisal, is that the buyer may start to believe that they are paying too much for the house and they may be right. The low appraisal will certainly give them some leverage in the ongoing negotiations. Unless the price is lowered, or the buyers can come up with some extra cash (unlikely in Long Island) the buyers will be able to get out of the deal and get their deposit back because of the mortgage contingency.
Sellers can also try and help the buyer supply the appraiser with evidence of comparable home sales in the area to make the case for a higher value. While this is not a bad idea and can sometimes help, it is important to be extremely tactful in providing appraisers with comparable houses as some appraisers may not take to well to the suggestion.
3. Title insurance and home inspection issues
The purpose of title insurance is to ensure the owner’s home is fully theirs to sell and is not encumbered in any way. Mortgage lenders always require title insurance to protect the asset that secures the loan, which in this case is the house. If a homeowner defaults on the loan and a faulty title reveals that the home is not actually theirs, the bank has no way of recouping the money it lent through the foreclosure process. It is also important that the person buying the home is confident that no person can make a claim of ownership on the home.
To stave off any surprise loan issues, don’t wait for the buyer’s title report. Get your own report in advance to make sure the property is fully in your possession with no threat of claims. Any experienced real estate attorney should be able to have this done though title companies they have relationships with.
The same goes for home inspections. Many home sales fail to make it to closing if the buyer’s inspection reveals serious physical faults with the property or a long list of necessary and expensive repairs. If possible, sellers should be aware in advance and before the buyer’s inspection, of any significant flaws in their home that would jeopardize a closing.
We recommended that sellers should always hire a home inspector to inspect their homes prior to placing it on the market. In Long Island, this typically costs around $600 – $700 and is money well spent. When you hire a home inspector, they are working for you and will provide you a detailed report of everything they find. You should ask the home inspector to be extra critical of your home’s condition as you can expect that the buyer’s home inspector will be told to do the same by the buyer or their realtor!
Many buyers will try and use a home inspection report as leverage to get a seller to lower the price, even after the sale price has been agreed upon. Or they may ask for a bunch of repairs to be done, even though in Long Island and within New York state, purchase contracts typically stipulate that houses are sold as is and with all defects. Buyer attorneys often ask that a repair rider addendum be added to the contract to detail all required repairs. It is better to understand the required repairs your home my need prior to getting into this mess with a buyer, so you can set the tone as to what you are willing to fix or not fix.
4. Buyer’s Remorse (aka cold feet)
Let’s face it, buyers in Long Island can sometimes be flakey and will change their minds without any logical reason. Be it buyer’s remorse or just finding a better deal or a house they like better, well into the process of buying the sellers home. For buyers, the entire house buying process can be very emotional, especially for first time home buyers. They’re investing a substantial amount of money in what they hope is their dream home. They have to live with the house and the community every day and sometimes they just get cold feet.
Unfortunately, there is little sellers can do to eliminate buyer’s remorse, but they can be on guard for buyers who seem especially nervous or hesitant about negotiating a deal. When you have options, favor more experienced, enthusiastic or confident buyers. An experienced realtor should be able to give you some feedback on potential buyers and sometimes give you their “gut feeling” on if they are likely to close based on their past experience.
5. Hinging a deal on a buyer’s home sale
Many buyers need whatever equity they have in their current home to purchase a new home and if their home sale falls through, then the entire deal could fall through too. At best, the buyer will have to find a new person to buy their home and begin the whole sales process again, while the seller has to wait for a new round of listings, contracts and mortgage approvals to take place, in the hopes that it all takes. If the sellers are also purchasing a new home and also need the equity in their home to close the deal, they are likely to lose a home they may be in contract to purchase. What a nightmare!
However, avoiding this pitfall is easy: Don’t allow the sale of a buyer’s home as a contract contingency. Instead, only consider buyers or who aren’t relying on the equity in their current home to help finance yours. Sometimes this can be difficult if the sellers house is not a starter home, but more of a move up home. Keep in mind that there will always be less of a buyer’s pool when you eliminate buyers who will need to sell a home.
Do you have any questions or are you considering selling your home to a professional cash home buyer in Long Island, like CoMax Properties? We would love to chat with you about your home and what you are trying to accomplish.
Contact us below or give us a call at 516-704-7025