I think an increase in cancellations is good sign, there are issues, but it’s an correction we need in the market. It means the bank lending standards are returning from normal from the no job, no income, no problem type loans. I think the agents hate cancellations because it keeps them from churning sales in real estate market, except for the steering they do in short sales.
Snags leading to more real estate contract cancellationsBy Kenneth R. Harney April 1, 2012
WASHINGTON — What’s behind the unusually high rate of contract cancellations and settlement delays in the real estate market? With signs of recovery emerging in many parts of the country, shouldn’t deals be zipping along with minimal complications?
Apparently not. Nearly one-third of realty agents in a new national survey reported experiencing contract cancellations — purchases crumbling before closing — in February. That’s up dramatically from a similar poll 12 months earlier, when just 9% of agents reported cancellations. An additional 18% reported delays in scheduled closings in the latest study, which involved about 3,000 agents surveyed by the National Assn. of Realtors.
The high reported cancellation rate (31%) doesn’t mean that nearly 1 of every 3 escrows is falling apart, according to the association, but rather that more than triple the number of agents and their clients are running into deal-endangering problems compared with 2011. If you are a potential buyer or seller in an otherwise improving marketplace, you need to be aware of the issues that are hampering sales and be prepared in advance to deal with some of the most prominent.
Tops on the list:
•Appraisals below contract. You may assume that the true market value of a house is what a seller and buyer agree to in a binding contract, but it’s not. The appraiser hired by the bank may come up with a different opinion of value, significantly below what was agreed on by the parties. This is occurring with far greater frequency today than in previous years. Part of the problem is the excessive use of price-depressed foreclosure sales chosen as “comparables” to value non-distressed houses under pending contracts. But some appraisers are inexperienced and unfamiliar with local pricing trends.
For example, Risa Bell, an agent for national broker Redfin in Boston, recently represented purchasers of a bank-owned property being sold “as is.” An appraiser for the lender not only detailed a long list of needed repairs to the house, but said the deal could proceed only if the prospective buyers spent thousands of dollars fixing up the house before — not after — closing. Along the way, frozen pipes in the unheated house broke and a contractor hired to do repairs filed a mechanic’s lien requiring payment before the title could be transferred. All of this combined to kill the financing and torpedo the closing, but the buyers ultimately were approved by a second lender using a different appraiser, who made no such demands for repairs in advance.
This just means that Realtors can’t lean on appraisers to do “high” appraisal. I think there are more issues with the inventory management with the 5 major banks manipulating REO’s in the luxury housing market than appraisers estimating conservative home values.
•Ultra-conservative underwriting and documentation requirements. It’s no longer just towering credit score minimums, hefty down payments and mind-bending paperwork submissions that get mortgage applicants turned down. “It’s a lot of other stuff too,” said Melissa Zavala, broker and owner of Broadpoint Properties in Escondido. Increasingly she’s been running into regulatory hoops and restrictive underwriting rules at the Federal Housing Administration, Fannie Mae and Freddie Mac that knock signed contracts off the tracks or at least delay them for months.
For instance, the FHA’s toughened rules on condominium associations — limits on the percentage of existing residents in the project who are delinquent on their condo dues, plus requirements for “recertifications” of condominium developments that many condo boards find costly and burdensome in terms of legal liability — are rendering individual units in those communities difficult to finance, no matter how well qualified the purchasers. Little-publicized recent changes in FHA rules on loan applicants who have outstanding collection accounts buried away in their credit files can “take three to four months to clean up” through mandatory repayment plans, Zavala said. By that point the contract may well have gone bust.
FHA borrowers are some sometimes subprime or border line subprime borrowers. The delinquency rates on these have so bad that the program had to be bailout by the bank settlement a few months ago. This new rule will weed out that borrowers that will most likely default on their loans. This program needs to scaled requiring larger downpayments and better credit histories.
•Poor service by lender staff. Agents in the survey identified “lack of customer service” and “generally bad attitudes” as contributing factors to delays and some contract failures. But Zavala said realty agents themselves need to be on the ball when loan processing deadlines begin to slip or communication breaks down with lenders. “Agents can be part of the problems” — and the solutions — when it comes to moving the financing along, she said.
Bottom line: If you seriously want to close on a house you’re buying or selling, make sure you know all the key rules and requirements upfront, then stay on top of the lending, escrow, title and real estate professionals involved in your transaction.
And don’t give up if your deal runs into complications. There are more of them out there than usual.
|Median home price is $351,000. Based on a rental parity value of $472,000, this market is under valued.|
|Monthly payment affordability has been improving over the last 3 month(s). Momentum suggests improving affordability.|
|Resale prices on a $/SF basis declined from $245/SF to $243/SF.|
|Resale prices have been falling for 12 month(s). Price momentum suggests falling prices over the next three months.|
|Median rental rates declined $50 last month from $2,041 to $1,991.|
|Rents have been rising for 12 month(s). Price momentum suggests rising rents over the next three months.|
|Market rating = 6|
$325,000 …….. Asking Price
$415,000 ………. Purchase Price
5/4/2005 ………. Purchase Date
($90,000) ………. Gross Gain (Loss)
($33,200) ………… Commissions and Costs at 8%
($123,200) ………. Net Gain (Loss)
-21.7% ………. Gross Percent Change
-29.7% ………. Net Percent Change
-3.5% ………… Annual Appreciation
Cost of Home Ownership
$325,000 …….. Asking Price
$11,375 ………… 3.5% Down FHA Financing
3.98% …………. Mortgage Interest Rate
30 ……………… Number of Years
$313,625 …….. Mortgage
$95,547 ………. Income Requirement
$1,494 ………… Monthly Mortgage Payment
$282 ………… Property Tax at 1.04%
………… Mello Roos & Special Taxes
$81 ………… Homeowners Insurance at 0.3%
$327 ………… Private Mortgage Insurance
$285 ………… Homeowners Association Fees
$2,468 ………. Monthly Cash Outlays
($231) ………. Tax Savings
($453) ………. Equity Hidden in Payment
$16 ………….. Lost Income to Down Payment
$61 ………….. Maintenance and Replacement Reserves
$1,860 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$4,750 ………… Furnishing and Move In at 1% + $1,500
$4,750 ………… Closing Costs at 1% + $1,500
$3,136 ………… Interest Points
$11,375 ………… Down Payment
$24,011 ………. Total Cash Costs
$28,500 ………. Emergency Cash Reserves
$52,511 ………. Total Savings Needed
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
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