Less Than Two-Thirds of Real Estate Contracts Settle on Time

By Ryan Dosen

 

According to a recent survey, the National Association of Realtors (NAR) is reporting that less than two-thirds of real estate contracts actually settle on time. When selling your home, getting a signed contract is the first and most important hurdle to cross. However, many potential pitfalls await after this key first step. Selling a house can be like navigating an obstacle course, so it’s best to know what you could be facing and to be well-prepared and well-represented.

 

Delayed or Terminated Contracts

“In the past 3 months, think of your most recent sales contract that either went into settlement or terminated. Please explain how the deal concluded.” This request was recently made of over 1500 Realtors in an effort to determine what types of issues agents are facing and how often settlements are being delayed or even terminated. Answers to this question have remained fairly consistent this year. NAR is reporting that approximately 26 percent of contract settlements were delayed, while 10 percent of contracts were terminated.

 

Contract Problems

NAR’s survey revealed that about 60 percent of real estate contracts faced some sort of problem while progressing toward settlement. Many potential problems were uncovered, but the usual suspects remained the most common.

 

Financing

The most common problem faced by Realtors related to financing. 12 percent of agents reported issues settling a contract due to difficulties with buyers obtaining financing.

In Pennsylvania, agents are required to have their clients complete a Buyer Financial Information (BFI) disclosure. The BFI is a form of agent due diligence. It helps agents make sure that their clients are able to qualify to purchase the homes they are trying to buy. Of course, Realtors are not mortgage professionals. Therefore, agents will usually require their clients to be preapproved for a mortgage and sellers will usually require a preapproval before they will agree to sell a property.

Unfortunately, despite somewhat loosened lending requirements, it can still be difficult to obtain financing. You can get preapproved over the phone in fifteen minutes by providing answers to a mortgage professional, but getting an actual loan commitment from a bank is still a somewhat arduous process that can hit many snags. Make sure your lender has a solid track record of timely closings.

 

Inspections

The second most common problem faced by agents relates to home inspection or environmental issues. Nationally, 8 percent of deals face inspection or environmental issues. In Pennsylvania, the number is probably higher. In Pennsylvania, there is usually an inspection contingency period (unless it is waived) that follows the signing of a real estate contract, during which the buyer may elect to perform any number of inspections on the subject property. After inspections are completed, the buyer may demand fix-ups or even a reduction in purchase price based upon the condition of the home. The buyer may also simply tear up the contract and walk away based upon the inspection results.

This inspection period looms over the contract and transaction as probably the biggest obstacle that will be faced. The obstacle is so great that many agents do not even consider a property fully under contract until the inspection period has passed. After all, negotiations and terms will not be finalized until the reports are in and the parties’ minds have met—again.

 

Other Contract Issues

Other, less common issues that agents and parties must be prepared for include appraisal issues (faced by 7 percent of deals), titling or deed issues (faced by 3 percent of deals), distressed property issues (faced by 3 percent of deals), and contract-specific contingency issues (faced by 3 percent of deals). The buyer could also lose a job. Interestingly, 1 percent of deals are jeopardized and usually killed by this unfortunate turn of events.

 

What Granddad Says

There are so many things that can go wrong in a real estate transaction that it is actually somewhat impressive that only 1 deal in 10 blows up. However, if you’re entering the market as a buyer or seller, you need to know that there’s a decent chance that there will be a significant problem waiting that could delay or obstruct your future settlement. This speaks to the importance of quality representation. There is a 36 percent chance that you will face a settlement-jeopardizing issue with the purchase or sale of your most important asset. I’m not here to scare you, but if that’s not frightening, you need to re-read that last sentence.

My granddad, Bill Barrett, liked to say that you can’t afford not to hire the best attorney. Apologies for the double negative, but granddad said what granddad said. He didn’t say the same thing about Realtors. But it was a given. Granddad’s Realtor, John R. Wood, was the former president of the National Association of Realtors.

Listen to granddad, do yourself a favor, and make sure that you have a top agent at your side while you run the real estate obstacle course.

 

— Ryan Dosen manages The Wayne Megill Real Estate Team of Keller Williams Brandywine Valley in West Chester. Contact Ryan Dosen to inquire about buyer or seller representation or for more perspective on the local and national real estate market by emailing ryan@waynemegillteam.com or calling 610-399-0338. Please also visit The Wayne Megill Team real estate blog at www.PAHomesAndRealEstate.com.

This article was published by 21st Century Media and the Daily Local News (West Chester, PA). To read this article on the the newspaper’s site, please visit the Daily Local News.

 

 

To view all of Ryan Dosen’s 21st Century Media real estate columns, visit http://www.dailylocal.com/search?text=dosen.