When a home purchase or sale falls apart, it can be life-changing and devastating for all involved. I know because it happened to me. I was away for a weekend in the mountains with friends—and very limited cell phone service when I found out my husband, who was self-employed, but doing quite well in his consulting business—was not able to be on my home loan.
Since my own debt-to-income ratio was not enough to get financing on a part-time salary- our kids were young and I’d taken a step back to spend more time with my family—we had to go back to the drawing board a week before we expected to close. We had already KonMari-ed our belongings and scheduled movers. And we had a family ready to move into our home. Our kids and our pets lives were completely disrupted by not having truth in our financing earlier in the process.
So how to avoid similar your transaction falling apart? Consider processes that eliminate as many contingencies as possible. Let’s define contingency to refresh your memory:
A contingency is a condition put in a contract that must be met for the contract to be binding. Common contingencies include financing, inspection, appraisals and other factors that protect buyers of real estate and their earnest money.
Whether you are buying or selling, look at your contract. You’ll see that the three common contingencies are inspection, appraisal and financing, and in that order, they can unravel your home purchase or sale. You’ll see there is a completion date for each, followed by the deadline for termination and resolution should an action item come from one of them.
If findings are not resolved by that point in the contract, buyers can walk away and get their earnest money back, causing a seller to have to completely start over, even if something was zero fault of their own, like the buyer’s financing falling apart last-minute.
A buyer can find out their dream home requires extensive plumbing or a new furnace- which can add thousands to their price if a seller is unwilling or unable to make the necessary repairs. Talk about disappointment!
Beyond the major contingencies, home contracts have various other important deadlines that matter- for insurance, homeowners association documents, title commitments, due diligence and more. And there are other more complex contingencies- if you can only buy a home if your own home sale goes through—for example—causing a domino effect of failures if one part of the equation does not come to fruition.
What Buyers Can Do
Cash is king in real estate transactions, and securing a cash-like offer can make a huge difference. So can working with a lender that offers real-time underwriting- that means your documentation is reviewed earlier in a process so that you don’t even get a pre-approval until your assets, income and personal circumstances like alimony payments or other properties have been incorporated into your approval.
What Sellers Can Do
Putting certain parts of a transaction earlier, like the inspection, can help you avoid learning about a major plumbing issue or other costly situation early in a process. Working with buyers that have cash-like offers allows you to ensure their financing is solidified upfront, and order appraisals earlier.
“Your best teacher is your last mistake.”- Ralph Nader
In the end, whatever you can do to ensure a frictionless transaction and avoid last-minute surprises can make all the difference. Make sure you go into your transaction eyes wide open- don’t assume that it’s complete until you’ve got keys. A broken transaction can quickly become a costly, time-consuming and unforgettable ordeal.
Ready to explore a contingency-free solution? Neat Homes offers options on both the buyer and seller side that help eliminate late-in-the-game transaction failures.