25 Reasons Real Estate Deals Fall Apart, How to prevent it
25 Reasons Real Estate Deals Fall Apart, And how to Prevent this.
We all know that selling real estate can be extremely time consuming, in this article we will explore 15 ways to save your real estate deals from falling apart.
I am a highly experienced mortgage broker from the Edmonton, Alberta marketplace. My goal is to help make my real estate partners lives easier by saving them time and shortening their sales cycles. I have spoken to many agents about what their biggest frustrations are in real estate, and one of the key areas was having deals fall apart on them after spending a lot of time with a client.
Unfortunately none of us in the real estate industry get any type of base salary, so loosing deals is basically stealing our free time from our families and friends. You will never get those hours back and you did it for nothing. Some of the topics I will outline in this article, you probably already know. Unfortunately most agents do not take the steps required to avoid real estate deals from falling apart due to fear of pissing off the client, or scaring off the client. If your clients respect you as a professional, they will not be offended by any of the subjects and should respect your professional opinion. In the long run, you will save time and money. Your clients will have a better overall experience and will respect you.
25 Ways to save real estate deals from falling apart
Buyers did not get pre approved (and you did not ask for a pre-approval letter)
Buyers not being able to get their financing is one of the most obvious reasons real estate deals fall apart. You could be very far into the sale 1+weeks after receiving an accepted offer and have your deal fall apart due to financing. This can be an extremely frustrating scenario for yourself and you’re client and could cause your relationship to end.
As a mortgage broker I have seen this happen so many times, and I have been able save many deals from falling apart. The hard part about this is the client is already frustrated and they may have spent money on an inspection or other expenses. If you want to have a good long term relationship with your client, you should ensure that they are pre approved prior to shopping. Not only is it good for them from a confidence standpoint, it is also good for you, as you are less likely wasting your precious time with a buyer who cannot buy.
What can you do to prevent this from happening?
You can ask your client to provide a pre approval letter. You can also get more deeply involved with the mortgage broker they are dealing with by asking for your clients permission to discuss this. Sometimes a client may be pre approved up to 200k but when they factor in condo fees or excessively high taxes in a certain community ie. St Albert this will push their debt servicing ratio out of whack. This can be hugely disappointing for a client and it is preventable by doing a little more. Your clients will thank you for it.
2. Bank pre approvals are not real
Many of the real estate deals I have been able to save this year, have been due to the bank pre approval not being real. Basically a bank pre approval does not require credit to be pulled or any documentation to be collected. The bank representatives have been trained to provide the pre approvals this way as it creates more business for them long term. Unfortunately they obviously do not care about your time or their clients time. This is the biggest reason why you should always coach your clients to get pre approved through our team. We get you a real pre approval by collecting the customers documents and pulling credit. approval email for an accurate price range. I have never had a deal fail after sending out a pre approval. So you will be able to shop with full confidence and so will your client.
What can you do to prevent this from occurring?
You can contact the lender or mortgage agent and find out if they have reviewed the clients documents and pulled credit. Obviously you are not authorized to get the client personal info, but you can find out if the broker has done due diligence when pre approving the client.
3. Buyer looses their job
Unfortunately this is very common with all of the layoffs and uncertainty during the covid 19 pandemic. Many people are loosing their jobs before possession. The lenders will not fund a deal if the client is not employed.
What can you do to prevent this from happening?
You can request that the client is fully approved for the property with a lender that will review all of their documents up front and give a solid approval. Very few lenders do this, especially if the possession date is longer than 3 mths away. However there are lenders that will do this up to 9 mths out!
4. Client makes a large purchase before possession
This is one of those unfortunate things that happens often. Client may purchase a vehicle or take out a large loan for something before possession. The lender may pull credit again before the possession date and will discover the loan. They will then have to factor it in to the debt servicing. At this point if they are over in the debt servicing the lender will not fund the mortgage. This usually only happens if the possession is far out like in a new build situation.
What can I do to prevent this from happening?
Educate your buyers about not taking out loans and making all of their debt payments on time. You can also try to have the mortgage approved through a lender that will give the solid approval with no future documentation requirements. Talk to your mortgage broker contact to ensure the transition.
5. Short but good credit
A client has just started getting credit, they have one credit card for less than a year. The client wants to get a mortgage and has a downpayment saved.
Work with a mortgage broker that can accept alternative credit such as 2 years worth of cell phone payments and landlord letters. Ask the client if they have any alternative credit sources or if they can get a cosigner on the loan for the short term
6. They are not citizens
Client have a permanent residency or work visa. Many people think they cannot get a mortgage in Canada if this is the case. The client may have some minor credit but no strong history of credit. Client has the downpayment saved and have kept good credit for the small amount of credit they have. Client are employed full time
There are special programs out for clients like this. It is called the new to Canada program and many brokers do not know how the program works. First make sure the mortgage agents know the program. Second make sure the client is dealing with a bank that uses all 3 insurers. Those insurers are Sagen, CMHC and Canada guarantee. If the lender uses all of these insurers they will be able to use alternative credit like landlord letters and bank statements as a form of credit. The client will have to prove they have made all of their payments on time.
7. They don’t have enough of a downpayment
Client have perfect credit, good jobs and have been pre approved for their mortgage. They unfortunately do not have the full downpayment saved.
The client can use a credit card or a line of credit for part of the downpayment. There are special programs like cash back that will allow for the client to get up to 5% cash back at closing. They will then be able to pay off the loan they used for the downpayment. Make sure they are dealing with a lender that can use this type of product. Most banks do not offer cash back.
8. The sale of their home fell apart
This can happen if the client is using equity in their home for the downpayment. Their current home may have to sell in order for them to be able to debt service the mortgage.
We can turn the current property into a rental giving them the income they need to qualify for the mortgage. We will then refinance the property in order to pull equity out of the property. The bank will not allow them to pull out all of the equity, so we will guide them into a mortgage that will allow them to put lump sums down in order to get the equity back into the property. Talk to the mortgage broker about this to see if this is an option. If this is not an option then you will have to try to get the possession date extended and do a price reduction on the subject property to get a quick sale. Do not remove conditions until the clients sale has been solidified. And finally if none of this is an option the client will have to get a cosigner for the short term and get gifted the funds to purchase the property.
9. They are self employed and claim very small incomes
Clients have perfect credit, a strong business but claim a very small income. This is very common with self employed people including realtors. Their corp makes the money and they pay themselves a very small amount.
There are a few lenders out there that will accept what is called stated income. The clients will have to provide business financials and many other tax documents to prove the business is profitable. The bank will look at this and will allow them to state their income. As long as it is reasonable the client will qualify. Talk to your mortgage broker about this before you take the client out and get them excited. If the broker understands the program, your client may be approved. The other solution is to provide a large downpayment, there are private lenders that only look at equity.
10. Client just graduated
Clients have good credit, and were just hired in a professional job after graduating. This is for doctors dentists and many other careers. They just have no proven history of income. They have no base wage, the income is commission or by patient
There are some lender with special programs for this. Ask the client who they are trying to get approved through and make sure that lender has a program for this. There are only a couple of lenders I know of that will do this. For example for a new dentist or doctor I can say that they make $125, 000 in order for them to qualify for a good mortgage amount!
11. High car payments
The client has a good job and decent credit. However they bought an escalade with $1400 per month payments and they are trying to get approved for a large mortgage. These client usually do not realize this damage this is doing to their debt servicing. They have had the vehicle for a few years and have paid it down a lot.
Speak to a mortgage advisor about getting the car payment refinanced. Most mortgage agents will tell you they do not have an option for this, so ask the question. I did a deal like this recently and was able to refinance the vehicle and bring the payments from $1400 per month to $400 per month, this allowed the client to qualify for a larger amount.
12. Clients taxes are not complete
In many jobs (like real estate etc) the client will need to use a 2 year average to qualify for the mortgage. The lenders will use the 2 most recent tax years. If the clients taxes are not done they may not qualify for a mortgage.
Make sure you ask your clients if their taxes are complete. Let them know that this is something that can prevent them from moving forward. This will ensure they are not dissapointed by a decline! All of our goals are to make the client situation smooth and seamless.
13.They have cosigned loans for other people
Many people cosign loans for children and family members. This affects their debt servicing the same way as them having the loan themselves and can prevent them from getting the mortgage they want. Often when I see a cosigned loan there are late payments as the cosignee does not take the loan as serious as the cosigner would. It screws their credit up the same way as missing the payments themselves.
14. Clients want to spend more than pre approved amount
Edmonton is notorious for this, client either max out the amount they are approved for and often want to go over this amount.
Find out if the clients have means to put more down on the mortgage. Or alternatively find out if there are any special programs that they are eligible for to get them qualified for a larger amount. For example, if they are first time home buyers they can use the first time home buyer program to qualify for a larger amount. Talk to the mortgage broker and find out if they qualify for something like this. They can also use cash back to pay off loans they have thereby giving them a lower debt servicing ratio. This will allow them to qualify for more!
How Appraisers can mess up real estate deals
1. A bad appraisal
A bad appraisal can be a disaster for a realtor and for a mortgage broker. If a client is putting more than 20% down, they will require an appraisal. Sometimes even when a client is putting 5% down, the bank may request an appraisal if the property does not pass in their auto evaluation system. The reason for the appraisal is to assess the value of the house and ensure it is worth what they are giving for the loan. I have had appraisals in Edmonton differ as much as $30, 000! In this case, the client had chosen the appraiser that went into the property.
Unfortunately there are inexperienced appraisers out there that may not consider all things about a property when they are doing an appraisal, causing the appraisal to come in short.
Please talk to me before you have an appraisal done. I have several highly experienced appraisers that do consider all things about a property in the appraisal. Many of these appraiser are certified with all of the banks on the approved appraiser lists. It is important to have a good relationship with appraisers and know the ones that factor all things about a property in their consideration. If an appraisal comes in a lot lower than it should you can also get a second appraisal done. Make sure the appraiser does not send the appraisal to the bank without your consent, have the mortgage broker look at the appraisal before it is sent to the bank.
2. Appraiser does not specialize in a specific product and undervalues the property
Ex city appraiser appraising acreages or farms. If the appraiser does not have experience in appraising the property type you are working on, don’t hire them. I recently had a deal this happened on with an acreage. There was a 1100 sq ft house on 4 acres and a brand new heated shop work 200k and 2 barns. The original appraiser valued this property at the house and land only. We found a good appraiser for this type of property and it appraised for way more. This allowed the client to refinance and get the money they needed to pay off debt!
Contact some appraisers prior to the appraisal. Speak to a mortgage agent with experience with the property type and with strong appraiser contacts. Do not let the bank choose the appraiser.
1. Builder pressures clients to remove conditions without realtor knowledge
There are some builders out there that pressure your clients to remove conditions without your knowledge. Sometimes the client will do this thinking everything is all good. The problem is that the builder will always feel like the client is all theirs and you are not in control. I saw this a couple of months ago, the client had put down a very large deposit and removed conditions with the builder. The bank called me to see if I could help, as they did not give the client the go ahead and neither did the realtor. The client ended up loosing their $25k deposit.
Create a builder engagement list for your clients outlining the entire process. Make sure they read it or read it to them. This will teach them how to work with builders and yourself and outline the roles. Let them know you and your mortgage broker need to discuss before removing conditions and that a letter should be drawn up outlining this. This puts the accountability and responsibility on someone else.
2.Builder is forcing a draw mortgage when clients only qualify for completion
For some reason this year many builders have all of their money tied up and want the clients to do draw mortgages. With a lot of builders this is their only option! A draw mortgage is when the bank will pay the builder in portions for the build prior to possession. Not all customers will be able to do this as many people have their downpayment tied up in their current home. This will prevent them from qualifying for both properties.
Ask the client about the source of their downpayment Then if you find out it is in their current home, you should only show them homes with builders that offer completion mortgages. This will give them enough time to sell and get their money out, and the builder will carry the cost of the build up to the possession date. This is a huge key point, there is nothing worse than a client getting excited about a property they can’t buy. If you don’t set it up right from the beginning you could loose the client altogether.
3. Builder goes out of business
Make sure your clients are dealing with a reputable builder. I had this happen to me personally where I bought a home from a smaller builder and they were going out of business. Luckily for me another company bought their properties and completed the job. Unfortunately it took 2 years for this to happen.
Do your research on the company. How many houses have they built? How many per year? How long have they been in business? Obviously this would not totally prevent this from happening, but it would give you a fighting chance. I have seen many larger builders go out of business in the last 15 years. It happens when they over leverage themselves. If a larger builder is forcing a draw mortgage then they probably have over leveraged themselves. There are a few of those in Edmonton right now that I know of.
4. Builder registers a new duplex as single family and the lawyer finds out it is a condo
Beware of this. Many realtors will put an infill duplex in paragon as single family. This can cause issues if the utilities in both properties are shared. On average a builder will save $25k by doing this and the two properties will in actuality be considered condos. It will require condo documents even if there are no condo fees!
Check title on the properties before you write on them. You have to pull this anyways, but this is a part of due diligence that can save you a lot of hassle in the future. Don’t trust paragon as realtors can write what they want in there. Ask the realtor to check with the builder on this. This affects more than just the transaction, it also affects property value if an appraisal needs to be done.
How Lawyers can ruin real Estate deals
1.Lawyer does not work fast enough
Lawyers are interesting creatures. You may have run into this situation in the past. Some lawyers will move at a snails pace to get things done. This can really mess up a transaction.
Ask your colleagues about who they use and if their lawyers have ever messed up a transaction for them. Contact the lawyer and ask them if real estate is their specialty. You have all right to ask them these questions as you are a referral source for them. There are many awesome and detailed lawyers in the city. Make sure you are recommending someone that can meet your timelines. And just so you know, there are real estate lawyers in Edmonton that can close a deal within 10 days of possession!
2.Lawyer does not have a trust account with the lender clients are using Cannot close on time.
I had this happen on a deal I worked on last week. The lawyer was not properly set up to receive trust money from the lender. Everything had to be couriered around. This slowed things down a lot.
Do your research on the lawyer. Make sure you are dealing with a lawyer that only works on real estate law.
3. Lawyer tells the lender more than they need to (example property is destroyed when there is only small things that happened) Superhero problem.
Superhero problems is an issue in this industry. When a lawyer tries to be a superhero it can really mess up a deal. I recently had a lawyer in Edmonton tell my client bank that the property they were buying was trashed before the possession date. This ended up causing the lender to pull out of the deal at last minute. We ended up having to have a second inspection with picture of the property before the lender would fund the deal. It costed the client money, the lawyer would not take responsibility and the buyer and sellers were both mad. Unfortunately for realtors, you are often blamed, as you are the face of the transaction.
Find a good lawyer you get along with and stick to them. I know we are supposed to recommend 3 of every industry, but if you find gold then stick to them, In the long run it will help you close more transactions.
How Realtors can mess up real estate deals
1. Bad Pictures
Yes some realtors take crappy pictures. If the realtor that is listing a property takes crappy pictures, many people may not be interested in seeing the property. This may cause a seller to loose out on a potential deal.
Take picture in good lighting. Buy a dslr camera and learn how to use it. Mcbain offers courses for cheap. Use a wide angle lens and open all window blinds. Or alternatively, hire a pro to take the pictures.
2. As is where is in the purchase contract
Words of doom with many lenders. Do not put as is where is in your purchase contract! When a lender sees this they automatically assume there is something wrong with the property. I have seen this a lot in the last few years. The contract already has contingencies for this built into it. When you are listing a property, never put this into your mld listing or the purchase contract unless you have to.
Just don’t do it.
3. Title problems
Pulling title is something you have to do on every transaction any ways. Before a client writes on a property, or when you are listing a property, always pull title to find out if there are any liens or encumbrances on a property. If you don’t want to pay for it, have the client pay upfront for this. It will ensure there are no surprises and potentially save your clients money and time.
Always pull title
4.Allowing ego to get in the way/not working together
This is an ongoing problem that ends up messing up deals for a lot of people. This is when an agent on one side of the transaction is difficult to work with. Here is the fact, the buyer wants to buy and the seller wants to sell. Both agents are working to meet their clients goals. I have run into scenarios over the years where one agent is so rude that I just don’t want to work with them anymore. This happens a lot and both clients end up being the ones that loose out on a successful transaction. Realtors are the middle men, not the decision makers.
Be cordial with your peers! If the other agent is very difficult to deal with, contact their broker directly. I know this is not what most agents want to hear, but getting the job done for the clients is the #1 responsibility of the representing realtor.
5.Recommending lowballing (rookie mistake)
I’m all about getting a great deal, and I have made very low offers in the past. However recommending lowball offers with all of your clients can cause a lot of problems in a transaction. For one it creates an expectation that you might not be able to meet. Second it can cause your clients to become very frustrated and potentially loose interest in buying or selling. Lowballing can also create an invisible barrier between the seller and the buyer.
Don’t recommend lowballing, instead recommend paying fair market value or less.
6. Not explaining what conditions are, and meeting timelines
I can’t count the amount of times I have spoken to a client that does not know what conditions are. The realtor should always explain the condition and timelines to the clients so that they can do their due diligence to meet all of the timelines. Many deal can fall apart this way, as the client may not have the fire under their butts to get things done fast and meet timelines.
Have a sit down meeting or zoom call with the clients explaining all important information on the purchase contract
How Inspectors can ruin real estate deals
1.A Bad Inspector (superheroe problems)
Yes inspectors can screw up lots of deals. Some inspectors will explain things to the clients with a potential upside and others may explain things in a disastrous way. For example. One inspector may tell the client the electrical is all messed up and can cause the house to burn down, while another may explain there are a few outlets with crossed wires that are inexpensive to fix.
Find an appraiser that works well with you, ask your peers about this. Do not hire new inspectors without having a frank conversation about expectations.
Other Reasons Real Estate Deals Fall apart
1. Buyers remorse
The client signs the paperwork only to feel like it is not the property for them. This happens sometimes when the buyer over extends themselves or are not already pre approved.
Create a timeline document along with a property expectation document outlining the wants and needs the client has. Review this with them prior to submitting an offer. This will prevent them from making excuses that are untruthful for getting out of a deal. Make sure you have a pre approval letter and talk to their broker. Have conversations with all partners in a transaction to ensure the property meets all of their wants and needs. This will stop them from saying things like my wife doesn’t like it.
2.Condo documents Special assessment
Special assessment in condos are a disaster in real estate deals. This is when a condo board sends a levy (bill) to each unit for repairs. This can often happen when condo financial have very little saving in the reserve fund and a major repair needs to happen. There are many building in Edmonton right now that are currently under special assessment.
Avoid showing condos under special assessment unless you know for sure this will be paid by the seller and the reserve fund has enough in it for future repairs. Hire a condo document specialist to review condo docs. Recommend that your client get all condo docs reviewed by a pro. Do not ever recommend that they move forward without doing this as it can make you liable. If you sellers building is under special assessment, recommend they pay this prior to selling. Explain the assessment on the mls and any upsides so people understand what they are getting into. This will prevent offers from coming in, and tying up your listing only to fall apart due to this reason.
3.Condo documents (client didn’t know no pet) or age restricted
Many condos will have restrictions that can be important for a large populations like age restrictions and pet restrictions. Some agents do not openly disclose these in the comments or on the mls. So you could be showing a property your client will not buy. THis will waste yours and your clients time.
If you are listing, put the restrictions in the comment or private remarks. For buyer agents, find out if the client has any wants such as pets etc. Then ask the selling agents if there are any restrictions on the building your client wants to see. Always explain to your client what the restrictions are so that they don’t think you just don’t want to show it to them.
4. Vehicle doesn’t fit in garage
Does your client have a truck? Does it have a lift kit? These are questions you should ask so that you can ensure the clients vehicle will fit in the garage you are selling them. Many properties have very short garages that a clients vehicle may not fit in.
Ask your clients how big their cars are in a document that explains their property needs. Recommend they measure garage before writing an offer. You don’t need the transaction falling apart for something as small as this.