ELGIN, Ill. — The chances of turning a home sales contract into a completed sale increase substantially when the real estate agents successfully overcome obstacles that can block the path to the closing table, according to a RE/MAX analysis of trends in the northern Illinois real estate market.
RE/MAX agents say there is no question that more contracts fall through these days than in the past because of challenges in today’s real estate marketplace.
“Traditionally, it was the rare contract that didn’t close, usually not more than one or two out of 100,” said Tim McCaslin, broker/owner of RE/MAX Sauk Valley in Sterling, Ill.
McCaslin estimated that in 2011, the failure rate was closer to 5 percent in his market area, while at the same time many more contracts ended up requiring extensions, but did close eventually.
“We see the same trend in our area,” said Pam Jacobs, an agent with RE/MAX of Barrington in Barrington, Ill. She said no single issue is primarily responsible for making it more challenging to close contracts. Rather, she cited a combination of factors that include regulatory changes, increased scrutiny by lenders, greater anxiety on the part of many buyers, and added complications that can come with buying a foreclosure or short sale.
According to Paul Fasold of RE/MAX Signature in Chicago, the keys to closing a contract are for both the buyer and the building to be qualified. A real estate agent’s job, he said, is to make sure both are true.
“First, it needs to be established that the buyer is financially qualified to undertake the purchase being contemplated,” Fasold said. “That means making sure buyers are working with a lender and have been pre-approved for a loan that will allow them to purchase the property on which they are making an offer. Lenders today are extremely cautious, and each has its own set of loan criteria. That’s why I like to be sure buyers are working with a good mortgage broker who has access to a range of financing sources and can match each buyer with a suitable lender.”
Cindy Banks, broker/owner of RE/MAX Cornerstone in West Chicago, Ill., works extensively with banks, helping them sell foreclosed homes. She said the financing of real estate transactions has become more complicated in recent years.
“Lenders have more detailed requirements, higher standards and less tolerance for any deviation,” Banks said. “Even though we typically represent the seller in these transactions, I view it as part of our job to be proactive in making sure each buyer’s lender has the information it needs. Otherwise, the transaction is at risk.”
The Federal Housing Administration (FHA) is one major lender with specific contractual requirements that are clearly spelled out on its website, according to Kathy Dames, broker/owner of RE/MAX Ultimate Professionals in Shorewood, Ill.
“Homes that HUD resells and finances after foreclosure often are great values, but to get that value, HUD insists buyers adhere to its rules,” Dames said. “So, when buying a HUD home, the buyer and the buyers’ agent need to go over every line of the contract and abide by the letter of the requirements, or the transaction may not close.”
As for being sure each building also is properly qualified, Fasold said the most common issue these days is when the appraisal required by the lender comes back with a value below the agreed sales price. That usually happens either because the price is too high relative to recent sales in the area, or the appraiser lacks the information needed to develop an accurate value estimate.
Fasold said: “It has always been part of my job as an agent to make sure a property goes under contract at a price supported by other recent nearby sales, but today that is more important than ever. And it’s equally vital to give the appraiser the information needed to understand the full value of the property.”
It’s also a good idea, contends Cindy Banks, for the listing agent to meet the appraiser at the property so they can walk through it together.
“An agent isn’t supposed to talk to the appraiser, but you can be present, and you can provide data on comparable properties,” she said. “My goal, in those situations, is to make it as easy for the appraiser as we can.”
A related issue involves home inspections because “even the most perfect home will have minor flaws,” said Pam Jacobs. For that reason, “both buyers and sellers need to have realistic expectations when it comes to home inspections,” she said. “Buyers shouldn’t treat every cosmetic imperfection as an opportunity to renegotiate the price. At the same time, finding a serious problem, such as one that would cost $1,000 to address, certainly is an appropriate subject for discussion. Agents must educate their clients about the entire purchase process, including the inspection.”
Perhaps the most common stumbling blocks in today’s real estate market are short sales, where the seller’s outstanding mortgage debt exceeds the market value of the home. In some cases, there may be several lenders involved, and all lenders must sign off on the purchase price if the seller is to be released from further financial obligations.
“Ten years ago, I doubt I did one short sale a year,” said McCaslin. “Now, banks have entire departments that do nothing but work on this type of transaction, and our office handles dozens of them annually.”
With such a large volume of transactions and with multiple lenders frequently involved, short sales can take months to complete. As a result, some buyers lose patience and walk away. In other instances, the lenders will decide not to grant the short sale.
To minimize that risk, noted McCaslin, it’s crucial to know upfront what documentation the lender requires, what the lender’s criteria are for approval, and how the documentation should be delivered. Most of all, he noted, agents have to follow up to make sure lenders come to a decision as promptly as possible.
When pursuing a short sale, Dames advises buyers to put together an experienced team, including a real estate agent and an attorney who are both familiar with the short sale process.
“If you do that and are dealing with just one lender and can get the seller to immediately provide a complete package of documentation, it actually is possible to close a short sale in as little as 30 days,” she said.
RE/MAX has been the leader in the northern Illinois real estate market since 1989. The RE/MAX Northern Illinois network consists of 2,200 sales associates and 105 individually owned and operated RE/MAX offices that provide a full range of brokerage services throughout the northern one-third of Illinois.
From the Jan. 4-10, 2012, issue