Buying and selling a home – it’s easy!
The problem is that it isn’t. Oh, sure, it looks that way. Buyer meets seller, buyer and seller, represented by attractive, well-coiffed real estate professionals, deal in good faith to reach agreement, and then everyone goes home to pack. It’s a happy story, one filled with princesses and white knights, pony rides and unicorns, and it culminates in one jubilant moment when the keys are exchanged – on time. Roll the credits and the moving trucks.
That may have been the picture once, in a land far, far, away. Today, the intricacies and complexities of the real estate transaction leave many feeling like they have wandered into the wrong theater. Sometimes it’s a horror flick, other times simply high drama. It is always full of surprises.
Californians move on average approximately once every eight years so, despite the troves of information available online, it is impossible for the average home buyer or seller to fully grasp the potential hurdles of today’s real estate transaction. Today we’ll try to help.
From the “Our Job is a Never-Ending Laugh Riot” files, here are some real life examples of stuff that can happen. As you read this, you will probably think it can never happen to you. That’s what these folks thought.
- But the loan is approved, right? Yes. Well, maybe. On second thought…
Forty-four days into a forty-five day escrow, with the appraisal returned at price and the loan approved, the lender is informed by their investor (the one who would be buying the note) that the appraisal is flawed – to the tune of over 10%. They reached this conclusion because a nice man in their Texas office fired up his desktop, Googled “San Diego,” and “reviewed” area values, presumably on Zillow. The outcome? Loan is denied, escrow is cancelled, and buyer’s wallet is lighter by a $400 inspection, a $500 appraisal and a $5,000 earnest money deposit.
- But the appraisal has been ordered, right? Of course it has! Twice, in fact!
Buyers find the perfect home and enter contract. It had been a multiple offer situation – there had been a competing buyer whose offer was not selected. The chosen buyers learn, only when their lender attempts to order their FHA appraisal, that the failed buyer’s lender had beat them to the punch. Not a big deal, you would think, and the appraiser representing the buyer who wasn’t a party to the contract was summarily sent home. Unfortunately, these buyers too were intending to get an FHA loan, and because their lender had jumped the gun and ordered the appraisal, the FHA “case number” had been assigned — to the wrong guy.
FHA only allows one case number at a time, so what should have been a routine appraisal order and, under the circumstances, a simple reassignment of a case number involving a phone call and a couple of hours turned into a painful two week stalemate with our favorite lender, Bank of America (who had no right to order an appraisal and mark this particular territory absent an executed purchase agreement in the first place). The outcome? Escrow closes one week late as we watched moving trucks rescheduled a total of three times.
- But we get the keys now, right? Yes. Well, maybe. On second thought…
It could be that the seller is a little busy on closing day, having a few errands to run and such, and will get around to delivering the keys when their schedule opens up. Or maybe the seller has decided that the common area keys, including the one that actually opens the security gates to the complex, will be turned over for a small consideration, say $125 or so. We saw both happen this week. More stalled moving trucks.
- But the appraisal came in at price, so we can sign our loan docs, right? Right-O! Oh, wait. First we have to teach the bank the new rules.
Now, I know that HUD rescinded its requirement for second appraisals on FHA loans exceeding $417,000. I know this because I read stuff on Al Gore’s Internet, and I figure it is sort of my job to know this stuff. Not so the lender in one recent transaction. When the bank (you get one guess, and it starts with “Bank of America”) notified us three days prior to close that they couldn’t process loan documents until a second appraisal had been ordered, it took a series of calls, each elevated to a higher level of authority, and each in which I became progressively less delightful, to reverse their “because HUD is making us” position. I also had to send them the actual HUD Mortgagee Letter outlining the changes.
At stake was the very distinct possibility that my buyer clients would be enjoying an extended stay in my guest room, since the sale of their home was proceeding swimmingly and on schedule with a cash buyer. It’s amazing how quickly an escrow can proceed when lenders aren’t involved.
- But the dimmer switches convey, right? Legally, yes. But, you know people!
Forgetting that, as a part of the purchase agreement, the seller negotiated exclusion of everything from towel bars to ceiling fans to under-cabinet lights, nowhere in the contract did it say it was OK – after the walk-through – to remove all dimmer switches and, in doing so, cut the wires. We have also in the past seen microwaves mysteriously change vintage and color, light fixtures morph into something less attractive than those present during the inspection, and, of course, the infamous draperies-gone-bye-bye.
In these cases, the buyer can either chalk it up to experience, take the seller to small claims court, or call their agent every twenty-seven minutes for the next three weeks until the issue has been “resolved.” Usually, it is the latter.
- But we already negotiated the price, right? That would appear to be a reasonable assumption, since you are in receipt of a fully executed purchase agreement.
Where one recent buyer was concerned, however, each day brought a new demand. First it was $1,000, then a lower sale price to qualify for the home buyer tax credit, then $10,000 because they decided they wanted to do a little re-landscaping, each time dangling the threat of cancellation. After 45 days of brain damage, the seller is giving them their wish.
- But we are entitled to inspect the property, right? Sure, if you can pick locks – and you brought your night-vision goggles.
Even though the lender doesn’t technically own the home – they are just being asked to consider a short sale – they decided at some point during negotiations that it was prudent to have a “property preservation” company rip off a screen, break a window, change the locks, turn off the utilities and steal the garage door openers. We are still waiting on a negotiator to be assigned, and if this sale is ultimately approved, “as-is” just got a little worse. (In all fairness, this one wasn’t Bank of America.)
- But the complex is on the HUD approved list for FHA financing, so our FHA loan will be approved right? Silly buyer. Didn’t you read the latest amended HUD directive issued twelve minutes ago, the one that superseded the guidelines published yesterday? (Don’t worry; neither did the lender.)
It was something about HOA-provided blanket insurance coverage for the buildings, absent which FHA will no longer lend. And, no, the buyer can’t just buy the coverage. What if it’s a detached condominium complex, where the owners have always provided their own insurance? Are these now personas non-gratis? Turns out that one is situational and depends on the lender. Guess which one might not be willing to play ball?
- But the buyer had his inspection, accepted the property “as-is,” performed a walk-through, and closed escrow. We are done, right? Sure, except he didn’t really mean it. He wants two garage door openers by Friday, dammit, or else. And he would like that ugly faucet fixed while you’re at it.
He may get over it after rereading his contract, or he may just call his agent every twenty-seven minutes for the next three weeks, who will in turn call us every twenty-seven minutes for the next three weeks, until the issue has been “resolved.” Usually, it is, well, you know.
There is oh-so much more, of course. These are just the nits that represent my recent escapades. Aside from my blatant attempt at a little group therapy, there is a huge point to all of this. Today, the real estate transaction is never easy, rarely seamless, and always unpredictable. Hire a good agent, not the first one you encounter at the grocery store or an open house. Interview them to get a sense that they have been to this rodeo more than a few times, and then trust them to represent and advise you. And remember that if it was easy, you were one of the lucky ones – or your agent did a really good job of dealing with the insanity in the background on your behalf.