Real Estate Closing Problems

Real estate closings have changed outwardly in many ways, especially since the beginning of the pandemic.  Most parties sign ahead of time, and--usually--not much happens at the closing.  The monies are often wired from buyer to seller, and sometimes the commission is paid that way as well.  

Although that all sounds smooth, there are always glitches that pop up at the last minute.  The most problematic, and maybe most common, is a delay in the closing date. It could happen that the mortgage funds are not available.  That could be due to processing issues, or for any number of other reasons.  That commonly delays the closing.  It's interesting to know that our contracts in Connecticut allow for closings to take place after the date specified, and that a couple of weeks, which can feel like forever to the seller, is not unusual.  In fact, not all contracts in real estate use the phrase "time is of the essence", which signals that the transfer must take place on time, or there will be consequences.  It is not uncommon for the party who wanted that phrase used to be the one who cannot close on the date identified.  We had one buyer who insisted on using it, and then had a child with chickenpox, and was unable to move when required.  Attorneys on vacation are another likely cause of a delayed closing, and they would most often work that out amongst themselves, without the buyers and sellers having much say in the matter.

Sometimes buyers want to move in before the closing, or at least store furniture in the new home.  That raises issues of insurance--the buyer, before closing, has no "insurable interest" in the property, and the seller has no reason to take the risk.  Attorneys would normally be used to write up an agreement of indemnification.  Sellers frequently worry that the buyers will move in, find something wrong, and refuse to close.  That's not crazy.  Usually, something gets worked out, especially if it is the seller who isn't ready to close for some reason.

The walk-through can be sticky, if something is discovered to be broken or missing.  The contract is usually clear that the purpose of the walk-through is just to be sure that the house is in the same condition as it was at the time the contract was signed, so it isn't clear that a buyer could get satisfaction for something found that wasn't working--it should really be that he or she would have to prove that it was not broken when the contract was signed.  At other times, the argument is over what was taken.  It could be the washing machine or the dishwasher, although the usual culprits are chandeliers and pool equipment.  . There has even been one closing held up because the sellers took the light bulbs, and the buyers wouldn't close without them! All in all, everyone breathes easier when that inspection is done

Many other situations occur every once in a while, enough so that we caution sellers not to "count their chickens before they hatch".  That way, a little bump in the road will be expected, which can be all that is needed to defuse the tension and find a way to move forward, if all parties are reasonable. And, if there are no last-minute items that arise, everyone can be pleasantly surprised!

New Mortgage Regulations Put Off Until October

Perhaps in a rare admission that what they are about to do will cause havoc, the Federal government has announced that the new proposed regulations affecting real estate closings will be postponed from August til October.  As far as we can tell,  most closings will be harder to schedule and more likely to be delayed, since any change at all to the documents will require a three-day waiting period, each time something is altered.  This means, in all practicality, that there will be no back-to-back closings, where people sell one house and buy another.  That means no moving from the old home to the new in many cases--a major glitch for lots of families. 


What does the delay mean for you?  You have two more months to get into the pipeline for a mortgage under the old rules.  So hurry up!

Are you ready for 2015?

I know it sounds ridiculous, in the waning days of summer (hot and humid, to boot!), to be talking about the beginning of a new year.  But we in the real estate industry know the time cycles of our profession, and we know that someone who wants to be in a new home by the end of the year needs to get on the stick right now. 

Labor Day is the traditional start of the fall market--that brief two months when people rush to do what they didn't do in the spring--and we're ready for it.  Buyers suddenly wake up from the dog days of summer to rush into action, and sellers get serious about getting to closing on properties that they want to sell, especially if there are tax reasons for finishing the transaction this year.

Although these two groups can be a very motivated lot, there still needs to be some urgency in the process, since financing issues seem to take an ever-increasing amount of time, and the very end of the year can be tricky for inspections, closings, and other things.  While the first snow may seem very far away, it's just around the corner, and will throw a wrench into dates seemingly fixed in stone. 

So don't be left out in the cold--act now to achieve your 2014 goals!

Home for the Holidays

As the year winds down toward the holidays, I want to remind people that there's one last push left for the real estate market.  Although fewer people look for property during this season, those who do are generally very motivated.  And, while sellers often don't want to have their homes subject to showings near the holidays, the truth is that some homes never look better than when they are decorated for the season.  There is a weather factor, of course, and much less daylight, but the aroma of baked goods and a display of festive decorations will often do a lot to make a house seem like you want it to be your new home.

The same principle applies to the financing and closing side of a transaction.  Even though people generally miss more working days, and parties and vacations can slow down the wheels of commerce, there is usually a strong motivation to clean off desks at the end of the year, and fewer files that have to be processed.  The tax issues involved can often lend a sense of urgency also, since many times there is a big incentive to close in one year or the next, and many jobs that begin at the first of the new year.

So, before you stop reading the Open House section of the paper, and trolling the internet for interesting homes, take a long look at your goals, and think about whether you can accomplish in less time and with less competition (and maybe even for a lower price) what otherwise will be left until spring.  Maybe a new home is the best present of all!

July is Sizzling!

There aren't many holiday times for real estate agents.  People tend to buy real estate when they have time, and that is often when the rest of their lives are slow.  For us, that can mean writing a contract on the hood of a car on Mother's Day, or in a kitchen on Christmas Eve.

Usually, though, we can count on the fact that, once the rush to buy and close in the spring and early summer is over, mostly by June 30th, there will be a break that can last until Labor Day.  Except for vacation-area properties, most homes are not as likely to be sold, or even shown, in the dog days of summer.  Few people choose to list their homes then, either, maybe because they'd rather be at the beach than getting property ready to show.

But not this year!  We're well into the dog days of summer, and we're cranking along at full speed still.  In my opinion, we are still catching up from the time we lost to storms, particularly the Blizzard of 2013 in February.  Closings were slow in March and April, and we're still scrambling to finish what would ordinarily have been the spring market.  And, as anyone who has been outside in the past month knows, it's not spring anymore!

What does this mean for buyers and sellers?  Sellers should reconsider holding off until Labor Day to list, and many people are doing just that.  New listings are surprisingly robust for summer. Buyers should not give in to the impulse to procrastinate.  Mortgage rates have already gone up 15%.  Prices are up in almost every part of the country, and are starting to climb on the lower end of the market here.  Don't make the mistake that so many people do, and spend your summer next year wishing that you'd bought now!

Listing and Buying in the Shadow of Yale

In most national real estate publications, you will read that people buy in the spring and move in the summer. This is largely tied to the school calendar, and buyers want their children to get settled before the new school year starts.  If you back that up, the best time to list a property would therefore be late March or April.  That also coincides, in the Northeast, with better weather for open houses and showings in April and May.

There are some deviations from that, even in our area.  For example, Branford has a big supply of condos, and only 1 in 30 units sends a child to the public schools.  Thanks in large part to the big proportion of condos, there is a relatively smaller pool of single-family homes, and so a lower percentage of spring sales and summer closings. Since condos are often investment properties, and since investments are influenced heavily by tax considerations, we see a jump in condo closings in the last quarter of the year, in part for tax reasons, and partially just because there isn't a school-based reason to prefer summer.

Yale is, of course, the region's biggest employer.  Therefore, the Yale calendar is very important in the decision of when to buy and sell, especially in New Haven and closely contiguous towns.  While offers are made to new employees year-round, and while promotions and local hires can occur at any time, we see a big uptick after the first of the year, especially with the Medical School and Hospital, where July 1st is a traditional starting date.  This moves the optimal time to list up into late January or February, even though there can be weather issues in those months.

If you are a local buyer, therefore, you should consider buying before you have to compete with Yale buyers on short time frames.  In case you haven't done the math on that, you need to be buying now!

Lots of Cash

Many more real estate sales lately are for cash.  While it's true everywhere in the country, it's particularly true in Connecticut.  Can you guess the percentage of people who close with cash?  If you guessed 39%,  you're right!

While that seems like a lot, and it is, it makes some sense when it's so cumbersome to fill out the paperwork for a mortgage, and when the restrictions are so much tighter.  I suspect that some number of those buyers later apply for, and receive, mortgages, especially with rates so low (although they're certainly not losing much in the way of interest on cash, and they don't have a great deal of stability in the stock market).

When there is no mortgage, the closings often happen much sooner.  We see people closing in a couple of weeks, once all the inspections are finished.  Getting a mortgage later really speeds the process up.

One tricky question, however, is how to know whether the buyer is serious and qualified, without the help of the mortgage qualification letter.   It seems strange, but it's sometimes easier to believe that someone is really going to buy if they are borrowing the money, than when they say that they have it in the bank.  Not a bad issue to have, I guess, but it has been arising more frequently.  The danger of real damage is less, however, when the closing is quick. Nothing's perfect, but cash is king!

Thanksgiving

Despite the woes of the real estate market, there are many things to be grateful for this season, as always.  For those of us who are healthy, most people would rate that as enough to be happy, all by itself.  For those who have family with them, especially at the holidays, ditto.  For those who have enough to eat, a place to live, a job, and friends, that's enough for most of the world.

Could the real estate market be better?  Of course.  Could transactions be easier?  Of course.  Would it be nice for us to be a little higher up on the food chain?  Undoubtedly.  But, every once in a while, and more often for some, we get to feel good, when we help a family, a business, or an individual find the perfect space, especially when they take the time to tell us.  And we get calls from loyal clients and friends who think of us for their real estate needs and those of their colleagues and relatives, and that's nice as well.  Bottom line:  we're in a helping profession, and we're glad to be of assistance.

So Happy Holidays to all of our clients and friends, and may the coming season be full of joy, good cheer, and closings!

News from Around the Country

I just got back very late last night from Cincinnati, where The Leadership Council (a group of large independent real estate brokerage firms from around the country) met at Comey & Shepard's offices there. The trip itself was uneventful, except for the US Air flight from Philadelphia to Dayton (no, there's no more direct flight from New Haven to Cincinnati!), where the gate attendant announced that the plane had no working bathroom. Sounding just like someone's mother, she then proclaimed that, if you thought you'd have to go, you should go now, before getting on the plane! A new low in air service---and they're probably working on coin-operated toilets as we speak....

We always learn a lot at these meetings, and this one was no exception. On a beautiful fall Sunday, we sat in a windowless basement conference room all day, and listened to tales of woe from around the country. The brokers in this group were all hoping that the bottom has arrived; indeed, there are some signs that it has passed. Their average sale prices, however, were all down from a year ago, and most had unit declines of 10 to 20% from a year ago, and a two-year decline of more than that. Homes under $200,000 are selling everywhere, mostly to first-time homebuyers. Homes over $700,000 are not selling anywhere, to anyone.

In a twist on the common phrase, there is no broker left behind. All of us have had trouble getting transactions closed in this market. Financing is hard. Closings are delayed or cancelled. There doesn't seem to be any difference in big companies vs. small; all are affected. In fact, so-called traditional brokers are doing better than the discount or 100% companies in percentage of business. All parts of the country have had issues, although the places that didn't go up much (in our group, Tulsa and Des Moines) are much less impacted now. In fact, those companies in our group are chugging along. New construction and commercial real estate were low points for pretty much every firm.

We remained optimistic and, for the most part upbeat, helped by good food and plenty of wine. Next spring, when we meet in Iowa, we'll be hoping to break out the champagne. Until then, it's back to work!

Time to Reprice that Listing

There's a term in real estate called "chasing the market down", and it refers to people who start out by pricing their listings too high, and then continue to lower them month by month. It's a strategy that many sellers employ, and we agents are not immune to it ourselves, but the results are almost always poor. We can cite example after example of buildings and houses that sold BELOW what they would have sold for, if they'd only started out at the correct price. Now, I realize that "correct" is a term of art, and subject to disagreement. I also realize how tempting it is just to "test the market" at a high number. But you have to understand how the selling process works in order to see what a mistake it is.

A listing receives most attention when it's new, for a number of reasons. We notice signs when they're just erected. We notice pictures in ads when they're different from prior weeks. The same is true of the website. Also, agents and buyers who are receiving notifications of new listings are focusing on the ones that they haven't seen before. Most mailings are done on new listings. Most showings come as soon as something comes on the market. Everyone is motivated to see, consider, and buy something before it gets snatched up by someone else.

What that means for sellers is that you have wasted the most valuable exposure that your listing will receive. It's the same principle as the old saying that "you only get one chance to make a first impression". Every time the price comes down later, agents and buyers will have a subliminal impression that your property is overpriced, or that there's something wrong with it, since it's been on the market for so long. Why would you risk that, when our experience shows that people whose homes sell quickly for a lower price ultimately receive more than people who start out high, in order to "leave room to negotiate" or "see what they can get".

The moral is clear: If you're serious about selling, be serious from the start. Don't waste your time, your agent's time, or the attention span of the buying public. Consumers now are far more educated about prices, with the advent of the Internet. They'll know when you've entered the market with an attractive price, and your chances of selling, and selling quickly, will ratchet up. Take the money and move on. Buy another property while rates are low. Time is money.

Right now, our agents feel that almost 90% of our listings are priced too high to sell right away. Some of that is because, with declining prices, what was a good price 90 days ago may be too high now. Some is because there's just not enough selling right now (for example, only two houses closed in Madison in November). However, a great deal is because people don't understand what I just described above. You will have an advantgage--one you need in a difficult economy--if you do.