Today real estate transactions are harder than ever to close. If you’re a buyer, you probably want to know why I would say this. There are a number of reasons why real estate transactions are more difficult to get from mutual acceptance to the closing table.
Real Estate Transactions Gone Wild
The real estate mortgage crisis, which revealed some fraud in the industry, including some collusion between a very small percentage of appraisers and mortgage brokers, sloppy loans being made by banks and mortgage companies without qualifying buyers, and lackadaisical practices by a few loan underwriters, all resulted in politicians jumping in and passing new laws in these industries. That meant new regulations and additional processes and more standards and checklists, which has resulted in more layers of people and organizations between buyers and sellers.
Real Estate Transactions and Liabilities and Bureaucracy
Today appraisers are paranoid. Loan officers and mortgage brokers are required to go to extremes of ridiculousness in documentation and nonsensical paperwork. Loan underwriters are making buyers jump at a whim, and when buyers think they’re done after weeks of paperwork and phone calls and faxes and emails, the underwriters make them jump through some more hoops, and when buyers are emotionally worn out, they are told there is a problem at the 11th hour.
The bureaucracy has resulted in a new organization called an Appraisal Management Company (AMC). Banks and mortgage companies no longer appoint their appraisers. The AMCs do. The AMCs decide which appraisers to put on their list, and then they rotate the list like a lottery to appoint appraisers to jobs. While appraisers used to earn maybe $500 for an appraisal, now the AMCs tells the appraisers, “We’ll charge $595.00, and we’ll give you $395.00 and keep the difference.” It’s a form of highway robbery, and appraisers are pissed off. This new element to the loan process has added to the delays. Now when appraisers are “appointed,” many are taking two or three weeks to even schedule an appointment to see the property. Some appraisers are taking another two weeks or more to complete the written appraisal and submit it to their clients, which are the Banks.
Real Estate Transactions and Legal Issues
Real estate agents have to be more knowledgeable and cautious than ever when they draft legal documents for their real estate transactions, especially the Form 35R, which is a response to the home inspection. If they mention defects discovered during the home inspection and ask the seller to address them, this can derail the entire transaction, because the loan underwriter will now demand a copy of the entire 27 page home inspection report. Using loan underwriting standards, the underwriter will comb through the home inspection report written with a completely different purpose, and the underwriter may demand that certain items be repaired by a licensed contractor and then will require written proof that such work was completed. All of this can delay a transaction by weeks. Underwriters often demand conditions that neither the buyer nor seller have negotiated between themselves.
If a real estate agent doesn’t draft clean documents with a proactive approach to avoid unnecessary delays, everyone may find themselves extending the closing date and jumping through more hoops. All of this means real estate transactions often miss the scheduled closing dates by weeks. Even buyers with perfect credit and large down payments are not exempt from these boondoggles.
There are a hundred things that can go wrong between mutual acceptance and closing. Real estate transactions are more difficult than they have ever been, and I haven’t even touched on how difficult short sales and foreclosures can be in this article. As a buyer, there are two professionals I strongly recommend you have on your team. These two can save you a lot of stress and make sure that you negotiate all the challenges that come up. One is a very honest and very knowledgeable mortgage broker. Do your due diligence and find the best. You’ll be very thankful you did. The second important member of your team should be an honest and knowledgeable real estate agent. I cannot overemphasize how important these two are to get you all the way to the closing table.
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