Real Estate…What Could Go Wrong?
Real Estate…What Could Go Wrong?
Real Estate…What Could Go Wrong? (Some Rare but Possible Worst Case Scenarios)
There are many facets to a transaction and therefore, many things that *could* go wrong. Just because they could go wrong, doesnt mean they will! This is NOT meant to scare anyone from buying real estate, this is just a list of crazy things that can happen. This is truly a paranoid list! 😉 Don’t let fear prevent you from buying, as most are not common occurrences! Many factors are involved in every real estate transaction and there are multiple parties working on each deal. Each transaction may involve 8+ other parties besides the buyers and sellers themselves: the Realtors® (buyer’s agent and seller’s agent), the lender / bank, the title company, attorneys, surveyor, appraiser, and inspector(s).
Of course, every effort is made to prevent these pitfalls, but not every deal is perfect because there are so many people and processes involved in getting the deal to the closing table. However, this is when having a real estate agent on YOUR side to protect YOUR interests comes into play. Real Estate Agents have the background and knowledge of what to do should any of these situations arise.
(Please note that most of these “wrongs” do not happen very often…but they could happen. This is basically a list of worst-case scenario possibilities, but once again, the chances of most of these happening is pretty low. Luckily, your Realtor® will know how to handle it if it does!)
What Could Go Wrong on The Buyer Side?
The buyer(s) are the person(s) who are purchasing the property.
- The buyer submits false or incorrect information on the loan application (inaccurate income, child support, etc.)
- The buyer has recent late payments that show up on his/her credit report after initial loan qualification
- Buyer has filed bankruptcy in the last 2 years or a recent foreclosure that makes him/her unable to get a loan
- The buyer or co-buyer dies
- Additional debt surfaces after the initial loan application
- One or more of the buyers loses or changes his/her job
- Buyer(s) changes jobs from salaried position to all commission.
- Buyer is not allowed to use any overtime hour income to qualify for loan
- Buyers uses credit to purchase large items before closing (example: a new car, new furniture for the house, etc)
- Buyer(s) suffer a medical emergency, divorce or other major financial disaster.
- Buyer lacks motivation to follow through on purchase or return documents in a timely manner
- Missing documents needed for loan (divorce decree, tax returns, bank statements, income verification, discharge paperwork, etc.)
- Interest rate increase or changes in loan program – buyer no longer qualifies or can’t afford the higher payments
- Insurance rates are too high to qualify within the DTI for the buyer to purchase
- Buyer changes his/her mind on the property purchase and backs out out the sale
- Buyer doesn’t have enough money for closing costs
- Buyer vanishes and fails to show up at closing
What Could Go Wrong on The Seller’s Side?
The “Seller” is the person who owns and is selling the real estate.
- The seller decides not to sell (new job in new city falls through, unable to find a replacement home, etc)
- The seller dies without a will (intestate)
- Seller refuses to cooperate with the sale (won’t let buyers, agents, inspectors or appraisers on the property, etc)
- Tenant is uncooperative in the sale (won’t let anyone in or puts up a fight when anyone tries to access property)
- Does not move out before closing / possession date
- Fails to complete repairs required in the purchase contract
- Gives false or misleading information about the house / property / neighborhood.
- The seller is in financial distress and the house falls into foreclosure during the contract
- The seller goes on a European vacation right before closing and is unavailable to sign without giving Power of Attorney
- Fails to disclose latent defects of the home
- Sellers are going through a divorce and are not on speaking terms, so contracts are slow to get signed and decisions are slow to be made
- Seller does not own 100% of property or of mineral rights when they said they did
- Seller has existing liens on the property that were unknown and now needs cash to close.
- Removes real or personal property that is included in the sale
- Seller refuses to close
What Could Go Wrong on The Property?
The property is the real estate that is being bought/sold in the transaction (may also include personal property in the contract).
- Major mechanical systems in the home fail during the contract period (electrical, plumbing, roof, etc)
- The home is lost due to natural disaster or human disaster (fire, tornado, vandalism, etc)
- Home is uninsurable due to existing condition (example: a wood shake roof)
- Home requires flood insurance and the cost is too high for buyer to afford
- Property zoning is wrong or at odds with intended use by buyer
- Improvements are found to be sitting on neighboring property (encroachments)
- Old recorded easements are found to still be in effect
- Damages are made after the property is under contract (while moving, etc)
- Damages are unveiled once the property is vacant (holes that were previously covered with artwork, carpet stains that were previously hidden with furniture or rugs)
What Could Go Wrong on during Inspections?
Inspections are typically conducted on behalf of the buyer as due diligence to discover the property condition, features and problems (so you know what you’re buying.) Kind of like test driving a car, if you will.
- Home inspector is incorrect on property condition report
- The inspection report scares away the buyer or the findings are to the point where Buyer wants to re-negotiate based on defects found in inspections
- Home inspection uncovers damage / issues to major mechanical and structural components (foundation problems, leaking roof, safety hazards etc)
What Could Go Wrong on The Title Work / Ownership Records?
“Title Work” is the legal paperwork for transferring ownership of the property.
- Late title paperwork is requested and it pushes out the closing date
- Previously unknown clouds on the title–mechanics liens, MERP, divorce-related liens, etc.
- Difficulty getting payoff amount on existing mortgage
- Easements or deed restrictions that hamper future enjoyment are discovered
- Title company rep fails to order title work or follow-up on receipt of documents
- Incorrect paperwork–from current transaction or from past sales of the property
- Bottle-necking of information gathering from lien holder, lenders and heirs
- Property is foreclosed on during transaction and the seller is no longer the owner of the property and can’t sell it
- Property goes into Probate
- Poor cooperation from closing office representative
- Fails to receive proper signatures on all documents
- It is discovered that the seller does not own 100% interest in the property
What Could Go Wrong on The Appraisal?
An Appraisal is typically paid for by the buyer (if they are getting a mortgage to buy the property) on behalf of the lender. The purpose of an appraisal is to protect the lender from loaning out more than a property is worth. Appraisals are that person’s opinion of value and can vary depending on the appraiser.
- The appraiser is not familiar with the local real estate market and the appraisal amount is not a fair market price for the area
- The property has no recent comparable sales
- The appraiser is behind schedule and the closing date gets pushed back waiting on appraisal
- The appraiser makes an error on the appraisal calculations and value comes in too low.
- The appraiser has a long list of required repairs (typically only in VA and FHA transactions–called lender required repairs, these must be completed by either party to close.)