In a previous "Seller's Market", if a contract with the first Buyers fell through, nobody on the Seller side cared or worried: They would just release the contract and most probably negotiate a better price with the next "backup" contract that was lined
up to take its place, given that the property was aged on the market a few more weeks and prices were going up fast...
In a "Buyer's Market" one of the most critical services a REALTOR® can provide, is his/her ability to "keep the deal together" until closing. Many Sellers believe that once the contract is signed, it is a binding commitment on the Buyers, but this is
not always the case.
With many options to choose from, Buyers may keep looking even after a contract has been ratified, and try to use any of the "Get Out Of Jail Free" contingency clauses to get out of the contract, get their Earnest Money back (such as financing, sale of
a house, inspections) and buy another house. Often, for less money!
As a listing agent, it is essential that all these contingency "cracks" are "tightened up" to protect the Seller in the event that the Buyers change their mind after the contract is ratified:
- The "Contingent on Loan Approval" clause
- what type of loan are they applying for (FHA, Conventional, VA)?
- Are the Buyers pre-approved (with documents reviewed) for this type of loan?
- Do they have verification of required funds to close?
- Monitor carefully the critical dates for loan application and approval. Buyers may forfeit their right to exercise a contingency if they don't do it within the specified date(s). The sooner the Buyers get their loan fully approved, the better.
- Is the contingency worded vaguely ("subject to loan approval at terms acceptable to Buyers")? Its wording must be clearly defined (i.e. what is "acceptable"?)
- Have the Buyers "locked in" their interest rate? With interest rates fluctuating like they are, it is possible than an upward shift may prevent the Buyers from qualifying for the amount, even if they were previously pre-qualified (at a lower interest
- The "Contingent on Appraisal" clause
- Is there adequate time to conduct the appraisal and go through underwriting before the closing date? This contingency can get tricky if the market is falling: Underwriters may reject the appraisal if it has been done more than 30 days prior
to the closing.
- Is it a VA appraisal that may require repairs to be accepted? What lead time does the appraiser require to re-inspect after the repairs have been made?
- The "Contingent on Inspections" clause
- Monitor carefully the deadlines to conduct the Buyers' due diligence
- Make sure there is enough time between the deadline for the Buyer's Repair List and the closing, so that the Seller has enough time to get quotes and hire tradesmen to do the repairs before closing.
Your listing agent must be experienced and on top of the game (during negotiations and during the escrow
(contract-to-closing) period) to ensure that all deadlines are met, that commitments are followed through and that all parties are performing their tasks in a timely fashion to avoid granting unnecessary "walking away opportunities" to the indecisive
Buyers in pursuit of another home. Of course, it is at best difficult, (and most times impractical) to "force" the Buyers (legally) to perform against their will. But the more meticulous your listing agent is, the better chances you have that the transaction
WILL close as planned!