Avoiding common closing pitfalls

Individuals selling or buying a house in 2016 should want to make sure their transaction goes to closing without glitches. Is there any guide to the potential problems most likely to disrupt deals or delay them? Knowing the major pitfall areas could help people take steps in advance to avoid them.

New research pinpoints the biggest causes of home real estate delays and contract terminations. In an internal survey of 2,643 realty agents conducted in December but covering sales and purchases during the prior three months, the National Association of Realtors found that 32 percent — nearly one third — of all transactions encountered delays of some sort. That’s probably higher than most people would imagine.

The big three:

•Buyer financing setbacks.

•Home inspection issues.

•Appraisals that diverge from the agreed-upon contract price.

According to the study, of the 32 percent that experienced delays, 46 percent were triggered by “financing issues,” which is up from 40 percent during the first half of 2015. Appraisal-related problems caused delays in 21 percent of transactions and home-inspection issues in 14 percent. Of the nearly one of every 16 — 6 percent — of deals that turned into total disasters and fell through, home inspection and financing were the primary culprits. Sixteen percent went south because of the appraisal.

Here’s a quick look at each. Whitney Watson, a loan officer for First Heritage Mortgage in Glen Allen, Virginia, says financing falls apart for myriad reasons, some of them readily preventable. For example, credit scores can change between loan approval and closing — enough to render the would-be buyer ineligible for the mortgage. Though she warns clients not to incur any additional credit during this period — no new car purchases, no new furniture on credit, no new credit activity whatsoever — she gets phone calls from buyers with pending home purchase contracts pleading for an OK to lease a new auto or buy furnishings for the new house.

Debt-to-income ratios also can change when an underwriter discovers that a buyer failed to disclose ongoing payment obligations such as child support and no longer has acceptable debt ratios. Watson’s advice: “Tell your loan officer everything at application,” and avoid new debt or anything that could affect your qualifying income like changing your employment.

Home inspections are another quicksand pit. When an inspector finds defects in the property under contract, things can get tricky. Will the seller make the repairs before closing, cut the price or set aside escrowed funds to cover the costs? Are the problems found by the inspector as serious or expensive as the inspector alleges?

Diana Dahlberg, broker and owner of 1 Month Realty south of Milwaukee, recounted a situation where an inspector left both the home sellers and buyers in utter shock. While the seller was nursing her new baby and the buyers were standing nearby, the inspector warned that there was a serious defect in the home’s furnace. He looked straight at the nursing mother and said, “If you don’t want to kill your baby, you better get a new furnace right away!”

The buyers “were totally freaked” by the inspector’s remark and bailed out of the contract, Dahlberg said. Subsequent examination by a different inspector found nothing wrong with the furnace — no safety threats to the child or buyers — but the sale was dead.

Deal-killer inspectors may not be avoidable by sellers, but one way to be ready for them is to get a pre-listing inspection by a reputable professional before putting the house on the market. That allows sellers to fix anything important in advance and at the very least have defenses against inspection findings that might be at least partly aimed at lowering the price to the buyers’ advantage.

The same goes for appraisals. Sellers can hire a top-notch local appraiser to do a pre-listing valuation for a modest fee. Not only will that provide useful information for the listing price, but it can be a counterweight when an appraiser with inadequate knowledge of local market conditions comes in with a low-ball number that threatens the whole deal. With the pre-listing valuation in hand, sellers can appeal to the lender to reassign the work to a second appraiser with local knowledge and experience. All this may delay the deal a little — that may be unavoidable — but it could also save it.

Kenneth Harney is a syndicated columnist.