Your real estate transaction will not go smoothly. There, I said it. Lenders, insurance underwriters and appraisers are defining the ‘new normal’ in the real estate industry with stricter underwriting guidelines, pickier appraisals and other requirements that can make buying or selling a home just that much more of a challenge.
But have no fear, we can persevere!
In this environment, it’s important for buyers and sellers to be aware of some common pitfalls in today’s real estate market, and how to avoid them.
Make Sure You’re Pre-Approved with a Local Lender
Home inventory is tightening up in many markets, with some of the most desirable properties getting multiple offers. Being pre-approved with a local lender means you can move quickly on a home you like, while benefitting from the insight a local professional can provide. Plus, sellers often view an offer with pre-approved financing more favorably.
Look at Properties Through an Insurance Underwriter’s Eyes
Typically, insurance was only a big concern for properties in high-risk flood zones or near the Coastal Construction Control Line. But nowadays, insurers are getting picky about things like age of the roof, galvanized plumbing, mature trees too close to the home and more. If these issues aren’t remedied, you could wind up paying higher rates for insurance or, worst case, have your insurance coverage denied all together.
Hold Your Breath Through the Appraisal
As underwriters have the final say on the appraisal process (determining if a home is worth the agreed upon sales price), more and more appraisers are appraising homes in areas that are unfamiliar to them. As a result, they may not have as a clear an understanding of the intangibles that make a certain area, neighborhood or property so desirable in your market. And if your home doesn’t appraise, it’s often back to the drawing board (and a bit more drama) as far as the real estate contract negotiations go.
Get the Right Type of Loan for the Type of Property You Want
With short sales and foreclosures so prevalent right now, it’s important to understand how your loan works. Non-conventional loans, like FHA and VA loans, expose lenders to greater risk, since there’s a lower upfront commitment from the buyer. As a result, it may be harder to pass underwriting for properties where big-ticket items (roofs, HVAC, plumbing, siding, etc.) could potentially fail in the near future. In fact, you’ll note that many short sales and foreclosures will only consider cash or conventional loans for financing. Make sure your financing is a good match for the type of property you want.
Be Prepared for a Force Majeure
Hurricanes, floods, wars, riots, acts of terrorism…anything out of our control may be considered an act of God or, in contract terms, a force majeure. While highly unlikely, it’s possible a home could be damaged after an offer is accepted, but before the transaction closes. If you keep this in the back of your mind, and expect the unexpected, you’ll be better prepared to address those unforeseen circumstances that always seem to pop up. Whatever happens, be sure to work closely with your Realtor or other representation to make sure your interests in the property are protected.
Unfortunately, a bumpy ride to the closing table is more the norm than the exception these days. That’s why now more than ever, it’s important to have a professional Realtor on your side to help guide the way. Armed with experience, expertise and a network of industry professionals who can help address any problem, your Realtor is a vital asset to closing on your home with a minimum of stress.