5 home-sale deal breakers

Think you've tied up a real estate deal? Think again. Whether you are a buyer or seller, these things can -- and do -- go horribly awry.

By Forbes

Never have there been more homeowners in the United States than there are right now.

The homeownership rate, which stood at 69.2% in the second quarter of 2004, is the highest it has been since the U.S. Census Bureau started tracking it in 1960. With interest rates on mortgages still hovering near 40-year lows -- just below 6%, according to Washington D.C.-based trade group Mortgage Bankers Association of America -- it could go higher still.

It may seem as if buying a house is a viable option for just about any American with a pulse, decent credit and stable income, but buying one's dream home isn't just about getting a good mortgage rate or finding a property that fits one's budget. Buying a home is a delicate transaction that can be ruined by an off-the-cuff remark about landscaping or renovations. Any number of things can go horribly wrong and turn a seemingly easy and painless sale into the stuff of nightmares.

Every real estate market is unique. A deal may go badly in New York for a completely different reason than a deal would sour in Austin, Tex. In Manhattan, for example, where much of the inventory for sale is controlled by finicky co-op boards, even if a buyer is financially qualified to buy an apartment, he or she may find out only after the contract is signed that the co-op board was nervous about the applicant's age, lack of assets or even a yippy dog, and rejected the application.

Sometimes however, as Scottsdale, Ariz., broker Bob Hassett of Russ Lyon Realty points out, an aborted sale can benefit the sellers.

"You sometimes see these last-minute disasters benefit the seller -- the same house that might have sold for $1.5 million 90 days ago, could sell for $1.6 million today," Hassett says.

Even if it is a benefit to the seller, a broken deal can be exhausting and time consuming. Sometimes, however, it can be anticipated and avoided altogether. In addition to Hassett, we also consulted real estate experts Neil Binder, co-founder of Manhattan real estate firm Bellmarc Realty, and Elizabeth Sample, a broker and director at Brown Harris Stevens, which has offices in Manhattan, the Hamptons and Palm Beach, to find the most common reasons for a sale to go bad.

Last-minute price hikes

The most common reason for a sale to fall through, according to the brokers we spoke with, is money. In some cases, a seller may agree to one price, and then decide the day the sale is supposed to close that they want a couple hundred thousand dollars more.

"That happens all the time!," says Elizabeth Sample, broker at Brown Harris Stevens in New York. "Someone gives their word and agrees to everything in a contract, then suddenly decides to raise the sale price by a few hundred thousand at the last minute."

In other cases, a buyer may agree to pay significantly more than the appraised value of the home in order to win the property over other bidders, and the mortgage lender won't budge above the appraised value of the home. The upshot is that the buyer has to either cough up more cash for the down payment or find additional funding. If neither can be done in time, the sale may not go through.

Solution: If you really want the property, make sure you have a cash reserve.

Change in conditions

Another problem, according to Binder, is that in the New York market, for example, a buyer may be financially qualified to buy a specific property at a specific time, but as property taxes rise or maintenance fees (which can range from a few hundred to ten thousand a month) in a building increase, it is no longer feasible for the buyer to own the property.

Solution: Don't wait too long to close.

Proposed use

Although it would seem obvious that a person who is looking to spend several hundred thousand dollars, or more, on a home should be able to use it however they like, the proposed use of a home can be a deal breaker for sellers and neighbors, who are sensitive to such issues.

"I had one case where a woman was baking chocolate chip cookies, which was her business, out of her house. She wanted to move apartments, but because she wanted to bake cookies out of her home, she was rejected by the co-op board," Binder says.

This is, obviously, less of a problem in the suburbs, but in many townships the zoning board can be equally draconian. While they can't stop you from buying as a co-op board can, they can prevent you from doing what you like with your house -- from running a business out of your kitchen to building a garage -- once the check has cleared.

Solution: Be upfront about your intentions. Don't wait until the last minute to reveal your plans.

Financial skeletons in the closet

Although most everyone carries debts these days, some debts are more attractive to mortgage lenders than others, and according to brokers, if a title company uncovers delinquent college loans, for example, that would likely jeopardize the purchase of a house.

"It's not at all uncommon," says Hassett, "to find out only when everyone sits down to close a transaction, that there's an IRS lien on a property."

Solution: Pay your bills or pay cash.

Personal problems

Although the house may be great, the finances are in order and there don't appear to be any obstacles to a home sale, sometimes pesky things like marriages or relationships can get in the way of a transaction. Hassett cites one recent case where there was a relationship crisis that caused a couple to decide at 4 a.m. the morning that a sale was expected to close to pull out of the purchase, leaving the seller with nothing but a meager deposit.

Solution: Buy or sell only to normal, well-adjusted people with large bank accounts and spotless personal lives. If you can't find anyone like that, just hope for the best.

Contact Connie
Download my iPhone App to Search Fort Myers & Naples Real Estate with your phone!