Are you a first time home buyer worried about buying the wrong home? Why do homes fall out of escrow? If a home falls out of escrow, does that mean there is something wrong with it or that it’s overpriced? In this episode, we discuss What Makes A Property Fall Out of Escrow and some tips on How To Make Sure It Doesn’t Happen To You when buying a house in the 2023 housing market to help you become The Educated HomeBuyer.
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For Show Notes, See Below 👇
[00:00:00] Jeb Smith, Huntington Beach California Realtor: What makes a property fall out of escrow and how do you make sure it doesn’t happen to you? That’s what we’re gonna dive into in today’s episode. We’re gonna talk about things that happen during the escrow process that makes homes fall out of escrow.
[00:00:14] Josh, in my experience, when a home has been sitting on the market for, say, an extended period of time longer than the normal timeframes, buyers think one of two. Either there’s something wrong with the property or it’s overpriced, and neither of those actually have to be true because properties can go in and out of escrow for various reasons, and that’s really what we’re gonna focus on today.
[00:00:39] What I mean by that is you can have a property that’s been sitting on the market for say, a hundred days when the average market time in that market is say 25 or 30 days, and it looks like, wow, that there, there’s definitely something wrong with that property. But what you might fail to realize is there are reasons that home could have gone into escrow and fallen out reasons that that home is sitting that you might not be aware of. And that’s really what we’re gonna dive into in today’s episode. Josh.
[00:01:07] Josh Lewis, California Mortgage Broker: You and I both get this all of the time for the last six, eight months. “Hey, I have been looking on Redfin, I’ve been looking on Zillow, and I’m seeing a lot of more homes fallen out of escrow.”
[00:01:17] This is really a different market and what I want to challenge on that thought, not saying that we didn’t witness that. We absolutely did over the last year, but we were coming off a two year period where this market was so tight that every buyer, after writing 22 offers and multiple bidding situations that got an offer accepted, very few of them were willing to walk away from deals even though, in a normal market they may have.
[00:01:39] So what we’re seeing now is more normal. Deals can fall apart for a million different reasons. Oftentimes, no fault to the seller, no fault to the home. So what we wanna do, Is walk through the most common of those reasons. There’s a lot of ’em and give you some insight. Does that tell you something about the property? Does it help you get a deal? Does it help you just put a deal together and get a home under contract?
[00:02:01] Jeb Smith, Huntington Beach California Realtor: Yeah, because ultimately we don’t want you to shy away from looking at properties that have been on the market a little bit longer because oftentimes those can mean opportunities for you as a buyer, especially if a seller, you know, when a seller’s gone in and out of escrow a couple of times.
[00:02:16] They’re probably emotionally drained for one, but if they have to sell that property, that could mean a little bit more leverage for you as a buyer in those situations especially if a seller’s already secured another property or they have a plan, a deadline that they have to meet.
[00:02:31] That can mean it’s fallen out a couple of times, no fault of the seller. Now you come in as the buyer. This could be the time when you get the deal, kinda like we talked about in the last episode. This is how you get deals in markets and that’s what we’re gonna focus on right now, Josh. So I think the biggest reason, if I were to guess out of the things that we’re gonna talk about today, and the most common, has to do with financing.
[00:02:56] Buyers get into escrow and the financing takes a turn for the worse, for one reason or another. So you being on the mortgage side, why do you think that is often the case?
[00:03:09] Josh Lewis, California Mortgage Broker: At risk of sounding like a broken record, cuz we’ve said this a thousand times, both real estate and mortgage, low barriers to entry, very easy to get the job and potential for large income, whether it’s a large annual income or one transaction that gets a nice commission.
[00:03:25] So it draws people, that are not necessarily having the best of motives or looking to become an expert and help people become a homeowner. So when I see this, most times it is completely preventable.
[00:03:40] I would not say in a year of doing 150, 200 loans that we would have no problems ever on a loan. There are things that are very hard to discover and detect in the pre-approval process. But what I will say, a good and thorough loan officer is going to do a complete pre-approval on the front end. And depending on the strengths of your qualifications or the quirks of your income assets, credit situations, that can be pretty fast and easy. It can be a complex process.
[00:04:11] I have a client right now, we just got an offer accepted yesterday. She has a massive salary. She has an investment account and a checking account. Both of them have a lot of money. She has an 800 credit score with no debt. That would be really hard to screw up.
[00:04:24] I have another client who sent over their stuff. They own six rental properties. They have three businesses and they have like 10 different asset accounts. Very, very easy to mess that up. So when you say that the loan or the financing is the primary issue for deals falling out, it’s often because the people were not thoroughly pre-approved.
[00:04:43] It was closer to a pre-qualification on the front end than a pre-approval. And once the file goes into processing and verifications of employment go out, we get an underwriter set of eyes on the credit report. We now start having things that we’ll go into here in a little bit, like the preliminary title report, the appraisal.
[00:04:58] All of these things can affect and impact the qualifications. So I will say, Jeb, that oftentimes one of the things I get is someone will say, “well, I was pre-approved by someone else. They didn’t ask for all of these things.” And I go, ” I wanna make this as simple and smooth… as easy as possible for you, but at the same time, I wanna make sure that when I give you an answer, it is a 100% correct answer. Not a 90%, not an 82%. 100%.
[00:05:19] So people ask me all the time, ” how often do you preapprove someone and an underwriter doesn’t approve ’em? Never. And that’s not because I’m perfect. It’s because the one outta 20, the one outta 30 that we’re not a hundred percent sure. I have a client right now. We talked yesterday, we’re gonna take the entire application and get a to be determined credit approval where the underwriter’s gonna sign off on income, assets and credit and go, “yep, go find a property. You guys are good.”
[00:05:42] So hopefully you’re working with someone who’s very thorough. They’ve gotten all of your documentation, and if there’s anything questionable, worrisome… if the file’s gone to underwriting ahead of time, although that is rarely needed. But what I will say, Jeb, is you could have the greatest loan officer in the history of the world who did everything right, and that still doesn’t mean that you will not have any problems with your loan and your financing.
[00:06:05] And some of those things like we talked about that we’re going to go through is the prelim, appraisal, other things that come up that there’s no way of knowing until you get into the process.
[00:06:12] Jeb Smith, Huntington Beach California Realtor: No, you actually reminded me of why I stopped doing loans. So, back in the day, for those of you listening who aren’t aware, I did loans for about 10 years. And the reason I stopped is I just got frustrated with the process of people saying, “I didn’t have to do that last time I got a loan. I didn’t have to provide that last time. Why do I have to do that now? Last time I got my loan, I didn’t have to…” it was constant.
[00:06:35] And it’s because a lot of the loans that I did prior to that were during the heyday when nobody had to provide anything. The pendulum swung the other direction and now the banks are asking for everything and everybody has a really short memory. And they go, “well, I didn’t have to do that and I don’t wanna do it now.” And I became like a counselor, if you will. So I said, you know what? Screw that. I’m gonna sell real estate, and that’s what I started doing.
[00:06:56] But nevertheless, Josh, you do your job well. You were gonna say something there.
[00:07:00] Josh Lewis, California Mortgage Broker: I was gonna say on that topic, just think about this in terms whether you’re borrowing 300,000, 500,000, a million dollars. If you were gonna loan someone a half a million dollars, what kind of documentation would you wanna see about them? Probably a lot more than the lender’s gonna ask for from you.
[00:07:14] Jeb Smith, Huntington Beach California Realtor: Agreed. It’s not that the lenders wanted to see it, it’s just having to have that same conversation over and over again and people, it was almost like they didn’t believe me. It’s like, yeah, I don’t want this stuff for my re I’d rather you not have to provide anything. It makes it a hell of a lot easier on me not having to do any of that.
[00:07:31] But nevertheless, so you can do your job perfectly, Josh. You can ask for everything upfront, but there can still be some things tied around the financing side that some of ’em are preventable, some are not.
[00:07:43] So what happens in the case of say, a job loss? Or, something happens on the credit report that you’re unaware of, or on the flip side, something that is controllable, and we’ve seen this happen is that people have the pre-approval. They get their offer accepted and they go out and they spend additional money.
[00:08:01] They go get, Hey, we’re getting a house. We’re gonna go buy a whole new house of furniture. Or, you know, what? I’m tired of this car. I want a new car. I’m buying a new car. And, and so that again, kind of goes back to the credit situation, but those things, you’ve done your job perfectly. . These are things that, come up and can often affect the financing.
[00:08:22] Josh Lewis, California Mortgage Broker: The important thing here, Jeb, people always ask, “cool, I’m pre-approved. How long is my pre-approval good for?” So there’s really no expiration on it as long as the underlying information remains true and accurate. Don’t lose your job. Don’t change jobs. If you do change jobs, hopefully in the same line of work with a very short gap at better pay, not variable pay. A job loss if you walk in tomorrow and your employer fires you, that can be catastrophic to your loan approval.
[00:08:49] Jeb Smith, Huntington Beach California Realtor: Well, how about the one that you had where you approved her and then she quit her job?
[00:08:54] Josh Lewis, California Mortgage Broker: Yeah. It was funny. It was the littlest loan that I’ve done in a long time, way out in the desert. Bought a little tiny house, put it under contract for like $85,000. Soon as we got the contract accepted, quit her job, we go to do the verification and ask her for an updated pay stub. She goes, oh, I quit. Like, what do you mean you quit? We’re doing your loan. Well, you already pre-approved me. So yeah, that’s a funny story that I’ve tried to block outta my mind. So thank you for reminding me of that, Jeb.
[00:09:19] It actually saved us because, it’s not that I mind helping people with those little loans. When you get loans under a hundred thousand dollars, there are some compliance issues that make those really difficult. So she helped us dodge a bullet, but what would be more common, you know, you lose a job, not your choice.
[00:09:32] Most people are pretty cautious and careful throughout the process. What I have had happen is someone go, “I got a way better job offer. I just switch with, I’m gonna make twice as much money. Cool. You were making $120,000 a year salary, so you’re, what’s your new salary? My new salary is $52,000, but I’m gonna make $400,000 a year at commission.
[00:09:51] Not gonna work that way unless you were making commission on the previous job. And even that would be difficult. So if you are thinking about your choice changing jobs during the process, make sure you let your loan officer know. Be aware that in terms of undisclosed debt monitoring, your lender is going to do that.
[00:10:06] So it’s not like, “Hey, They pulled my credit. Now I can go do whatever I want. I can buy that new car cause my car’s not doing so well, or I got a great deal on a Tesla, whatever that is.” Do not do that because your lender is watching for undisclosed debt monitoring. Anything along those lines, changing assets. Don’t move money around. Don’t have a hundred thousand dollars poof, pop into your account that we can’t document.
[00:10:28] So two pieces. You can have a loan officer that didn’t do a great job on the front end, tell you you’re approved and you can’t be approved. You can have something happen to you or you do throughout the process that can change your loan approval.
[00:10:41] Jeb Smith, Huntington Beach California Realtor: And one that’s happened more common I think over the last couple of months is people get into escrow and go back through that pre-approval pro, not necessarily back through the pre-approval process, but they go back to their lender and say, “Hey, listen, I’m under contract now. I’m ready to move forward. Send me the numbers.”
[00:10:56] And the interest rate is different than where they got pre-approved six months ago or eight months ago, or whatever the number is. Right now we have a client that we just put into escrow. We started looking at homes when interest rates were in the 3% range. Today he’s getting a rate….
[00:11:11] Josh Lewis, California Mortgage Broker: Three and a quarter was the first. I went back and looked at every time we’d written preapproval letters for him, what the numbers were that I presented him. Three and a quarter was the first number.
[00:11:18] Jeb Smith, Huntington Beach California Realtor: And so today he’s getting a loan at five and a half percent, and he’s buying that down. And fortunately this is a guy that has, or husband and wife that have a really large down payment. They have money in the bank, they’re well qualified, they’re spending well below their means.
[00:11:32] So the jump in rate isn’t necessarily affecting the ability to qualify. But quite frankly, some people just say, “You know what? I don’t want to pay that amount. I don’t want to do that.” And therefore they get into contract, they get into the process, they get updated numbers, and by the time they shop it around, right, because say Josh comes back with numbers, they’re like, “I don’t believe Josh. I’m gonna go to another lender. I’m gonna go to my bank….”
[00:11:54] And by the time they do that, they’ve wasted 7, 8, 9, 10 days. And depending on how long your contingencies are for the loan here in the state of California, you got 17 days to figure out what you’re going to do unless you change the contract.
[00:12:07] So you could waste 17 days and still get your full deposit back. And so if that happens a couple of times to couple of different people and you say that property was sitting on the market a week and a half, two weeks before it went into escrow. That’s 14 days. Well, now you’ve just wasted another 17 days, so you’re at 31 days.
[00:12:25] So as a buyer, you’re looking at that going, “well, that property was on the market 31 days and it fell out. What happened?” Well, maybe nothing. That’s not the seller’s fault. It could have gone in over contract, over the, the asking price and now it looks like a wounded bird, if you will because of it falling out.
[00:12:44] So those things all are related to financing and the change in those terms. But Josh, other things can pop up. We see it happen all the time. Things that are related to inspections, related to reports. And so while we’re kind of talking about loans here, let’s talk about the idea of appraisals.
[00:13:02] Things can happen with appraisals coming in short, where the seller says we’re not lowering the price. We’re not willing to negotiate that you said you were offering X. That’s the price I want. I don’t care what the appraisal came in at. You need to make up the difference and therefore, if the seller’s not willing to negotiate, you’re not willing to come up with the difference. Guess what? You don’t have a contract. You don’t have a deal there, and therefore it falls out.
[00:13:28] Josh Lewis, California Mortgage Broker: Let me give you a real world example on that, that I’m going through right now. Unique property trophy properties, a famous architect and a flip, but not a flip like you’re thinking of. This guy is a high end redeveloper. He buys properties, puts $400,000 to $500,000 into them. So, um, this home sold for $1,300,000. They put about $400k into it, they’re into it $1,700,000 reselling six months later, $1,950,000. Buyer is thrilled to get it at $1,950,000. The house is amazing. Appraisal comes into $1,900,000 and kind of going back, talking about contingency periods, Jeb, the builder, the seller wants to know that we have a deal.
[00:14:02] So they shortened our contingencies to 10 days. I said, “no problem. We’ll, have the appraisal back in seven days. Sure enough, appraisal comes back in seven days, $1,900,000. We’re not catastrophically far off but no one’s happy with that and now we’re sitting here at 11, 12 days cuz we’ve been going back and forth.
[00:14:17] We’ve rebutted the appraisal, just got the result in at $1,920,000. So we’re closer to that number, but it can still get cut on review when it goes into the lender. So all of these things. In that situation, unique situation, higher end transaction. Buyers have money. Seller may need to realize the home is probably worth $1,950,000. Someone will pay it, but no one is gonna be able to get it appraised for that.
[00:14:41] I am confident of that having gone through that with our appraisal management company. So that’s what that looks like in the real world. One of those contingency timeframes. If the seller says, no, it’s $1,950,000 I know it cuz I have other interest and you’re past your contingency timeframe and issues a notice to perform to my buyer, could make this transaction fall out.
[00:14:59] Nothing wrong with that property. That’s a trophy property that someone’s gonna pay a lot of money for. But that’s sort of an example of how an appraisal even a little bit short, can impact a property and can bring it back to market.
[00:15:10] Jeb Smith, Huntington Beach California Realtor: While talking about this, we are gonna talk about some things you can do to not necessarily prevent some of these things from ha because some of ’em you just can’t prevent, but how to put yourself in the best position possible. And we’re gonna talk about that towards the end.
[00:15:22] But the next thing that comes up is oftentimes, in my experience, properties typically fall out of escrow for one of two things, and it usually has to do with financing which we talked about earlier, which I’m gonna throw the appraisal into the financing aspect because it kind of all goes hand in hand if the appraisal doesn’t come in.
[00:15:40] And that typically affects the financing and that’s why it falls out. But the second thing is home inspections. And what I mean by that is, you know, most people that are out there buying property are buying property existing homes. They’re not buying new construction. And oftentimes that means if you’re here in Southern California, that can, that home can be 70, 80 years old in some cases.
[00:16:01] Where we are here in Huntington, most of the homes were built in the sixties and the seventies. These homes are going to have things wrong with them. I don’t care if it was completely remodeled down to the studs a couple of years ago.
[00:16:13] Inspectors are going to find things, and a lot of it has to do with the comfort level of buyers. I get buyers all the time that somebody in the relationship is handy and we go through the property and they’re like, “yeah, not a big deal. I can do all that stuff. I can fix this, whatever.”
[00:16:28] And we’re not talking about major issues. We’re talking about some small cosmetic things. Then on the other hand, I get the first time home buyer who’s maybe a single person, male or female and just is not handy, right? Doesn’t really have a handy bone in their body and everything freaks them out.
[00:16:44] It’s, Hey, this wall has a crack in it. And you might even be explaining like, Hey, listen, it’s just where two pieces of drywall come together. It’s just the seam. Over time this happens in properties. We see it all the time. Not a big deal. And that is a deal killer for them. They’re unable to get past it, and in some cases you’re able to even negotiate these repairs with the seller.
[00:17:04] And the seller maybe in the case that they negotiate it, the deal moves forward. In the case you can’t negotiate it, deal probably falls apart. In some cases the seller does agree to it. And then when you go to do the final walkthrough, It’s not done. Seller didn’t do it, not gonna do it. Changed their mind, whatever. And you’re…,
[00:17:23] Josh Lewis, California Mortgage Broker: didn’t do it right…
[00:17:25] Jeb Smith, Huntington Beach California Realtor: yeah. And maybe you’re at the very end of the contract. Maybe you’ve been in contract for three weeks, four weeks. You get to the end, decide not to move forward for whatever reason, deal falls apart. Well now you’ve just wasted an additional 30 days or whatever it is on top of, the original timeframes.
[00:17:43] And this might sound outlandish, but this stuff happens all the time. I do on average 25 to 30 transactions a year. How often does this happen? I would say probably once a year. Maybe. Sometimes it doesn’t happen for a couple of years, and then you might have two or three in a year.
[00:18:00] So it just, a lot of it depends on who you’re working with on the other side. If you’re in a market that maybe you’re unfamiliar with and you’re not able to maybe explain some of these things up front, you know, Josh, some of these things are unexplainable in what happens.
[00:18:12] I mean, a really good example and this kind of takes me into disclosures and that sort of thing that, that maybe you’re unfamiliar with. But you know, the buyer that we have in contract right now the mls states that someone passed away but not in the property. And the property was left in a trust. So I tell my client going through the property, “Hey, listen, someone did pass away. It was left in a trust, but no one passed away in the home.”
[00:18:36] Well, we go under contract and literally the very next day I get the seller disclosures page. One of the very first disclosure I look at says Someone passed away in the home. I’m like, “dude, you just told me in the agent remarks.” So I take a snapshot of that in the mls. I take a snapshot of the disclosure and I send it to him. And this transaction coordinator, he calls me and says, dude, I made a mistake. I was thinking about another property. Someone actually did pass away in this home from natural causes,whatever.
[00:19:05] I had to convey that to my buyer. And they were okay with it. They didn’t have a problem. But I will tell you that could often be a bigger problem for some people which could have caused, again, that property to go in and out of escrow.
[00:19:19] Josh Lewis, California Mortgage Broker: I would say, Jeb, this is funny because generally it is disclosed. An agent doesn’t want to put a property under contract that there’s a simple fact that will be disclosed that could make it fall out. So obviously you’re listing agent on that, it was an error. They wouldn’t want to say the wrong thing because why take the time to open up an escrow to find out it’s gonna fall apart.
[00:19:36] But, death on a property, 80% of clients for a natural causes death don’t care. I don’t know if the number’s 10%, 20%. Some people really care. There’s just no way. Absolutely. Whether it’s culturally I am not buying that house. Another one. And I’m sure there’s, there are other terms in other cultures for this. Feng Shui.
[00:19:53] How many times have you had that? I had one probably three, four months ago. Guy is stoked, gets a house under contract. Fits his budget. We got him locked at an amazing rate. He takes his parents out three days later and he was actually Indian and so, he said it’s basically, it’s Fung Shui but in the Indian culture, there’s something similar to that.
[00:20:13] And it was, the house was at the end of a t from another road. And his parents were like, no world. No world in which you’re living here. So he loved the house and we canceled real quick and he lost that lock. If it weren’t for the cultural difficulties of the non Fung Shui house, he would’ve been stoked with it.
[00:20:28] Jeb Smith, Huntington Beach California Realtor: It’s funny, I have a lot of stories around Fung Shui and I’m very familiar with the road leading directly into a house. That’s one of the things. But I’ve had clients that have gone into escrow, thought the house met feng shui or met whatever, they go hire a person that is a feng shui expert, and the expert comes out there.
[00:20:46] It’s almost like a psychic type thing. I mean, I’m not gonna say weird, weird’s not, but they go through the property in a different fashion. and it’s the energy that they feel and they say, “no, this property doesn’t meet it.” And people have canceled because of that. And , for me it’s hard to understand, but people believe it and that’s something that means something to them and so that’s a reason it can fall out.
[00:21:06] But Josh, let’s talk about some things happening now. You mentioned prelim and that sort of thing earlier. Not a big deal there. What we mean by that is deals can fall out of escrow because of easements, because of things that show up on title that shouldn’t be there.
[00:21:18] When you buy a house, you should have a clean title, so there shouldn’t be any encumbrances from the previous owner, anything like that affecting it. But you might have an easement. Let’s say a shared driveway or something along those lines.
[00:21:30] Josh Lewis, California Mortgage Broker: Hold that thought and explain what that is, that’s something that a buyer may not be okay with. But what I can say is we can hit a dead end where a seller thinks they’re totally okay. Probably the best example I can have of something that will show up on title, coming out of 2008, 2009, 2010, a lot of people filed for bankruptcy.
[00:21:47] Once you filed for bankruptcy, your mortgages can no longer attempt to collect from you. So what would happen is if you didn’t make your payment on your first mortgage, they would foreclose. So we had a lot of people file bankruptcy, keep making payments on their first mortgage, but they would have a second mortgage, stop making the payments. And those mortgages were so underwater and these loans had been sold multiple times that no one even contacted them for 10 years to try to collect.
[00:22:12] That second lien is still there. And the sellers oftentimes erroneously thought, “no, I filed bankruptcy, and they haven’t been trying to collect.” I’m like, “no, they’ve just been waiting for you for the day for you to come to try and sell or refinance that property.”
[00:22:24] So things like that can happen. Tax liens, long forgotten tax liens can pop up and sometimes they’ve got big penalties and interest and the seller thought they were walking away with a hundred thousand dollars and they’re gonna walk away with $10,000 and they go, “I guess I’m a post up here a little longer. I can’t go do what I was wanting to do.”
[00:22:40] So from my end where I see the problems, very rarely does a buyer look at the prelim research and approve it and go, I’m not cool with that. The seller gets the prelim and goes, what are you talking about? I didn’t know that lien was there, but why don’t you talk Jeb a little bit more about what, from a buyer’s perspective, what you might not like in a prelim.
[00:22:57] Jeb Smith, Huntington Beach California Realtor: Yeah, like I mentioned a moment ago, easements like sometimes they’re shared driveways. Sometimes the utility companies have access to your yard, be it a telephone pole or some side of electrical pole in the backyard. They have access to that. There can be drains. I’ve seen all sorts of things in properties. I’ve seen roofs where there’s an easement on people’s roofs for different reasons. I’ve come across a lot of different things. Most of the time it’s not a deal killer for buyers, but in some cases it is.
[00:23:23] So deals can fall out for those reasons. Right now. I think a lot of what’s going on is changes in mindset to some extent, Josh, which can affect people in escrow. And what I mean by that is the Fed’s on the news, they’re talking about raising rates, you know, Diana Olick’s on CNBC talking about a housing crash for the…
[00:23:46] Josh Lewis, California Mortgage Broker: 12th time in the last five years,
[00:23:49] Jeb Smith, Huntington Beach California Realtor: the last eight years, nine years since 2015 or whatever it is, right?
[00:23:53] I mean we’re being funny here to some extent, but these are things, where people watch them. And right now you guys know everybody’s on social media. Everybody has an opinion, including Josh and I, right? That’s why we have a podcast. No. In all seriousness, everybody has an opinion and whether or not you want to hear it, chances are, if you’re scrolling, you’re gonna come across some stuff that may or may not be what you agree with.
[00:24:15] And whether or not you think about it can actually affect your mindset and how you’re thinking about moving forward with a big purchase, like buying a house. And so that can be something that affects situation. You might be an escrow. You hear that the economy’s getting worse, people are losing jobs or whatever.
[00:24:35] You’re like, “are home prices gonna be less in a couple of months? Why am I doing this? I’m scared.” I mean, Josh, you had, I don’t know if it’s been months at this point, but the guy was in contract all the way, released his deposit all the way up until the basically loan docs.
[00:24:49] Josh Lewis, California Mortgage Broker: We were ready to send loan docs out. We were ready to send loan docs out closing the following week
[00:24:53] Jeb Smith, Huntington Beach California Realtor: And what happened? Why? Change of mind. Right.
[00:24:56] Josh Lewis, California Mortgage Broker: We still don’t know hundred percent sure other than he said, “I’m just not sure about this market. I think these home prices are coming down” and the neighborhood is literally across the street from mine and home prices haven’t come down.
[00:25:06] They’re not shooting up, but they haven’t come down. I need to drive by that house. I believe it’s already sold to another buyer, but all the way to the very end with a $35,000 deposit signed away and said, “seller, you can have my $35,000.”
[00:25:21] Jeb Smith, Huntington Beach California Realtor: That’s interesting because. I think the seller ended up low lowering the price a little bit on it, and they probably had the ability to, because now they, they had the deposit, they could factor that into their pricing.
[00:25:31] But think of that. As a buyer, you see a house that’s been on the market for, let’s just say in this market, things sit a little bit longer, especially during the holidays. So a normal escrow, normal for the last couple of years, which was very, very quickly. But let’s just say a house set on the market 30 days, which isn’t insane by any means during the holidays.
[00:25:49] And then a buyer goes under contract and is in contract for more or less 30 days, and then decides at the last minute, “Hey, I’m out.” Well, now you as a new buyer, you’re seeing that property online. It says 60 days on the market and it’s not an escrow and you don’t really have any knowledge of it being an escrow.
[00:26:07] You just think, “Hey, this property’s just been sitting here. What they even lowered the price. Not knowing the backstory.” So it’s important. Again, we talk about all the time not to just read the headline. In this case there’s not a headline, but understand the context. Not every single one of these is the same.
[00:26:23] Now, on the opposite side, it can be overpriced, there can be something wrong with it. And we started there with the episode talking about the things that could make you think that. But you know the last thing we’re gonna talk, Josh before, the things that you can do to make sure you’re air tight in these deals is parents getting involved.
[00:26:40] You mentioned earlier the fung shui thing. But parents show up to a home inspection. One of our friends, not gonna mention any names, he went into a contract a couple years ago. We get him under contract. We go into the process. Dad shows up to the inspection.
[00:26:52] Dad’s like, “mm, not really a big fan of the house.” and long story short, he ends up backing out of the transaction because of someone else. He liked the property. It worked for him. The opinion of someone else is the reason he backed out.
[00:27:06] And then people just get cold feet, right? I mean, we see it all the time. Somebody goes under contract, they go, “holy crap, I’m buying a million dollar house, a $500,000 house, or whatever it is. This is my savings. It’s taken me a long time to save this. It’s all gonna go away. Do I really want to do this? Eh, not sure.” Property falls out of escrow.
[00:27:24] So, with that said, Josh, what can you do? What can you do to protect yourself as much as possible so that you’re not having financing issues so that you’re not coming across things in an inspection so that you’re not being able to finish negotiations? Where do you start, you know, what advantages can you add to your side.
[00:27:45] Josh Lewis, California Mortgage Broker: From my end, make sure you have a rock solid pre-approval.
[00:27:50] If the pre-approval process seemed too easy, it probably was too easy, if it’s too difficult and you feel like you’re being raked over the coals, I don’t know, maybe get a second opinion, but I don’t advise anyone going to the Walmart of lenders, the lowest bidder in terms of rates and fees. I wouldn’t go to the person who most quickly and easily issues a pre-approval letter.
[00:28:10] There’s a balance there. My job is to make it as smooth and easy as possible for you while being as thorough as needed to make sure that we are not gonna have any issues at any point during the loan process of things that are under our control that we can know upfront. Obviously, some of the things we talk about, appraisal, preliminary title report, home inspection, those come up through the process.
[00:28:28] We deal with them as they come, but from my end, do your due diligence. Go through a full and thorough preapproval. Ask all of your questions upfront. Get your numbers in line. This blows my mind how often someone tells me, “well, I’ve been pre-approved.”
[00:28:42] “Okay, cool. What’s the pre-approval?”
[00:28:43] “Well, I was approved for $550,000.”
[00:28:45] “Okay, what’s the payment and how much cash to close?”
[00:28:47] “I don’t know.”
[00:28:49] Like they approved you for a number but didn’t tell you what your payment was. At the end of that preapproval, you should know what your payment is, what your max purchase price is, and how much money you have to have. Because those are the three things that will pucker your rear end throughout the process if you’re not prepared for it.
[00:29:04] And it’s much better for us to adjust on the front end before you get an offer accepted and go, “whoa, I didn’t know that was what my payment was gonna be”, or, “Hey, I don’t have that much money.”
[00:29:11] Jeb Smith, Huntington Beach California Realtor: It sounds very self-serving when we’re talking about things that benefit us, right? Going to a mortgage person, getting a pre-approval, making sure you have a solid agent. But guess what, guys? That’s how this business works.
[00:29:22] You need to be with an expert, somebody that understands a business. Don’t just go online and find your mortgage person. you can go that route, but when you go that route, just make sure you know that is the right person. You’re not just going with the only person that you found online.
[00:29:37] Get a referral. We’re happy to make that referral for you. We have contacts all across the us. There’s a link in the description that we’ll get you in touch with one. But Josh, the second thing I wanna talk about, and this is something that people over the last couple of years have skipped because the market was moving so fast and they just wanted to get their offer accepted, and that’s home inspections.
[00:29:57] And I can’t tell you how important a home inspection is, even on new construction. Yes, I realized the property was just built. Get an inspection anyway. I mean, you see these stories online about these builders in other states where, they build a building the home so quickly. There’s so many issues wrong with it because not necessarily skipping steps, but they’re just in a hurry to get it done.
[00:30:20] And guess what? There are problems with it. Go through a thorough inspection, yes it might cost you a little bit more money. They’re going to find problems. That is a positive thing. When you have an inspector that finds problems in a house, that’s a good thing. That’s not a bad thing for the most part. Right?
[00:30:36] Because in my experience, most of those “problems” are cosmetic or things that have changed over the life of builder codes or whatever. Rarely are they truly problems in the house, but they’re things that you need to know about so that when you buy the house and close on the house, you know what you’re working with versus guessing.
[00:30:57] You know, if you have a subfloor, if you have a raised foundation, you need somebody going under the house. You need somebody going in the attic. You need somebody going on the roof doing these inspections just so that you’re not putting yourself in that position. They should be checking the major systems of the house.
[00:31:12] Some inspectors don’t check the furnace in detail. They might recommend an additional inspector. If you’ve got a older furnace, get an additional inspection. Check the sewer lines if there are trees in the front yard. If you knew they had trees in the front yard, get an inspector out there, right?
[00:31:28] Because these are things that can lead to bigger problems down the road. The reasons that deals can fall outta contract. And if you’re trying to avoid these deal killers, wanna make sure that you have that.
[00:31:40] Next thing again, work with a professional and expert on the real estate side. Somebody that’s been doing this for a period of time, somebody that has the knowledge, that is detail oriented. They’re able to look at a property and kind of pick things up and tell you things that you’re maybe not aware of. Find somebody that’s an expert negotiator, right? If you find all of these problems and you’re okay with the problems, but your agent isn’t able to negotiate or willing to negotiate thoroughly on your behalf, what does it matter, right?
[00:32:11] You need somebody if the appraisal comes in less. You need somebody, if there are problems in the house to be able to negotiate on your behalf. Are they gonna win every one of ’em? No, they’re not. But you need somebody with a track record that you know, that is willing to stand up and fight for these things for you, that believes that that’s the right move and try to get them completed or get the seller to work with you in some fashion so that you can actually get to the finish line.
[00:32:36] And then knowing your wants and needs going into the property. I talked about buyers getting cold feet, buyers falling out for whatever reason this can happen. When buyers haven’t done the legwork upfront, they’re unsure of whether or not they wanted to be in that area or unsure of whether or not they were okay being on a major street or backing to a street or whatever it is, right?
[00:32:57] So you know where you stand as a buyer upfront. You know, having that rock solid negotiation, having an agent work on your side are all things Josh, that you can do to put yourself in the best position.
[00:33:10] Josh Lewis, California Mortgage Broker: Yeah, we talk all the time and when I’m advising people, “Hey, I’ve talked to a couple of realtors. What do you feel…” on the lender side, what I say is you obviously want someone with competitive rates and fees. You want someone that you get along with and you connect with and have a good rapport with that they hear you listen to, you talk to you, and you want to feel like you’re working with someone with knowledge and expertise.
[00:33:30] All three of those are equally important. On the real estate side, same thing. Rapport, knowledge, expertise, but an important thing is how do they handle themselves in difficult conversations If they can’t negotiate for you, like Jeb, is there ever a real estate transaction where there isn’t at least one somewhat uncomfortable, difficult conversation?
[00:33:48] It’s pretty rare that that’s just smooth all the way through. Even in the greatest of transactions, something comes up, we have to have a difficult conversation. If you have someone that’s not comfortable with that, not comfortable and able to be cool while asserting your rights and getting what you need.
[00:34:03] It’s going to reflect negatively on you and may end up in a transaction falling apart that otherwise doesn’t need to. All of those things are super important
[00:34:12] Jeb Smith, Huntington Beach California Realtor: And it’s not even about being comfortable. It’s about just being willing to do it, right? Nobody likes difficult conversations. You don’t like to have difficult conversations. I don’t think anybody truly enjoys that. At least I don’t, but I’m more willing to have them just because I know it gets us past it and we can move on. And that’s ultimately what you need when you’re going through that transaction.
[00:34:29] So, you know, we often ask for you guys to reach out and let us know what you guys want to hear on the podcast. We’re doing that now. Our base is growing because of you guys. We’re continuing to get new listeners and we appreciate that, but we want to be giving you guys the information you want to hear. So do us a favor. There’s an email address in the description below.
[00:34:48] Reach out to us and let us know what you actually want to hear from us on the real estate side. We’re happy to do that. We appreciate you being here every week. We appreciate your support. We look forward to seeing you on the next one. Adios!
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